Wear & Tear - clarification

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badbrian

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There is a thread below dealing with wear and Tear.

http://www.askaboutmoney.com/showthread.php?t=159235

1. This clearly applies to furniture. If e.g. a 3 piece suite was purchased 3 years ago (before landlord knew would be renting), do you write off 12.5% of the original purchase price OR 12.5% of the estimated 'second hand' price at time of renting. [logic suggests its 12.5% of purchase price -its just that the item has a shorter expected lifespan remaining and will have to be replaced sooner?].
12.5% p.a. of the Original Cost of the items, over 8 years from date of purchase. So if they were bought 3 years ago, then they have 5 years left to be written off against rental income.
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I found this surprising because I assumed that any pre-letting expenditure was not allowable as an expense (I was also delighted to see this because it meant I would be due tax back).
I sent an email and they simply replied by referrring me to IT 70 which is I believe unclear in the context of this, because it simply says that you are allowed 12.5% for 8 years from time of purchase, with no mention of the spend being required only after the property is let.

I contact my local revenue office by phone to clarify and they confirmed my original thought that because the spend was pre-letting it was not allowable to claim Wear and Tear on.

Has anybody been advised to the contrary?

Cheers

Brian
 
1,000,000,000% wrong!

T McGibney said:
They're wrong, 100% wrong.
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Agreed (and not just because OP is quoting something I wrote!), and here is the long-winded reason that I thought I had avoided having to write:

Pre-letting expenditure is irrelevant here - certainly the cost of acquiring the items subject to the current claim for wear & tear occurred pre-letting, but the provisions of the legislation allow as deductions, any amounts that would be allowed if the receipt of Case V (rental) income were deemed to be a trade carried on during the currency of the lease or the period during which the recipient of the rent was entitled to that rent. In a pre-letting situation there is no receipt of rent. Accordingly, section 97(3) does not invoke section 82 for the purposes of authorising a deduction for pre-letting expenditure. (source: [broken link removed])

The logical consequence of the above is that, in any period where there is an ongoing lease, or an entitlement to receipt of rent is accruing, then the landlord is entitled to the same deductions as they would be under Section 82, which would include wear & tear on items bought in the pre-letting period.

badbrian said:
I contact my local revenue office by phone to clarify and they confirmed my original thought that because the spend was pre-letting it was not allowable to claim Wear and Tear on.

Has anybody been advised to the contrary?

Cheers

Brian
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It's pretty disappointing that you were misinformed by your local office, which one was it by the way? You were just obviously talking to the wrong person, and if you used the phrase pre-letting to them they will have just said, oh pre-letting expenses not allowed... whereas in fact it's not really got anything to do with pre-letting expenses!

I'd advise you phone and ask to speak to one of the Inspectors - and don't use the phrase pre-letting expense. It's an issue around wear & tear allowance on capital items introduced at the outset of a letting. They may well tell you to do the most practical thing, which is value everything you can claim for (at their present value rather than original cost) at the date you started letting it, and claim over 8 years (i.e. @ 12.5% p.a.) from that date, or else the most strictly correct thing, which is work out the cost and remaining tax life of each item and claim accordingly (but TBH that's an awful nuisance).
 
On this issue, must you have receipts for all capital expenditure, or will an estimate of cost suffice?
 
Jo1708 said:
On this issue, must you have receipts for all capital expenditure, or will an estimate of cost suffice?
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Well strictly speaking you should have receipts for everything, always, but that's not how the real world works. If / when a Revenue auditor comes to visit, all they're concerned with at the end of the day is whether the claims that have been made are reasonable - so if receipts aren't to hand, then a reasonable basis for the estimate would have to do.

If I'm the tax inspector coming out to audit you, I don't want your file sitting on my desk for the next 6 months with my manager asking me why I can't close more cases, while I argue the toss with you over a few hundred euro of wear & tear on furniture that has to have cost you something at some point...
 
Thanks for the replies.

I was clear about my situation. I lived in the apartment and had installed a new kitchen, sofa, Fridge Freezer, Washing Machine in 2006 and have been renting it out since 2009. I have a record of of all the spend so I have no issues there.

The gentleman who I spoke to in DunLaoghaire was adamant this was not allowable.
I will follow it up again by email and with the same gentleman and revert.
 
