On 7 September 2018, Billy purchased a three-bedroom house in Clayfield in his own name at a cost of $970,000.
Stamp duty and legal fees relating to this acquisition totaled $32,480 and were also paid on the same date.
To finance the purchase of the rental property, Billy borrowed $740,000 from ANZ. The bank paid this money directly to the seller upon settlement of the property on 7 September 2018. Loan establishment fees, totaling $2,140, were charged to Billy on this date. The term of the loan is 25 years. Billy paid the remaining balance of $230,000 in cash from his own savings account to fund the acquisition of the property.
When he purchased the house, Billy was provided with a detailed construction/depreciation schedule from the previous owner. The report prepared by BMT Quantity Surveyors shows that the house was originally constructed on 14 June 1990. The schedule confirms that the original construction cost of the house was $240,000.
The property has been permanently rented out since 7 September 2018 (ie. 42 weeks). For the 2019 income year, Billy derived gross rental income of $32,760.
When the property was purchased, it was obvious that the exterior of the house was badly in need of repainting as significant sections of the painted external walls were cracked and peeling. The interior needed some replastering and painting as there were holes in the walls in several rooms.
Billy engaged the services of a local painter to repaint the entire exterior of the house. The painter is paid $18,180 on 2 October 2018.
Billy chooses not to allocate assets costing between $300 and $1,000 into a low-value pool. Instead, he prefers that you depreciate each depreciable asset listed above in accordance with their effective lives as set out by the Commissioner of Taxation in Table A of Taxation Ruling TR 2018/4 (refer to Residential Property Operators 67110).
Billy wishes to use the diminishing value method (wherever possible) to maximise any depreciation deduction claimed. Students are advised to refer to the additional information contained at the end of this document for further guidance as to what rates (and depreciation methods) to use for any Division 40 and Division 43 claims.
Being the cost of repainting the entire exterior of the rental property on 2 October 2018 totalling $18,180. You are to advise Billy exactly how much is tax-deductible (if any) and reasons why (or why not)?
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