I have purchased a small 2br unit (mainly for investment)
but I am moving in until the end of this financial year, while I'm there I am planning to renovate the kitchen and bathroom before I put it onto the rental market.
a friend of mine has offered to rent out one of the other rooms while I do that, I understand if I claim this income I would technically be renting out 50% of my unit, so I would claim 50% of the interest on my loan back, but can I claim 50% of the renovations?
one of the not so honest options I considered is charging my tenant the full rent amount, and reimbursing him the difference cash in hand while not officially changing my primary residence.
booked in to see someone about all my options later this week.
looking forward to the experience!
Probably smarter for you and your friend to say take 6 months to do the renovations, then rent the unit out to your friend for the last 6 months after its renovated. That way you dont have to reimbuse him anything. With the renovations going on you obviously couldn't charge him any rent could you?
"With the renovations going on you obviously couldn't charge him any rent could you?"
If the place has functioning amenities, of course he/she could charge them something. Not the same rate as a place that was not in a state of renovation, but a secure residence to sleep, eat, store possessions in (i.e. live in) is still worth a lot, particularly if it's in a sought after location.
@GnarlyKnuckles:I was addressing the tax concerns. Instead of giving back money, dont take it in the first place by treating the place as not being habitable, is a - as you say below - creative way
"… charging my tenant the full rent amount, and reimbursing him the difference cash in hand while not officially changing my primary residence."
Personally, I'd advise against this; for the reason that if there is a dispute between you and this tenant (may seem very unlikely now, but believe me, it's not that unlikely in the long run), then they will have a massive thing to hold over you; it could get really messy. So my advice would be to charge them officially what you think is fair/they're willing to pay, and not involve any quirky arrangement involving you paying them back money under the table, or paying you less than is on the 'official' rent slips/receipts, etc.… You could also end up being held complicit in some sort of government fraud case if they are claiming any rent-assistance (or similar rent-based payment), and they write the full amount on their submissions, rather than what they are actually paying.
"booked in to see someone about all my options later this week."
Excellent. Write down all your questions beforehand, to maximise the value you get out of the session. Don't be afraid to ask some pretty 'edgy' questions either, they will know exactly what you are alluding to if you ask something like "how many days a week is considered officially 'living' at a residence?" or "What if I officially just stay there on weekends?" etc. Don't refer to "dishonest options" in any of your questions though! Just be a bit creative with your language. Maybe some peeps a bit more learned than me on this subject will be able to suggest some good phrasing/wording for some very specific questions you can ask the professional when you see them.
You can only claims repairs so if you put in a new oven or any other fixtures you can only depreciate these over time but they all add to the cost of the property whenever you decide to sell it.
You would be better off having your mate rent the property not just a room if you know what I mean? Maybe with the current state of the property te rent was about equal to what the room would have cost wink wink
Renovations are capital items that are added to the cost base of the property when calculating CGT. They are not claimable as deductions like rates, managing agents fees, etc. although some may be depreciated over their lifetime. Get a quantity surveyor to draw up a depreciation schedule.
As https://www.ozbargain.com.au/user/123856 said, Best thing you can do it get some 'paid' professional tax ADVICE and Stamp Duty Advice applicable to you and the state where you live.
You will need to know 1. stamp Duty on purchase declaration [ Qld has very clear requirements of home ownership or investment or first home ownership] 2. You will need to have a understanding of how Capital Gains Tax works, what is capital EXPENDITURE and what is income tax deductable expenditure. Pay particular to the difference as one is added to cost base of a non excempt house/property sale.
3. Get the best advice on CGT excemption on principal place of residence and how long are you required to live there to get the excemption . Then check the advice from the ATO website so you are comfortable with this.
Do not forget the golden rule. Y\One does not take up any investment or do things just for Tax minisation, what should be happening you get the investments that will work for you and then the taxation benifits will flow.
You will be the one who is audited not the accountant, not the financial planner, not the family member, or me. Even if the ATO has given a pre approval the can and often give a different final determination as does the state SD office.
Goodluck on the 'money pit ' project!
So you just bought it? Is there any applicable First Home Buyer incentive being used? Might affect which way to attack
Another angle to consider is to improve the property as your PPOR whilst living in it. Then get it revalued after your occupancy ends and rental starts. Then you shouldn't be liable for CGT on the value increase due to renovations.
https://www.ato.gov.au/General/Capital-gains-tax/In-detail/R…
It gets worse this is why you get paid professional advice in writing. In writing = pya.
I don't know enough about this topic to give you any 'real'/official advice, but you seem to be asking how best to negative gear this asset over the next 6 months/while renovating it? If so I'd advise you to seek advice from a professional on how best to negative gear it; it would be money well-spent. Is there any chance you could not erm 'officially' live there yourself while renovating it? I mean, given that you would be doing renovations all the while, it could be a grey area re sleeping over sometimes while renovating, and actually living there full-time. I mention this because it may be better financially/ tax-wise for you if are not officially living there, for various reasons. Maybe consult the expert about this aspect of things, if it is something you'd be interested in considering.
Good luck with everything, and be prepared for quite a steep learning-curve (and quite a few initial failures!) re the renovations, unless you are quite experienced. That said, even if it ends up costing more than expected don't despair; the skills you will acquire along the way will be valuable in the future. Also, 'renovate to rent'… by that, I mean put in stuff that is relatively cheap but hardy/durable, and stuff that is low maintenance (assume that the tenants will not 'look after' anything as diligently as you would yourself).