# Forum More Stuff At the end of the day  Tax Deductability of tools in an Investment Property partnership

## Batpig

Good Evening Folks, 
My brother and I jointly own a couple of side-by-side rental properties that we're planning to sell sometime during the coming financial year. The amount of capital gain that has occurred since we bought the properties will be well and truly sufficient to escalate our respective taxable incomes for the year into the uppermost tax bracket (ie. 45c in the dollar) after they are sold. This is very rare territory for me, and I would like to make the most of the opportunity by buying some new power tools (wholly with my own money), that would then be claimed in my Tax Return (quite legitimately) as an expense incurred in the upkeep and sprucing up of the properties prior to the eventual date of their sale later in the year. 
Sounds like A Plan doesn't it... But the only question is: In the circumstances of the investment in question being a partnership (rather than wholly owned by myself), but with me paying for the tools fully myself, am I allowed to deduct their purchase price fully myself, or do I have to share it with my brother? 
The following information may help to clarify the scenario a little further for the more enthusiastic tax-deduction afficionados among you: 
- The properties do not constitute any part of a property rental or buying-and-selling "business", but are rather just an investment for us. 
- Given that the properties are going to be sold later in the same financial year that I will be buying the said tools, I don't intend to purchase anything individually over $300, because such items would need to be "depreciated" gradually against the investment's income over the course of some predefined number of years (which would obviously be impossible, given that we wont actually own the properties in subsequent years). By contrast, with sub-$300 items, the cost can be deducted in full during the initial year of purchase... 
So, to reiterate the core question: In the circumstances of the investment being a partnership (rather than wholly owned by myself), can I deduct the purchase price of any tools I fully purchase myself, or would I still have to share such deductions with my investment partner? 
Many Thanks in advance,
Batpig.

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## toooldforthis

> ... In the circumstances of the investment in question being a partnership (rather than wholly owned by myself), and me paying for the tools fully myself, can I deduct their purchase price fully myself, or do I have to share it with my brother?....

  doubt you could do either, but I am not an accountant. 
that's why house flippers tend to have an incorporated company that owns the investments.
 well, one of the reasons.

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## METRIX

Speak to your accountant about it before you buy anything, I doubt you would be able to write any costs off of tools, like you could with items such as paint, new door / carpet etc as these are consumables used to generate income. 
If you had bought these tools when you first purchased the properties you probably could have depreciated them over the time of owning the properties, but if you are purchasing them now and sell the property in 6 months I think you would only be able to possibly write of any depreciation for that short period of time, because these tools are not being used to generate income in an ongoing basis. 
I would actually be surprised if you can claim anything back on them as these are not being used to generate income such as a chippy or sparkie's tools are. 
Let us know how you get on.

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## commodorenut

From my experience, with an accountant's advice, I can only (legally) claim consumable items used to repair or maintain the IP. 
I did ask the question about specialty tools needed for jobs, and was told that unless it was considered a "disposible" tool used only for that repair/maintenance job, such as a paint roller sleeve or brushes, then I could not claim it. 
Large renovation works, or improvements to the property, are another common misunderstanding - to claim them, they need to be depreciated over time - not claimed in one go. 
Here's a few where the accountant steered me in the right direction:
Example 1: I had to replace the hot water service - it was considered a repair, as it replaced an existing unit.  100% deductible in the year incurred.
Example 2: I added a split A/C to the bedroom.  As this was an improvement, not a repair, I can only depreciate it.
Example 3: I replaced 2 damaged T&G floorboards from where tenants drilled holes for Foxtel & power leads - deductible.
Example 4: I ripped up the lino & had 2 rooms sanded & coated.  Cost can only be depreciated as it was an improvement, not a repair, but it's a fine line on this one, as the cost of new lino would have been deductible, but the polished timber does add value to the house. 
There's a myriad of other things you can claim (like travel km for repair work etc) but you won't be able to claim the tools, and I doubt you'll be able to claim materials on major renovations (such as tiles & fixtures for an added ensuite).

