relucant landlord 1st tax return (wear and tear tax)

K

kildon

Registered User
Messages
157
property purchased and lived in from 2007to 2012 (small apartment)

property rented out in 2012 with all furnishings from when I lived there (beds, couch, kitchen etc. etc.)

question - can I set off the cost of the goods I purchased in 2007 against rental income this year?

ive copied and pasted in some info from the Revenue website which suggests I can't but i'm not sure



http://www.revenue.ie/en/tax/it/leaflets/it70.html
Wear and Tear

Wear and tear allowances are available in respect of capital expenditure incurred on fixtures and fittings (for example, furniture, kitchen appliances, etc) provided by a lessor for the purposes of furnishing rented residential accommodation. The allowances are available only where the expenditure is incurred wholly and exclusively in respect of a house used solely as a dwelling which is, or is to be, let as a furnished house on bona fide commercial terms on the open market. The rate of wear and tear depends on when the capital expenditure was incurred. For expenditure incurred on or after 4 December 2002 the allowance is 12.5% of the expenditure per annum for eight years.
 
And on that thread both Tommy McGibney, an accountant, and myself, a landlord, disagreed with your interpretation of the wear and tear.

I believe Tommy's post No 46 gives the correct answer.

My advise to Kildon is to take a reasonable valuation of the goods and write them down at 12.5% for the next 8 years.
 
Do you need to have receipts for any couches, kitchen appliances etc. purchased to be able to include them in wear and tear allowances?
 

Did Tommy disagree with me? Looked to me like he read my post and accepted that it was correct - See his response to the post I linked earlier (his post no. 49)
http://www.askaboutmoney.com/showpost.php?p=1289674&postcount=49

But we can resolve the argument again on this thread if you like? Explain to me what part of my post you still disagree with?
 
Bronte said:
My advise to Kildon is to take a reasonable valuation of the goods and write them down at 12.5% for the next 8 years.
Click to expand...

An approach which may well cost them money...

The correct approach under the legislation is to deduct the notional wear & tear for the 5 years 2007-2011 inclusive. That's 5 x 12.5% = 62.5% of the cost.

The amount that can be taken as a deduction for 2012, 2013 & 2014 is the remaining 37.5%.

Under your approach one must value an assortment of 5-year old furniture & fittings, a tricky enough exercise, one which exposes you to a potential argument about valuation in the event of audit, and one which would hardly be likely to produce an answer in excess of 40% of the original cost... I mean how much would you pay for a 5 year old washing machine??

Then you want to take that value, which may well be less than 37.5% of original cost, and write it down over 8 years.

So comparing the 2 methods, I'm saying the legislation says you write off 12.5% of the cost annually for 3 years, whereas you're saying people should write off (at best) 5% of the cost annually for 8 years.
 
Am I being put on the spot here?

On balance, I think I'd still stand over my opinion as set out in that thread:

 
T McGibney said:
Am I being put on the spot here?

On balance, I think I'd still stand over my opinion as set out in that thread:
Click to expand...

You're doing your client out of their wear & tear allowance in that case Tommy

I've very clearly set out the provisions of the legislation, and I've explained above why in the majority of cases it actually benefits the taxpayer (most things depreciate faster in the earlier years), and avoids the ambiguity of having to haggle over a valuation... what's the problem like?!
 
Its not a matter of simply maxing clients' wear & tear allowances, but of approaching this question in a consistent and logical common sense manner. My damaged furniture example above refers.
 
bump: Do you need to have receipts for any couches, kitchen appliances etc. purchased to be able to include them in wear and tear allowances?
 
Where a washing breaks after say 3yrs and is beyond economic repair, does the balance of unused capital allowance for it become a write off (expense) amount for that year? With the new machine then starting the 1st year of the 8 yr cycle? It would seem odd to continue to include it year to year for the remainder of the 8yrs.
 
T McGibney said:
Its not a matter of simply maxing clients' wear & tear allowances, but of approaching this question in a consistent and logical common sense manner. My damaged furniture example above refers.
Click to expand...

