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Re: Are renovations costs tax deductible?

Newbie

Views 104

Replies 6

We have the opportunity to buy an apartment next door to where we live. It is tired and has never been modernised in the last 25 years.

The intention would be to buy, renovate and then sell - timeframe for the overall project would be 4-6 months.

Purchase Price is $610,000, stamp duty, legals, bank fee etc would be $40,000 and the renovation would be $110,000 (it basically needs gutting).

The expected sale price would be $850,000.

For the purpose of calculating Capital Gains Tax are our renovations costs (capital works) fully tax deductible in the tax year or are these costs depreciated over a number of years even though the apartment would have been sold within one year?

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

Devotee

Replies 5

No renovation costs will be deductible immediately. Most would qualify for "capital works" depreciation (40 years) normally, but...

 

Given your stated intention is to buy-renovate-sell, this is not a "capital gain", it is "ordinary profit". This means the profit you make us fully taxable and expenses are all in effect purchases of stock (not deductible until sold and not depreciable), and to make matters worse the sale is not eligible for the capital gain discount (if that's where you are going).

6 REPLIES 6

Most helpful response

Devotee

Replies 5

No renovation costs will be deductible immediately. Most would qualify for "capital works" depreciation (40 years) normally, but...

 

Given your stated intention is to buy-renovate-sell, this is not a "capital gain", it is "ordinary profit". This means the profit you make us fully taxable and expenses are all in effect purchases of stock (not deductible until sold and not depreciable), and to make matters worse the sale is not eligible for the capital gain discount (if that's where you are going).

Newbie

Replies 4

Thank you for your reply

 

So the renovation costs will be considered as stock and when the properety is sold, ALL costs will be netted off against the sale price to strike a net profit figure upon which tax will then be payable at our marginal tax rate. Is this correct?

 

Devotee

Replies 3

Yes, that is correct.

 

 

Newbie

Replies 2

Thank you for your reply.

 

Apart from the renovation costs are we allowed to also claim all set up and disposal costs - i.e. stamp duty upon purchase, legal and bank fees, interest and then real estate commission etc upon disposal of the property?

Devotee

Replies 1

Pretty much all costs associated with buying, renovating, and selling the property will be claimable upon sale.

Newbie

Replies 0

Thank you for your help