Car costs during reno

My understanding is that the cost of a car to visit a property when it is being renovated is applied at the ATO rate plus tolls and added to the cost base. However, my accountant advises that this can be claimed in the FY in which the journeys were made, in this case FY14. I cannot find an ATO reference to this. Advice would be valued.

The accountant also said that the unfinished property can be depreciated for items that have been completed or paid. I have other advice that this is so, but it seems messy. I'd rather use lockup - mid-August - as the date to start a QS and claim more in FY15. One reason is that evidencing what has and has not been done as of 30 June could be problematic. Certainly a few dollars was spent on invoices, but completed? Much was not. There are some photos, nit not with a view for QS for FY14.

Another aspect is that the impact of depreciation on FY14 is likely to be small, and once started applying depreciation will reduce the cost base, thus making more tax on sale.

Should I claim depreciation for FY14? TIA.

First question is the renovation a "repair" or an "improvement". More facts needed.

ATO in Private Binding Ruling 55109 deals with construction of a new rental property. https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/55109.htm

"Costs associated with travel to visit your builder, suppliers and the construction site as well as telephone, fax and mail expenses relating to the construction of your rental property are not incurred in earning assessable income and are also considered to be capital in nature. Therefore, they are not deductible under section 8-1 of the ITAA 1997."

If an improvement or something that was known at time of purchase also capital. ATO Private Binding Ruling 90538 https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/90538.htm

"7. Are you entitled to a deduction for the expenses incurred for travel, meals and car hire while assisting the builder with the renovations?

If you are travelling to repair the damage that existed at the time you purchased your rental property, the travel expenses you will incur are not considered to have been incurred in gaining or producing your assessable income. They are considered to be capital in nature as you are undertaking initial repairs.

Therefore, the airfare, meals and car hire expenses on these trips are not deductible. "

Burramys said:

Another aspect is that the impact of depreciation on FY14 is likely to be small, and once started applying depreciation will reduce the cost base, thus making more tax on sale.

Click to expand...

Your conclusion makes no sense when you think it through. Cap allowances and depreciation do lower the cost base and you are correct that this means for each $1 deducted then an extra $1 adds to the profit, when it occurs.

However if the property is sold and is subject to CGT and was owned for 12mths + then only 50% is taxable.

Claiming depreciation is always a better outcome to the extent of 50% if owned by resident human taxpayers.

Coastymike and Paul, thanks. The ruling is especially helpful. The property is currently rented and will hopefully remain so for some time. If taxable income is on par with those of ASX listed companies, say $18 200, is applying depreciation advisable? I can't see that applying depreciation to reduce taxable income under $18 200 is useful. I may send the garage offshore to, say, Bermuda.

Not sure where the ASX company jumps into a tax issue but hey....

You cannot choose not to deduct depn and Cap Allowances in reality (its complex and I wont bore you). Yes no prevailing tax benefit as $20K and under its likely a zero tax rate anyway ($18.2k isn't the true zero rate cap).

But if it creates losses these losses carry fwd and can also be used to offset future income and even Cap Gains in later years.