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## r3nov8or

And even *if* you can claim the tools, as a PAYG tax payer some percentage of the cost would be counted as personal use  
A bit like a home office, you can only claim that room/part of it, not the whole home. 
(NOT a tax accountant  :Smilie:  )

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## Marc

You fail to mention who will do the work (or claim to do the work). If you are the one working your partner will have to pay you and that will bring in some interesting tax problems for him and for you. I think it is a bad idea, but you have probably heard of others doing it. 
My wife who is a doctor told me the other day ... why all my colleagues drive Mercedes and I drive a Subaru? 
I explained that she bought her new Subaru with her savings because it is not a tax deduction. Her colleagues take out a lease and tell the taxman that they use it for work even when all they do is go to the surgery and back. They get away with that until they get caught. 
And so do investors who claim the home renovations on their investment property and the tools used to do it on top ... for good measure.  :Smilie:

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## Batpig

Thank-you for the various insightful comments Gents. In addition to some obvious outright doubt regarding the concept, some of you appear to be suggesting that the viability of the proposal may be linked to whether the work that is performed by the tools ends up being repair-type work, or capital-works type improvements. This is an interesting angle of thought, and certainly one that has never occurred to either me or any of our accountants and tax-agents in the past as being relevant (perhaps erroneously?) when it came to tools. We haven't used such folks for a while now, because I've got the skeleton of our yearly statement and depreciation tables well and truly sorted, and usually just give the ATO themselves a ring whenever we step into unknown tax-related territory. But I can absolutely see the relevance of the said point of view, as well as of r3nov8or's personal-use ratio comment. I might revisit the various ATO publications that deal with the subject of personal deductions, and then give them a call when I've firmed up a little more on the rules that form the general backdrop for this particular matter. 
Thanks again Gents, & Best Wishes to all,
Batpig.

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## r3nov8or

> ...I might revisit the various ATO publications that deal with the subject of personal deductions, and then give them a call when I've firmed up a little more on the rules that form the general backdrop for this particular matter.

  Come back and let us know how you get on!

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## Optimus

Ask the question on propertychat

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## joynz

I second asking on Property Chat.   
I’ve also been advised that you can’t claim the cost of tools needed to do repairs or improvements (e.g. can’t claim the cost of a nail gun).  
I do claim brushes and paint, wood, tape etc as immediate deductions.  Also, you can’t  claim for the value of your own work.

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## Cecile

Tax questions are best answered by your accountant.  Tax is complex, as we all know, and your situation is never the same as anyone else's so what works for Metrix for example may be totally different to what you need.  You seem pretty switched on about asking ATO, and that's a good thing. 
As a rule, if you own them privately and you don't use them to generate assessable income, you can't claim a deduction for them.  (Section 8-1 of the Income Tax Assessment Act 1997 - nice dry reading [in fact I was reading it earlier today for a client]).   
ATO will not advise you whether or not you can claim things, but will give you some guidance and show you what to read on their website.  They will then say, if you can't work out how the information applies in your situation, call your accountant.

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## pharmaboy2

Seriously, the place to get an answer on tax deductions, is neither a public forum nor the tax Dept, especially the tax Dept.  
How you define things and describe them is critical, which is why you need a tax accountant who actually doesn’t like paying tax personally nor for their clients.

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## Marc

Asking for advice to the ATO call centre is a rather funny idea. The answer will vary according to the mood of the person you get. Probably 5 different answers from 5 different people. 
Ask your accountant.

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## cyclic

Check thoroughly any advice from accountants.
Remember, you sign the tax return stating everything is true and correct which means you are responsible, as the accountant only prepares the return for you. 
To the op, I hope you are aware only 50% of the capital gain is taxable, provided you have owned the property for more than 12 months. 
As to the tool purchase, if the ATO queries the claim, what is it going to cost for the Accountant to write a response to the ATO.

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## Batpig

Oops! Sorry folks - I forgot to tune in yesterday. The replies certainly pile up quickly sometimes.   

> Ask the question on propertychat

   

> I second asking on Property Chat.

  I would guys, if I didn't already have a bad case of RF (ie. Registration Fatigue... :Biggrin: )    

> As a rule, if you own them privately and you don't use them to generate assessable income, you can't claim a deduction for them.  (Section 8-1 of the Income Tax Assessment Act 1997 - nice dry reading [in fact I was reading it earlier today for a client])...   
> ...ATO will not advise you whether or not you can claim things, but will give you some guidance and show you what to read on their website.  They will then say, if you can't work out how the information applies in your situation, call your accountant.

