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Repairs and maintenance or capital improvements?

By Jason D'Souza
19 May 2014 | 9 minute read
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Repairs and maintenance are a fact of life for Property Managers. While the costs associated with the upkeep of investment properties can be a source of concern for owners,

Property Managers are able to address this by advising them of the deductions they can claim when completing their annual tax return.

Australian Tax Office (ATO) legislation can have a significant impact on the deductions a property owner is able to claim for work completed on their property. In order for a Property Manager to accurately advise their clients it is important to understand what types of works constitute repairs, maintenance and capital improvements.

Repairs and maintenance

Repairs are works completed to fix damage or deterioration of a property. Common examples of repairs include:

  • Fixing part of a damaged fence
  • Replacing part of the guttering or windows damaged in a storm

Maintenance is any work completed to prevent deterioration to a property. Common examples include:

  • Painting a rental property
  • Oiling, brushing or cleaning something that is otherwise in good working condition
  • Plumbing maintenance
  • Servicing an air conditioner

Any expenses incurred for repairs or maintenance of an investment property are fully claimable within the current financial year.

Capital improvements

Any improvements to the original condition of an item are classified as capital improvements. The ATO allows these to be claimed by property investors as either capital works or depreciation deductions for the improvement of plant and equipment items. These deductions are claimed over the assets’ effective life. Capital works deductions include structural additions and renovations as well as fixed items which cannot be easily removed from the property. Examples of depreciating plant and equipment items which could qualify for capital works deductions when improved upon are carpeting, hot water systems, stoves, lights and light fittings.

How to maximise deductions

To ensure investor clients are able to claim the maximum deductions available, they should be encouraged to contact a Quantity Surveyor specialising in tax depreciation.

By working with an investor’s Accountant, a Quantity Surveyor such as BMT Tax Depreciation is able to produce a tax depreciation schedule outlining all capital works deductions and plant and equipment items considered to be capital improvements. This schedule will also outline all available deductions for the lifetime of the property (forty years), claimable when completing an annual tax return. Investors who are planning renovations on their property should also request a Quantity Surveyor to complete both a pre and post renovation depreciation schedule, as any removed items may be able to be written off as an immediate deduction for the owner.

For a more detailed article on repairs and maintenance for your clients, click here.

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