Deductions for repairs, maintenance and improvements are areas the Australian Taxation Office pay particular attention to on annual tax returns. For this reason, investors must understand the difference.
Repairs are considered work completed to fix damage or deterioration of a property, for example, replacing part of a damaged fence.
Maintenance is considered work completed to prevent deterioration to a property, for example oiling a deck.
Any costs incurred to repair or maintain a rental property can be claimed as an immediate 100 per cent deduction in the year of the expense.
A capital improvement occurs when the condition or value of an item is enhanced beyond its original state at the time of purchase. This must then be classified as either a capital works deduction and depreciated over time or as plant and equipment depreciation.
An example of a capital works deductions could be replacing the kitchen cupboards. If any plant and equipment items are removed and replaced, for example an air conditioner, this will also be considered a capital improvement.
Capital works are claimed for the wear and tear of a building's structure and the items permanently fixed to the property, such as doors and windows. Capital works are typically depreciated at an annual rate of 2.5 per cent over 40 years.
Plant and equipment items can be easily removed, and include things like blinds, hot water systems and furniture. The condition, quality and effective life will determine the allowances available for a plant and equipment asset.
Investors considering completing any work to their property should contact a specialist Quantity Surveyor for advice before starting work. We can help put you in contact with a local specialist.
If you'd like to know more, contact us today on casey@c21newcastle.com.au or 02 4928 7400. We're on hand to make your path towards investment property success as stress-free as possible.