New bathroom tax deductible question

Bronte

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It's really not that unusual for Revenue to raise queries on tax returns.
I wouldn't mind being audited. Then I think I could throw away boxes and boxes of receipts and files.

I was only asking you to find out what triggered the questions. Of course some are random checks, but sometimes there is a reason. One good reason would be if it was a large sale price versus purchase price and little CGT was being paid I would have thought.
 

Gordon Gekko

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I am tax qualified. I am strongly of the view that Sarenco is correct.

If I was replacing a bathroom in my rental property, I would record it as enhancement and take a deduction against the gain when I sell it.

I would claim capital allowances over 8 years for apparatus like a boiler.

If I’m repairing something (like an existing shower or a floor), I just claim a full income tax deduction.

Wanting something to be the answer to a question does not make it the right answer.
 

Sophrosyne

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I agree with Sarenco in one respect and that is that the OP hasn’t supplied enough information.

The expenses incurred could be viewed as either capital or revenue expenditure.

It all depends on the spec.

If the new bathroom is of the same standard and layout as the old one it is a revenue expense.

If it’s a higher-spec bathroom, better-quality fittings and/or of a different layout, it will be capital expenditure.
 

Sarenco

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Surely something has to be faulty, damaged or worn out for the replacement to constitute a repair?

For example, simply replacing an item with something of a similar spec won't constitute a repair if it's purely for reasons of taste or fashion.

Does anybody remember avocado bathroom suites from the 80's?:)
 

torblednam

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I am tax qualified. I am strongly of the view that Sarenco is correct.

If I was replacing a bathroom in my rental property, I would record it as enhancement and take a deduction against the gain when I sell it.

I would claim capital allowances over 8 years for apparatus like a boiler.

If I’m repairing something (like an existing shower or a floor), I just claim a full income tax deduction.

Wanting something to be the answer to a question does not make it the right answer.
Look at you, all tax qualified...!! :p

Not that I doubt you have your tax exams, but in my job I routinely deal with people who have their professional tax and/or accountancy exams (and are presumably subscription paying members to be using the CTA / ACA / ACCA designations), and the standard of tripe they trot out is appalling.

At the end of the day, anyone who posts here anonymously (and in my defence, I do so at least partly because have to) is on an equal footing. But I too am plenty qualified, experienced and competent to have a valid opinion.

I respectfully disagree with your position on the boiler. A boiler is undoubtedly a fixture, and an integral part of the central heating system (you hardly capitalise and write down the radiators and piping!?) If you bought a house, and when you viewed it there was a boiler but when you got the keys you discovered the boiler was gone, honestly, how would you react?!
 

Bronte

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I am tax qualified. I am strongly of the view that Sarenco is correct.

If I was replacing a bathroom in my rental property, I would record it as enhancement and take a deduction against the gain when I sell it.

I would claim capital allowances over 8 years for apparatus like a boiler.

If I’m repairing something (like an existing shower or a floor), I just claim a full income tax deduction.

Wanting something to be the answer to a question does not make it the right answer.
My accountant is tax qualified. Hired by me from this website having sufficiently impressed me with the expertise in posts.

And I myself feel well qualified enough from dealing with this particular area of taxation to know what I’m talking about. I shall be writing the boiler off as a one off. But if I buy a bed I’ll write that off over the 8 years. I draw the line though at 100 Euro in that regard, I’m not writing any item under a hundred over 8 years.

A different accountant I encountered on here told me some of his clients have a 1k limit. Good luck to revenue staff trying to do the back calculations on those. I’ve one excel spreadsheet just to do the 8 years on every bed, fridge, Hoover, settee, locker I buy.
 
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torblednam

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Surely something has to be faulty, damaged or worn out for the replacement to constitute a repair?

For example, simply replacing an item with something of a similar spec won't constitute a repair if it's purely for reasons of taste or fashion.

Does anybody remember avocado bathroom suites from the 80's?:)
Not sure what the basis for your assertion there is - I think the only requirement would be that the asset has been used, and therefore its condition is in some way inferior / deficient relative to to its original state. Any expense incurred in restoring things to their original state (i.e. similar spec allowing for advances in standard materials) is therefore deductible.

So if you have a bathroom in a house that has been occupied for any meaningful period, there is indisputably going to be an element of wear. If the owner renovates at that point, regardless of whether it was objectively necessary (or simply because they had a nice tenant whose only gripe was about the avocado bathroom), as long as the result of the expenditure is a bathroom of similar functional use, then that expenditure is what it is, like for like replacement.