It seems you may be entering into an argument with someone in Revenue. Why bother? Why draw attention to yourself. You may well be proved right -and I agree with Mandelbrot on this. But Mr Ignorant in the Tax office -when proved wrong - may think O.K. Smarty Pants let's look at your file".


If you put down something in good faith then usually the worst that happens is that -if they actually do an audit - they'll disallow it. You won't get shot.
 
badbrian said:
Thanks for the replies.

I was clear about my situation. I lived in the apartment and had installed a new kitchen, sofa, Fridge Freezer, Washing Machine in 2006 and have been renting it out since 2009. I have a record of of all the spend so I have no issues there.

The gentleman who I spoke to in DunLaoghaire was adamant this was not allowable.
I will follow it up again by email and with the same gentleman and revert.
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oldnick said:
It seems you may be entering into an argument with someone in Revenue. Why bother? Why draw attention to yourself. You may well be proved right -and I agree with Mandelbrot on this. But Mr Ignorant in the Tax office -when proved wrong - may think O.K. Smarty Pants let's look at your file".

If you put down something in good faith then usually the worst that happens is that -if they actually do an audit - they'll disallow it. You won't get shot.
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Some good common sense out of Oldnick there Brian, and while I would add that it's most unlikely that having an argument with someone in the customer service area could land you an audit, it would be much easier if you just deal with bureaucracy in the best way possible - go around rather than through this person!

The one thing you shouldn't do is engage with this person any further - either go ahead and claim the allowance you believe you are entitled to (and myself and others on here know you are entitled to), or get affirmative clarification from someone else in the tax office, someone more knowledgeable than the guy you spoke to.

As I said previously, the guy must have equated what you said to him with pre-letting expenses, which he knows are not allowed. He just wasn't knowledgeable enough to distinguish between an expense and capital expenditure... if you try again and speak to someone else, you may get a different (correct) answer, but at the end of the day if you get an audit I would almost guarantee you all the auditor is going to want to see is that the amount you are claiming in wear & tear is reasonable by comparison to what you are claiming it for.

One last point to note however; the cost of the kitchen may not be allowed (i.e. if the units couldn't be just unscrewed and taken out and put into another house without wrecking them)... in the same way that the central heating system wouldn't qualify for wear & tear...
 
mandelbrot said:
Well strictly speaking you should have receipts for everything, always, but that's not how the real world works. If / when a Revenue auditor comes to visit, all they're concerned with at the end of the day is whether the claims that have been made are reasonable - so if receipts aren't to hand, then a reasonable basis for the estimate would have to do.

If I'm the tax inspector coming out to audit you, I don't want your file sitting on my desk for the next 6 months with my manager asking me why I can't close more cases, while I argue the toss with you over a few hundred euro of wear & tear on furniture that has to have cost you something at some point...
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Hi, I have a question on this. Our tenant has asked us to pay for a dishwasher and since we were told by our letting agent, this expense would probably crop up, we were agreeable. The tenant paid for it on his visa card and he sent us a copy of the receipt. We were going to make a transfer to his bank account to pay for the dishwasher, the installation of same by the plumber and a microwave (replacing ours which broke down since). My query is the sum we transfer will not match the sum on the receipt for the dishwasher - it will be a larger amount to cover everything mentioned above.

If we go to submit a tax return and list the dishwasher, microwave etc as expenses, will the fact that the receipts are not in our name matter? Since they are not in our name, would it be better to make three bank transfers instead to our tenants account, so that at least it is easy to see that this receipt for this dishwasher matches this bank transfer to the tenant? It would be more transparent...would this be necessary?

Thanks in advance

mica

P.S. How do people normally pay for replacing items? Do you pay for it yourselves, even from overseas? Or do you have the tenant pay and refund them? Thanks!
 
If this cropped up while I was doing my tax return I would just make sure to include all receipts and also highlight on the bank statement the payment leaving my bank account to cover the cost of reimbursement to my tenant, and just attach the whole lot together.

I am renting out my house for a year and half now and so far if anything needed to be replaced or fixed I organised it/paid for it myself. Saying that, if my tenant was happy to pay for things himself on the basis of me reimbursing him, this is a road I wouldn't mind going down. The only thing I would say is... at least when I pay for things myself, I can be more cost conscious.
 
Hi Jo,

Thanks for that. So there is no benefit from making separate payments to the tenant for each expense in this case?
I thought we might have to prove to Revenue that although the receipt is in our tenants name, we then repaid our tenant the exact same amount direct to their bank account. Revenue might look at our bank statement and then receipts and argue, well... these sums don't add up. If we made a separate payment for each expense it would be clearer.