   Thanks for the reference Cecile. And spot-on about the ATO eventually advising you to call your accountant. Sort of like being told by the State Govt's "13 Health" hotline up here when you ring them about anything at all (and I mean anything, such as "how do I put a band-aid on?") to either see your GP or call 000 Emergency...    

> Asking for advice to the ATO call centre is a rather funny idea. The answer will vary according to the mood of the person you get. Probably 5 different answers from 5 different people.

  So true Marc, so true, especially when it comes to anything slightly off the beaten track... :Doh:  My last experience with that sort of thing was when I rang them twice a couple of years apart regarding the treatment of sub-$300 Capital Works items, and got passed around several times on each occasion, and ended up getting completely different answers at the end of each episode. I didn't trust the way the last chap on the first occasion summed it up sans-detail (even though it was more in our favour, and in accord with the practices of our last accountant), so I rang them again a couple of years later, and ended up getting a different answer altogether (that wasn't in our favour, but nonetheless had a bit more of the ring of truth about it...)    

> To the op, I hope you are aware only 50% of the capital gain is taxable, provided you have owned the property for more than 12 months.

  Thanks for the reminder Cyclic. No - I hadn't forgotten about the 12mth / 50% discount rule. But we're still going to end up well and truly in the 45c-per-$ bracket. :Frown:  
To all and sundry: Thank-you for your assorted Ask-Your-Accountant type advice, but as I noted in an earlier post, we no longer have an Accountant or Tax Agent, which (at the risk of stating what I would have thought to be the obvious) is precisely the reason I'm asking the question here, instead of ringing them. An analogy would be getting told to "Ask your Tiler" in response to posting a thread that asks whether anyone knows how to do some particular detail of tiling. Most of us here fancy ourselves as DIY'ers of one sort or another. Well, I just happen to like DIY'ing my tax too. (Luckily it's not against the law... yet...) 
Best Wishes for now,
Batpig.

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## joynz

You have received quite a few direct answers that the tools are *not claimable.*

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## Marc

Well Mr Bat, you turned out to be true to you nome de plume. If people tell you ask your accountant it is because they want to save you a trip to court and a $10,000 fine. I know, it was my job for 20 years.
If you like to take risks, go ahead and have fun.
Ask your accountant. If you don't have one, find one. they are a dime a dozen.

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## r3nov8or

> ...
>  Sort of like being told by the State Govt's "13 Health" hotline up here when you ring them about anything at all (and I mean anything, such as "how do I put a band-aid on?") to either see your GP or call 000 Emergency...

  Have you tried Nurse On Call?

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## Batpig

> You have received quite a few direct answers that the tools are *not claimable.*

  Quite true Joynz. And in such circumstances I would have normally considered my original question to be superceded by a new reality. But given that about 50% or more of our half-a-dozen or so accountants and tax-agents over the years have deducted power-tools for us - *without even specifically being asked by us to do so*_ -_ my prerogative in these circumstances is to look into the matter more carefully myself. 
Like most people, we just used to hand over our invoices and cheque-books to our accountants, and they would give us a call when everything was ready to sign and collect. There weren't always power-tools amongst the invoices every year, and I can't guarantee that every one of our accountants was even presented during the course of their tenure with a power-tool invoice. Obviously, those that deducted the power-tools when they did show up did so either rightly, or wrongly. I don't think the solution to finding the correct answer is to get a seventh, or an eighth, or a ninth (or whatever we're up to) accountant, and to simply trust their answer as having omnipotent authority over the opinions of all of the other accountants that came before them. To me the answer instead seems to be to look into the matter myself via the ATO and its publications, given that they wrote the rules. Like the example I cited earlier about the treatment of sub-$300 capital-works items, if the answer I get from them doesn't end up being the most financially advantageous one, that's still quite okay, because as some have alluded, it's not worth taking the risk over. 
Best Wishes,
Batpig.