To quote from the KPMG article linked by Deadlyduck above:
Simply put, the work could be a repair and not an improvement if, after the work is carried out, the asset can only do the same job as before. In addition, the work is considered an improvement and therefore disallowable as capital expenditure if, as a result of the work, more can be done with the asset, or the asset can be used to do something that it could not do before.
In the case of a bathroom, unless you've done something pretty drastic and expensive, it's hard to see how replacing tiles, bath, shower, sink etc could give rise to improvement in function.

It's very important to bear in mind that the system is self-assessment and Revenue have a longstanding commitment in their Customer Charter to the presumption of honesty. This means that while they may ask you to provide a reasonable level of explanation, or evidence, in relation to your affairs, they cannot and do not start from a default position of assuming you are lying and a tax cheat. And before anyone is tempted to gush about what a great bunch of guys and dolls they must be, this is not because they are all soft and cuddly but because of the principles of natural justice and fairness that they will be held to by external reviewers, the ombudsman, or the Courts, if they treat people otherwise.

I think your relative was simply lucky that their enhancement expenditure wasn't challenged, particularly if you look at one of the examples in the relevant Tax & Duty manual, which I'm pasting in at the bottom. In the same way that nobody here knows why the CGT return was chosen to be examined, nobody knows that they necessarily thought too much about the enhancement expenditure at all. I could say with a high degree of confidence though, that Revenue's best, brightest and most experienced aren't spending their days looking at and/or getting bent out of shape over relatively small and mundane things. I'd say it was most likely a case of a person being given an instruction to check X number of returns, for computational errors and to see that the figures could be verified, so once the receipts were there and they related to the property, the necessary box was ticked. Alternatively, it may have been identified that the enhancement expenditure looks a bit iffy on this, but in the absence of any other issues, it wasn't worth getting into, on a materiality basis.

A person buys a cottage (not his main residence) and spends €10,000 in making good dilapidations. Later he has the cottage rewired for €2,000 and has it completely redecorated for €4,000. He also adds a garage at a cost of €12,000. When he comes to sell the property the following are not allowed in the computation of his chargeable gains—


Rewiring 2,000

Redecoration 4,000

Total not allowable 6,000

This is because if the cottage were a fixed asset of a trade the expenditure would have been revenue expenditure and not capital expenditure.

The other expenditure would be of a capital nature and therefore allowable, namely—


Making good dilapidations 10,000

New garage 12,000

Total allowable 22,000

These items are not in the course of the enjoyment of the property but as fixed expenditure incurred to obtain an asset or enhance the value of an asset.
 
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Bronte

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Mandelbrot I presume in your case of the cottage if he'd done the rewiring and redecoration as part of the initial dilapidations expenditure it would qualify. For CGT. I'm thinking here specifically of myself when I spent about 70K doing up a dilapidated house to rent. There's the new windows, bathrooms, kitchens, rewireing, plastering, painting all as one job as it were. To me they were a one time initital enhancement from unliveable (very bad state) to modern.

In your example of the rewiring later, with tenants in situ (my current situation) then I'd write that cost off as a repair/replacement.

(The garage, like an extension I can clearly see an an enhancement, particularaly as they add value, as in, generally, it increases the house value)

But of course this gets more tricky now for me as I've a quote from a builder for 32K for rewiring, repainting, new shower room. But the place badly needs it. So when I do this, (if the tenants hopefully leave) then I'll write that off in the tax year it is incurred in. And it's mainly due to the wear and tear by tenants who don't think putting on heating in the showeroom, never mind the flat, nor opening windows for air is a good idea.

Incidentally I divided that property into two some many years back and put in a new showeroom/kitchen etc and that I'm keeping for my CGT bill. Because I didn't really consider it 'repair/refurbishment'.

Anyway I think I'm pretty fair and honest about how I allocate things for revenue purposes.
 

Sarenco

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I think the only requirement would be that the asset has been used, and therefore its condition is in some way inferior / deficient relative to to its original state.
I'm not sure I agree that simply using an item for its intended purpose necessarily means that its condition will be inferior/deficient to its original state. But I certainly agree that replacing a worn item on a like-for-like basis could constitute a repair.
I think your relative was simply lucky
I don't. The replacement bathroom was demonstrably of a better quality/specification to the one it replaced. It was very clearly an improvement on what was there previously by any reasonable measure.