And the consistent and logical common sense manner is that all furniture & fittings have an 8-year writing off period, from new, at 12.5% of cost, as the legislation prescribes.

This requires no made up up values at commencement of letting, I mean how would that be logical or common sense - how do you even value all your partially used appliances etc anyway?

As for your damaged furniture, if its in usable condition it stays in the house and you get your wear & tear as it is plant & machinery in use in the deemed trade, and if its bad enough that the tenants are demanding new gear, you take your balancing allowance when it goes to the dump.
 
T McGibney said:
Fixed that for you.
Click to expand...

Where's the interpretation??

S.284(2)(ad) states "the amount of the wear and tear allowance to be made shall be an amount equal to 12.5 per cent of the actual cost of the machinery or plant" - that is very unambiguous and leaves no room for interpretation - Wear & tear must be calculated based on the actual cost. Can we agree on that much?


S.321(2) states:
"Chargeable period" means an accounting period of a company or a year of assessment, and... a reference to a chargeable period related to expenditure, or a sale or other event, is a reference to the chargeable period in which, or to that in the basis period for which, the expenditure is incurred or the sale or other event takes place, and means the latter only if the chargeable period is a year of assessment." - Again very clear and unambiguous - can we agree that the relevant year that the cost of the plant & machinery is incurred is the year of assessment that it was bought?

S.287(1) states:
"normal wear and tear allowance" means such wear and tear allowance or greater wear and tear allowance, if any, as would have been made to a person in respect of any machinery or plant used by such person during any chargeable period if all the conditions specified in subsection (3) had been fulfilled in relation to that chargeable period."

S.287(2) states:
"Where for any chargeable period during which any machinery or plant has been used by a person no wear and tear allowance or a wear and tear allowance less than the normal wear and tear allowance is made to such person in respect of the machinery or plant, the normal wear and tear allowance shall be deemed for the purposes of subsections (3) and (4) of section 284 to have been made to such person in respect of the machinery or plant for that chargeable period."

S.287(3) states:
"The conditions referred to in subsection (1) are-

(a) that the trade had been carried on by the person in question since the date on which such person acquired the machinery or plant and had been so carried on by such person in such circumstances that the full amount of the profits or gains of the trade was liable to be charged to tax,

(b) that the trade had at no time consisted wholly or partly of exempted trading operations within the meaning of Chapter I of Part XXV of the Income Tax Act, 1967, or Part V of the Corporation Tax Act, 1976,

(c) that the machinery or plant had been used by such person solely for the purposes of the trade since that date,

(d) that a proper claim had been duly made by such person for wear and tear allowance in respect of the machinery or plant for every relevant chargeable period, and

(e) that no question arose in connection with any chargeable period as to there being payable to such person directly or indirectly any sums in respect of, or taking account of, the wear and tear of the machinery or plant."
Those 3 all taken together are also very clear and unambiguous - where in a chargeable period (a year of assessment), a person (not necessarily a chargeable person) has used machinery & plant (which includes furniture & fittings), but has not received a normal wear & tear allowance, they are deemed to have received the normal wear & tear allowance for the purposes of S.284(3) and S.284(4)... do you disagree with my "interpretation" of plain English in those subsections?

S.284(3) states:
"For the purposes of paragraphs (a)(ii) and (ab)(ii) of subsection (2), the value at the commencement of the chargeable period of the machinery or plant shall be taken to be the actual cost to the person of such machinery or plant reduced by the total of any wear and tear allowances made to that person in relation to the machinery or plant for previous chargeable periods."
So, the opening TWDV in any chargeable period (year of assessment) will be the actual cost (unambiguous) less the total wear & tear allowances made (or deemed to have been made by virtue of S.287(2) as underlined above) - do you disagree with my interpretation of plain English here?

(S.284(4) isn't really relevant to this)

What part of the above do you think I have misinterpreted, and where in it do you see the scope for your interpretation?
 