This is our first time renting and we seem to have nice tenants. We thought it would be easier that they for it, so they could organise delivery. Maybe we'll do something different next time, as we'll now have a guarantee in our tenants name too, which isn't ideal.

We don't have an Irish visa card any more, but it was really more the arranging of the delivery of the item that put us off ordering online. Since the tenants were going to receive the item, it made more sense to us this time that they pay. As I say, we're learning as we go... I suppose we could order over the phone next time and give our tenants contact details for delivery or summat.

Cheers, mica
 
I can understand what you are saying about making separate payments so that the paper trail is as clear as it can be. Saying that, if you keep all 3 receipts together and highlight on the bank statement the amount being paid back to your tenant, I can't see why this wouldn't be as clear-cut as paying everything separately. The total amount of the payment to the tenant would be the exact same as the sum of the three separate receipts.

Saying that, if you are happier making 3 separate payments to the tenant that is totally up to you. Neither way is wrong.
 
I got a call today from Revenue who told me that as the furniture and fittings were not bought with the specific purpose of renting out the apartment then they are not allowable for wear and tear.

Tbh it was difficult to get a clear answer. The first guy told me no. They second told me no, and did allude to the reason above, but then yes. The third guy told me no, definitely not, basis of which is above.

I note the points about not over-engaging with Revenue because it may lead to an audit, but I do not want to be in a position where I have to repay money to them.
 
badbrian said:
I got a call today from Revenue who told me that as the furniture and fittings were not bought with the specific purpose of renting out the apartment then they are not allowable for wear and tear.

.
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I'd like if the guy from Revenue who called you said that in writing. Your example of dealing with revenue is typical, each one with a different answer. You need to find the revenue person who is an expert in this particular area.
 
Bronte said:
I'd like if the guy from Revenue who called you said that in writing. Your example of dealing with revenue is typical, each one with a different answer. You need to find the revenue person who is an expert in this particular area.
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I had noticed that they only responded to my first email by only quoting from the relevant guideline.

from email from revenue said:
The most relevant section to your query is "What expenses can be claimed as Wear & Tear?":

If a premises is let for residential purposes and it is furnished, a claim can be made for a wear and tear allowance based on the cost of the furniture and fittings. It will be necessary to retain an itemised list of expenditure incurred each year.

With effect from 4 December 2002 the allowance is 12.5% per year over 8 years
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It seems to me that there are 2 conflicting concepts here. Looking at what Revenue emailed me it would be clear that I can claim for the furnishings and fittings that were in the apartment at the time of letting assuming I can prove the cost.

However because the spend was pre-letting then that concept overrules it, and when pushed on it the latter concept overrules the first.

I'd be interested to follow it up with a different Revenue area to see if their thinking is consistent.

I won't give up...
 
Bronte said:
I'd like if the guy from Revenue who called you said that in writing. Your example of dealing with revenue is typical, each one with a different answer. You need to find the revenue person who is an expert in this particular area.
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I just went off for a look-see, fully expecting to report back that the guy in Revenue was talking through his hat, and found to my surprise that the legislation does appear to support this position; S.283 (TCA 97) deals with wear & tear allowances, and the subsections below are what allows wear & tear allowances for rental property against Case V income:

"(6) Subject to subsection (7), this section shall, with any necessary modifications, apply in relation to the letting of any premises the profits or gains from which are chargeable under Chapter 8 of Part 4 as it applies in relation to trades.
(7) Where by virtue of subsection (6) this section applies to the letting of any premises, it shall apply as respects the year of assessment 1997-98 and subsequent years of assessment in respect of capital expenditure incurred on the provision of machinery or plant within the meaning of subsection (2)(a)(i) where-
(a) such 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, and
(b) that furnished house is provided for renting or letting on bona fide commercial terms in the open market."

From the emboldened part above, there would appear to be a requirement that the expenditure is incurred with an intention to let in mind. The only ambiguity I can see is around the words underlined...

I think the above would come as a shock to most people who prepare tax returns on rental property, I know it did to me anyway..! But having said that I would say one could argue it has been / is Revenue practice to allow wear & tear, regardless of the provenance of the items, as long as the expenditure was genuinely incurred....
 
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