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Claiming bathroom renovations on your taxes
In Australia, the financial year starts on the 1st of July and ends on the 30th of June. The end of the financial year means it is time for you to calculate your payable taxes and also get to know how much tax is deductible on your various incomes, including capital gains and much more.
This is the time when people seek an expert tax agent’s advice and apply different tax tips while filling out annual tax returns. If you own a home or are a property investor, you need to know what tax can be claimed and whether you are tax-deductible under the Australian Taxation Office (ATO) while filing tax returns.
In addition, be aware that all renovation-related expenses incurred cannot be claimed by the Australian Taxation Office (ATO).
Renovations and capital gains tax
Capital Gains Tax (CGT) refers to taxable income in a given financial year from the sale of an asset like a home. The Australian Taxation Office (ATO) states that: “If you acquired a dwelling before the 20th of September 1985 (when CGT came into effect) and made major capital improvements after that date, part of any capital gain you make when a CGT event happens to the dwelling could be taxable.”
However, different rules apply to different investment properties. Suppose you have undertaken a home renovation or have installed a new bathroom or kitchen, new flooring, or applied paint on the walls so that the value of your property gets boosted. In that case, this is the opportunity to benefit from the various investments you have made.
Here are some scenarios indicating areas where you qualify for claims:
Renovating or building your property
You are exempted from Capital Gains Tax (CGT) if you renovate or build a new residence. In the case of the property owner, the Australian Taxation Office (ATO) explains the situation as follows: “If the home or building is your main residence and you use any improvements as part of your home, they’re excluded from capital gains tax if you sell it.”
This also includes improvements on land adjacent to the home or business (such as installing a swimming pool) if the total area, including that on which the home stands, is two hectares or less. Many residential properties have a depreciable value that can be claimed before or after the completion of home renovations.
The owner of income-generating properties can claim depreciation wear and tear that occurs over time to the building and the assets within. It is imperative to note that depreciation can be claimed for the structure of the building through capital works deductions and the assets, plants, and other equipment within the property.
Capital works can be claimed for both new and old residential property. On the other hand, the plants and equipment deduction only applies to the new property. This way, you can know what to claim when you start renovations.
Renovation of rental properties
If you own an investment property, then keep in mind that different tax rules apply. However, you can claim a lot more than an owner-occupier benefit. Note that if you have or are considering renovating for profit, the Australian Taxation Office (ATO) will look at this as a business activity. This is likely to impact your tax status and how profits are filed under tax returns.
Here is what the Australian Taxation Office (ATO) says:
“A deduction for capital expenses is allowed if they are incurred in producing assessable income or taxable profit and constitute a reasonable investment in improving the profitability of an investment property. In addition, the capital expenses must be directly related to the investment itself (e.g., rental property), rather than being incurred by a property owner on their residence.”
The tax deductions apply in the following areas:
- New roofing
- Verandas
- Fences and gates
- Security items
- Fitting out tenants’ bedrooms
- Installing new bathroom fixtures
- Repairing existing kitchen units
- Painting walls
- Updating electrical wiring
- Cleaning gutters
- Replacing house batteries
Landscaping-related expenditures are deductible. The factors that you should include are the property’s investment value, capital investment, and effective tax deduction rate.
Ensure that all necessary things are in good shape so that your property can match its investment value and find new tenants. For example, many people do not recommend installing or replacing bathroom fixtures because they will be on the depreciating assets list.
If you are planning to make home renovations, contact an expert tax agent before spending money on anything as there may be some extra charges from them too! Also, check with the Australian Taxation Office (ATO) website regarding income tax deductions.
First time property owners
If you are a first-time building owner and haven’t invested much, then investing in home renovations may not be the best way to claim tax deductions. Instead, one can consider investing in other options such as shares, bonds, or an investment platform that provides excellent investment opportunities for people who want to gain tax benefits.
Likewise, you can invest in low-fee stock market investment plans with flexible investment periods and returns. As a first time property owner, you are also eligible to use capital losses from an inventory sale of property, which makes this investment even more beneficial if you plan to sell your property at a loss.
The only thing you should keep in mind is that none of the expenses incurred while making an investment and renovating your investment property can be claimed as deductions on tax returns if the investment does not turn profitable. Thus, ensure that everything is in good order so that your investment property can match its value and find new tenants.
Always contact professional tax agents before making investments or spending money on changes and improvements. Investing in the property will require you to spend money renovating your house to raise its market value. There are copious investment options to consider, which will certainly help you increase your investment by a fair amount and, at the same time, save on taxes.
Bathroom renovation increases investment value
If your bathroom renovation increases property value, then you can claim tax deductions against sale or rental income from such investments. You can claim a tax deduction as applicable. In this way, investment in bathroom renovations does make sense. However, it may not be required for a property owner living in that place and looking to improve their lifestyle rather than increase investment values.
Still, investment in bathroom renovations will surely make an excellent investment if someone wants to sell their house at some point in time. The only thing you will be required to do is keep these investment and tax tips in mind while investing to maximise your investment returns. Tax deductions make the difference between a good investment and a bad one when it comes to investing in property.
As investment opportunities are limited and investment in properties can be risky, you need to know about investment property tax deductions. You can claim a tax deduction for an investment property when an investment becomes profitable. Unfortunately, many people do not profit as they neglect investment issues such as depreciation expenses and capital gains. So, contact a tax agent before investing.
If you intend to rent out your investment property, then make sure that you will recover your initial investment through a higher investment income or rent. On the other hand, check its investment potential if you are looking to buy an investment property.
Tax incentives for bathroom renovations
Investing in bathroom renovations is beneficial from an investment and tax deduction perspective. However, this investment depends upon investment plans made by investors. For a property investment to succeed, you need to examine the market trends and make investment decisions accordingly and carefully.
This way, your assets will surely pay off. Are home renovations tax-deductible in Australia? Yes, they are! If you intend to rent out an investment property, then investment in bathroom renovations would make sense.
Getting help on tax matters
Taxation is a complex thing, especially when you are a property investor. It would be best to work with the tax you owe while considering things like a depreciation schedule. Hire a professional quantity surveyor to assist you with depreciation schedules. Ensure the person you engage has enough experience to calculate the numbers accurately.
Sometimes tax slabs tend to change every year with government legislation. Getting the help of a tax agent is essential as they know the latest development and regulations that can be applied to your situation. This will spare you time and energy and, most notably, money.
Professional bathroom renovations in Sydney
A professional bathroom renovations company understands that renovating your bathroom can be expensive and time-consuming. That’s why professionals offer competitive rates, fast turnaround times, and the best customer service in Sydney. Find a company with the right level of experience or expertise in the industry, so you have no worries about trusting their team to help you get the most out of your investment.
A skilled and competent bathroom renovations company focuses on delivering to their clients the best possible result for their homes and investment properties. Their team will work with you to guarantee that every detail is taken care of from start to finish – so all you have to do is enjoy your beautiful new space.
Contact a trusted professional today for more information about how they can help make your dream bathroom come true!