Mandelbrot I've come back on here to answer your post to me as requested and I am not trying to annoy you, but I believe your interpretation of the legislation is wrong. Just because I'm not going to go into legislation line by line, to rebut you means I am incorrect, nor does it mean you are correct. You said that Tommy actually agrees with you but I think he and I have a different opinion to you.

I also think that despite the legislation on plenty of issues, not just wear and tear, revenue can sometimes have their own interpretation, and even a different interpretaion on any given day on any audit situation. They take a pragmatic and reasonable approach, generally.

To put it simply, when you let a house that already has fixtures and fittings, one takes a reasonable valuation of same. And then one deducts 12.5 % for 8 years. Just because the furniture is say 2 years old you do not deduct a valuation of two times 12.5% from it to get it's value. That's a nonsense, for a start. It's worth is not at all a tricky exercise as you put it. As a landlord of many years who has bought more washing machines than I care to remember I can tell you that any landlord would have no issue with putting a value on any item, and would be well able to argue it with revenue in an audit. It's not rocket science.

I have a question for you thought M if you don't mind. You keep on linking to legislation about plant and machinery, and trade, as far as I can tell. But fixtures and fittings are not plant and machinery. And revenue do not count rental income as a trade (I think you yourself informed me of that last bit recently on another thread). Do you know if it is revenues practice and procedure to accept valuations that landlords have written down as the start off cost ?
 

I think Luternau this is answered by Mandelbrot on the next post after where he refers to a balancing allowance. Personally I just keep an excel and keep on writing it off over the 8 years. And I don't know about you but I'm not putting things like kettles under W&T. Just the major items.
 
Generally, where Revenue make an extrastatutory concession this treatment will be made explicit in their manuals or a tax briefing - there's nothing in relation to this issue which means the legislation (unambiguous as it is in its wording) should be applied, both by the taxpayer, and by the inspector on audit. Certainly in an audit, if the incorrect treatment (in my view) you've outlined is applied and the resulting difference is negligible, then it won't be an issue. But if someone asks what the correct way to account for something is, then I think it should be clear what that correct way is - especially since as I keep pointing out, the incorrect way could cost the taxpayer some of their relief.

Commercially it may be a nonsence, but from the tax point of view, assets are given a prescribed tax life, and it's 8 years. And as I already pointed out the value to be written off is always a proportion of the actual cost - there is no option to come up with your own value.

Fixtures and fittings are plant and machinery - there is no basis for a wear & tear allowance on them other than as plant & machinery.

There is specific provision in the legislation to treat furniture & fittings (but NOT fixtures) in a rental property as if it were plant & machinery in use in a trade, and specific provision to treat the rental business as if it were a trade, for the specific purpose of calculating profits and wear & tear etc... (I could go find it and link to it, but I presume you don't want me to anyway).
 

So you're actually overpaying tax in the year you dispose of an item (by not claiming your balancing allowance), and then underpaying your tax (by overclaiming your annual wear & tear allowance on an asset you no longer use) in the subsequent years.
 
mandelbrot said:
. And as I already pointed out the value to be written off is always a proportion of the actual cost - there is no option to come up with your own value.

.
Click to expand...

Of course the value will end up being a proportion of the original cost, I don't know any item of fixtures/furniture/white goods that go up in value. Antiques and some cars maybe, but that's not what would be supplied in a rental, in general, unless it's a very grand rental.
 
mandelbrot said:
So you're actually overpaying tax in the year you dispose of an item (by not claiming your balancing allowance), and then underpaying your tax (by overclaiming your annual wear & tear allowance on an asset you no longer use) in the subsequent years.
Click to expand...

Hadn't thought about it like that but you're right.

I'm sure the tax inspector when he comes to audit me will want to reopen year 1983 to subtract the balancing amount of a fridge I disposed of in property no x which should have an extra 50 Euro's deducted, being the balance of the original cost and will then want me to add in that same 50 Euro's over say the next 5 tax years at a tenner a year. Do you think he will then refund me the tax on the 50 Euro's of year 1983 or will he knock it off the subsequent years. We could spend months on an audit in my situation.
 
You must log in or register to reply here.
Menu
Log in
Register