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## r3nov8or

You go through a lot of accountants. I've had the same one for 27 years  :Smilie:

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## Marc

I changed accountants several times. They seem to follow a pattern of excellent the first few years and then go down a slippery slope. I remember one that told me triumphantly he had saved me a ton of money by shifting all expenses to my wife who is on the higher tax bracket. I had to engage yet another accountant to fix up his mess. 
You can not rely blindly on one accountant but it is blatantly clear that ringing the ATO is not a substitute for a tax accountant. You inform yourself, you go and have a chat with him, you establish the ground rules and then you play. When he stops kicking goals, you start kicking him in the pants. 
Those tools your accountant claimed, are most likely on the depreciation schedule and not a direct deduction.

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## cyclic

> Good Evening Folks,  
> So, to reiterate the core question: In the circumstances of the investment being a partnership (rather than wholly owned by myself), can I deduct the purchase price of any tools I fully purchase myself, or would I still have to share such deductions with my investment partner? 
> Many Thanks in advance,
> Batpig.

  Another renovate forum never ending story 
The answer to your question is, yes, you can claim anything you want on your tax return and not share it with your brother.
Whether the items in question are a tax deduction is up to you to clarify with your accountant or the ATO.. 
An example is 2 people go into a business mowing grass.
They both start out with the same equipment and agree to split the jobs 50/50.
They have a ute each and half way through the year one ute needs tyres and these tyres are paid for by the ute owner, not the business, so these tyres are claimed by the ute owner, and the other bloke gets no benefit from the purchase of the tyres.

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## r3nov8or

> I changed accountants several times. They seem to follow a pattern of excellent the first few years and then go down a slippery slope. I remember one that told me triumphantly he had saved me a ton of money by shifting all expenses to my wife who is on the higher tax bracket. I had to engage yet another accountant to fix up his mess. 
> You can not rely blindly on one accountant but it is blatantly clear that ringing the ATO is not a substitute for a tax accountant. You inform yourself, you go and have a chat with him, you establish the ground rules and then you play. When he stops kicking goals, you start kicking him in the pants. 
> .

  Of course Marc. You must be right. Of course.

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## METRIX

> I changed accountants several times. They seem to follow a pattern of excellent the first few years and then go down a slippery slope. 
> .

  I also change accountants quite a few times due to poor service just like anything   

> You inform yourself, you go and have a chat with him, you establish the ground rules and then you play. When he stops kicking goals, you start kicking him in the pants.

  I have a lady Accountant not a Him for many years, she is great.

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## pharmaboy2

Anyways, back to the question.  Keep the tools below $300, and claim them personally and not split, make sure they are relevant to work done on the property.   The reason you keep it individual, is because the tools are used by the taxpayer to generate an income and are his/hers not bought in partnership.

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## Marc

Yes Pharma you are right but that is for you.
The OP does not use the tools to generate income, he uses them to build an asset. If he wants to become a carpenter, and register a business to renovate houses for an income then yes. However he will not be able to do this for himself so the whole issue is moot. 
The fact taht some of his accountant did this in the past does not validate the practice. 
There may be however some ways to do this and for that you (he) needs to go to an accountant and pay. of course if he wants to claim a $290 Bunnings drill and needs to pay $300 to the accountant to do so, the proposition loses it's appeal.
 I have spent tens of thousands on tools over the years and repaired and renovated a dozen of rentals yet was never able to claim a tool as an expense and not even depreciation based on work for myself. Only for work done for others.   *Tools, equipment and other assets*  If you buy tools, equipment or other assets to help earn your income, you can claim a deduction for some or all of the cost. If the tools are used for both work and private purposes you will need to apportion the amount you claim. If you have a computer that is used for private purposes for half of the time you can only deduct 50% of the cost. The type of deduction you claim depends on the cost of the asset:  for items that don't form part of a set and cost $300 or less, or form part of a set that together cost $300 or less, you can claim an immediate deduction for their costfor items that cost more than $300, or that form part of a set that together cost more than $300, you can claim a deduction for their decline in value.  Examples of tools, equipment or assets:  calculatorscomputers and softwaredesks, chairs and lampsfiling cabinets and bookshelveshand tools or power toolsprotective items, such as hard hats, safety glasses, sunscreens and sunglassesprofessional librariessafety equipmenttechnical instruments.  You can also claim the cost of repairing and insuring your tools and equipment and any interest on money you borrowed to purchase these items. If you use items for both personal and work-related purposes you need to keep records, such as a diary, so that, if requested, you can show how you apportioned the amount of private use and work-related use. Watch  Duration 51s. A transcript of Transporting bulky tools and equipment is also available. See also:  Capital allowances: $300 immediate deduction testsWork-related expenses - decline in valueDeductions for specific industries and occupationsmyDeductions - record keeping tool in the ATO app

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## r3nov8or

> ...
> The OP does not use the tools to generate income, he uses them to build an asset. ...

