Need to do some repairs on your rental property? You may be able to deduct these repairs and maintenance costs.
The first thing to remember is that the repairs and maintenance costs must relate directly to ‘wear and tear’ or other damage that occurred as a result of you renting out the property.
Repairs vs maintenance
Repairs mean work to make good or remedy defects in, damage to or deterioration of the property. It generally involves a replacement or renewal of a worn out or broken part (e.g. replacing guttering damaged in a storm, fixing a fence damaged by a falling tree branch).
Maintenance is preventing or fixing existing deterioration (e.g. painting the property, oiling the deck).
- If you conduct a project that includes both repairs and improvements to your property, you can only claim an income tax deduction for the cost of your repairs if you can separate the cost of the repairs from the cost of the improvements.
- If you hire a builder or other professional to carry out these works for you, we recommend you ask for an itemised invoice to help work out your claim.
Expenses that you can immediately deduct
You can generally claim an immediate deduction (that is, in the income year that you pay for the costs) for your expenses related to the repairs and maintenance of your property, including interest on loans.
If your property is negatively geared you may be able to deduct the full amount of rental expenses against your rental and other income, such as salary and wages and business income.
Expenses for which you may be entitled to claim an immediate deduction include:
- advertising for tenants
- body corporate fees and charges
- council rates
- water charges
- land tax
- gardening and lawn mowing
- pest control
- insurance (building, contents, public liability)
- interest expenses
- property agent’s fees and commission
- repairs and maintenance
- some legal expenses
From 1 July 2017, travel expenses relating to a residential investment property are no longer deductible. Under new laws, you are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property.
You can only claim deductions if you are carrying on a business of property investing or are a corporate tax entity, public unit trust, managed investment trust, unit trust or partnership or super fund that is not an SMSF.
Expenses that you can’t immediately deduct
You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting out your property (e.g. remodelling a bathroom or adding a pergola).
These are classified as ‘improvements’ and are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value.
Improvement means work that:
- provides something new
- furthers the income-producing ability or expected life of the property
- changes the character of the item you have improved
- goes beyond just restoring the efficient functioning of the property.
How this works!
Sarah replaced a fibre cement sheeting (fibro) wall inside her property because it was damaged by tenants. She replaced the old wall with a brick feature wall.
The new wall is an improvement because Sarah did more than just restore the efficient functioning of the wall. This means Sarah cannot claim the cost of the new wall as a repair, but she can claim it as capital works expenditure.
However, had Sarah replaced the fibro with a current equivalent, such as plasterboard, she could have claimed her costs as a repair. This is because it would have merely restored the efficient functioning of the wall without changing its character, even though a different material was used.
Tip! If you invest in a rental property, you’ll need to keep records right from the start, work out what expenses you can claim as deductions, and declare all your rental-related income in your tax return.
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