Expenditure for repairs you make to your investment property may be tax deductible. However, the repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.
Repairs generally involve a replacement or renewal of a worn out or broken part, for example, replacing some guttering damaged in a storm or part of a fence that was damaged by a falling tree branch.
However, the following expenses are capital, or of a capital nature, and are not deductible:
• replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator)
• improvements, renovations, extensions and alterations, and
• initial repairs, for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.
What are repairs and maintenance?
When we say ‘repairs’, we mean work to make good or remedy defects in, damage to or deterioration of the property.
• replacing part of the guttering or windows damaged in a storm
• replacing part of a fence damaged by a falling tree branch
• repairing electrical appliances or machinery.
When we say ‘maintenance’, we mean work to prevent deterioration or fix existing deterioration. For example:
• painting a rental property
• oiling, brushing or cleaning something that is otherwise in good working condition
• maintaining plumbing.
What can you claim?
You can claim a deduction for the costs you pay to repair and maintain your rental property, in the year you pay them.
What are you unable to claim?
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 that occurred due to renting out your property. These are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value.
Can you claim the cost of repairs you make before you rent out the property?
You cannot claim the cost of repairing defects, damage or deterioration that existed when you obtained the property, even if you carried out these repairs to make the property suitable for renting. This is because these expenses relate to the period before the property became an income-producing property.
Tax plays a big part in investment properties and having a proactive tax accountant can make a big difference to the ongoing costs and liabilities as well as the capital gain. You can claim a deduction for some of the expenses you incur for the period your property is rented or is available for rent. However, you cannot claim expenses of a capital or private nature. When you claim a deduction for expenses incurred in gaining your gross assessable rental income, there may be situations where the expenses need to be apportioned between deductible and non-deductible expenses.
There are many aspects to be considered in regards to property investment such as claiming expenses and other tax considerations and obligations. To find out more about whether you are eligible for a tax deduction, here at The Quinn Group, our team of experienced Financial Planners, Accountants and Lawyers are able to assist you. Contact us on 1300 QUINNS (784 667) or click here to submit an online enquiry.