I really don't see what point you are making with the cottage example above. Nobody is suggesting that rewiring or redecorating would be anything other than revenue expenditure.
 

Gordon Gekko

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If a deduction for a boiler isn’t claimed via capital allowances over 8 years, then why do certain energy efficient boilers qualify for accelerated capital allowances?
 

Gordon Gekko

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I am also struggling to think of an instance where I or anyone I know (e.g. clients, friends, or family) has renovated a bathroom on the basis that its constituent parts were no longer fit for purpose.

It’s always been “that looks a little tired”, “I no longer need a bath”, or “we should really reconfigure that”.

Yes, if someone’s gigantic backside cracks a toilet and it has to be replaced, by all means claim a full tax deduction in Year 1.

But I’ve yet to see any example of a normal bathroom renovation being anything other than a CGT event.

I’d love Ireland to win the Rugby World Cup, but just believing it and posting it here won’t make it so.
 

torblednam

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If a deduction for a boiler isn’t claimed via capital allowances over 8 years, then why do certain energy efficient boilers qualify for accelerated capital allowances?
Because in that instance they appear to be part of, or constitute, an energy management system and they appear on a specific list which is specifically legislated for.

Did you read the KPMG article from the Irish Tax Review, that Deadlyduck linked? A boiler could certainly constitute plant in some settings, but in the context of a dwelling house, it’s a fixture (unless it’s a boiler of the type specifically legislated for as qualifying for ACA’s).
 
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torblednam

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I am also struggling to think of an instance where I or anyone I know (e.g. clients, friends, or family) has renovated a bathroom on the basis that its constituent parts were no longer fit for purpose.

It’s always been “that looks a little tired”, “I no longer need a bath”, or “we should really reconfigure that”.
Where is the requirement that the parts replaced are worn out / no longer fit for purpose?

That’s not a requirement. If you replace fixtures (capital items) and do not materially improve / enhance the property as a whole beyond its original condition / functionality, you do not have an enhancement, there is no CGT event as you might put it.

For income tax the test for deductibility is that the expenditure was wholly & exclusively laid out for the purpose of the trade (and that is grandfathered in for a Case V activity). People get hung up on the question of, and meaning of, “repairs”, but that’s simply the most convenient generic label to attach to expenditure of the type the OP described. I’ve used the phrase “repairs and renewals” a couple of times here, because the category is in fact broader than what might strictly fall within “repairs”.

Expenditure as described by the OP, that doesn’t materially enhance the property, beyond its original state, is not capital.

It is therefore simply a question of what type of non capital expenditure it is, and whether it’s deductible. I believe it quite clearly is.
 

Sarenco

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If you replace fixtures (capital items) and do not materially improve / enhance the property as a whole beyond its original condition / functionality
Whatever about the materiality qualifier (can you point to anything in that regard?), I am delighted to see that you now seem to finally accept that replacing a fixture that improves or enhances a property beyond its original condition is not a deductible expense in calculating a rental profit.

But it is a deductible expense in calculating any subsequent capital gain.

Hopefully you will also be big enough to acknowledge that we simply don't know what category the OP's bathroom refurbishment falls within as a factual matter.
 
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torblednam

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Whatever about the materiality qualifier (can you point to anything in that regard?), I am delighted to see that you now seem to finally accept that replacing a fixture that improves or enhances a property beyond its original condition is not a deductible expense in calculating a rental profit.

But it is a deductible expense in calculating any subsequent capital gain.
I’m sure I never suggested that you absolutely couldn’t enhance a property by spending money on a bathroom. But you’d need to be able to demonstrate the enhancement, and it needs to be reflected in the state and nature of the asset at the time of disposal (per section 552TCA97).

Hopefully you will also be big enough to acknowledge that we simply don't know what category the OP's bathroom refurbishment falls within as a factual matter.
You’re right, we don’t, as an absolute fact. But I struggle to see how one can demonstrate an enhancement to an entire property by virtue replacing the bath, shower, toilet bowl, sink and tiling in a pre-existing bathroom, at a total cost of 5k.

Early on you pinned your colours to the mast when you said you believed Revenue would take the view that it was enhancement, and I’ve been at pains to explain that in the absence of actual evidence of enhancement of the property as a whole, there’s no basis to believe that.

I’ve gone through the relevant legislative provisions and statutory tests for deduction, not so much to convince you or Gordon of anything, since you obviously have your own opinions (potentially tax inefficient ones in my view), but to ensure that other readers of this thread might better understand the issue.
 
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