Tax Discussion: Renovations or Repairs

Improving your investment property can propel it into its next phase of growth, but it can cost a pretty dime along the way.

Knowing which costs can be claimed immediately from a tax perspective, and which are not, can make all the difference when preparing your renovation budget.

From the beginning, one must ask the question: what repair costs can you get back through a well-prepared tax claim? And what costs are considered a renovation and are therefore added to your cost base – so that their benefits are only known when you sell the property?

The Australian Taxation Office (ATO) states that a tenant is entitled to claim the costs of any type of work performed on an investment property, provided that the expense ultimately contributes to its maintenance and its repair.

By "repairs", the ATO confirms all the corrections made to the damages, defects or "wear and tear" traces inflicted on the property during the rental period to the tenants.

"Repairing something means repairing defects, including renewal of parts. This does not include total reconstruction, "confirms the ATO.

So, in practice, replacing a broken shower head or recolletage of a leaking bath are both considered taxes payable, turning a bathroom running perfectly into a business. Art Deco and Moroccan would not necessarily inspire the seal of approval of the office.

At the other end of the "repair" spectrum are costs that are attributed to the "maintenance" of the rental property, which are also tax deductible. But what types of work does this cover?

To read our definitive guide from a tax standpoint on repairs versus renovations, check out the September 2019 edition of Your Investment Property magazine.

Available from press agents and Coles, from August 1 to 29, 2019
– or download the magazine now.

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