   What if one claims (can prove) that without these tools he would not be able to increase rental income of the property, or rental income would fall, e.g. due to a major failure of part of the structure? Is that enough to demonstrate they were used to generate income?

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## Batpig

Oh Gosh - so many replies, and thank-you for all of them and time taken to provide them R3nov8or, Marc, Cyclic, METRIX, and Pharmaboy... :2thumbsup:  
I can definitely see the logic in all of your respective points of view, and why opposite opinions can end up forming over this one, because the ATO have left the definition of "income" a little hazy in this instance. Some apparently see it as income from a business, whilst others obviously see it as income from all sources (including investments). I'd be surprised if the ATO weren't able to clear it up for me satisfactorily Marc (but then again, they've surprised me before...) And sincere thanks for going to the trouble of digging up those extracts. 
If I wasn't so busy at the moment racing against our builder to select this and that for our new house up on the Sunshine Coast, I would have started looking into the matter with proper rigour today. But right now it's Shower-Screens I'm afraid! And there's quite a few things standing in queue after that. It might not end up being as important an issue as I first thought anyway, because (as an example) the drill that I think that I've boiled it down too as being the only one that might tempt me into upgrading from my current drill, costs $329 (for a Makita HP2071F  :Rolleyes: ). Being more than $300 in cost means (at best) that it would have to be entered into a depreciation schedule (pending the advice from the ATO of course). Having to depreciate something (rather than immediately deduct it in full, as per a sub-$300 item) mostly defeats the purpose of buying the thing in the first place anyway, since I wont be able to run a depreciation schedule in my tax-return after the end of next financial year due to the sale of the properties. I might as well just stick with my current drill, and start thinking about a decent drill-press down the track... :Redface:  I'll still look into it when I can though, because there a few other incidental items that I could definitely put to use on the houses, pending the ATO's verdict. 
Anyhow, Thanks again All, and Best Wishes for now,
Batpig.

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## Marc

> What if one claims (can prove) that without these tools he would not be able to increase rental income of the property, or rental income would fall, e.g. due to a major failure of part of the structure? Is that enough to demonstrate they were used to generate income?

  The income is not generated by the use of the tools. The use of the tools is to improve or repair the asset. The income is generated by the asset. There may be a case to deduct the cost of improving the asset for capital gain purposes. 
Third party secondary effect can generally not be taken into account. 
Say I am a tradesman, I am single and sad. I want to make a tax deduction for the cost of bringing a girlfriend from Germany ... (make that France) ... because that would improve my stamina and increase my income.  :Smilie:  
The reason why the idea is not feasible ( in my personal opinion, call your accountant) is because the OP is not a tradesman, has not a renovation business and is doing it for himself. It could be done (in my personal opinion, call your accountant) if he had a company that owned the rental and the tools and paid him a salary for doing the work.  
The instant asset write off that ends this financial year could be a way around it but only if the OP has a business that justifies buying the tools in question. Mind you a $20,000 purchase 5 minutes to midnight may rise a flag or two, so be carefull.   *$20,000 instant asset write-off to cease from 1 July 2018*  28 January 2018 As you may be aware, you have until 30 June 2018 to utilise the write-off threshold of $20,000. If you buy an asset and it costs less than $20,000, you can claim an immediate deduction in your tax return for the business portion of each asset (new or second hand) costing less than $20,000. You are eligible to use these simplified depreciation rules if:  you have a turnover of less than $10 million (increased from $2 million on 1 July 2016), andthe asset was first used or installed ready for use in the income year you are claiming it in.  Assets that cost $20,000 or more cannot be immediately deducted, and will continue to be deducted over time using the general small business pool. You can however write-off the balance of this pool if the balance (before applying any other depreciation deduction) is less than $20,000 at the end of an income year. The $20,000 threshold, which has applied from 12 May 2015, will reduce to $1,000 from 1 July 2018.

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## r3nov8or

Fair enough  :Smilie:

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