If you want to make the most of your tax benefits as a property investor, it’s important to make sure that you know the difference between a repair and an improvement. It’s almost inevitable that you’ll be required to repair certain features of the property.
There are tax deductions available for both repairs and improvements. However, these deductions operate very differently. Keep reading to learn more about rental property repairs and the tax implications you should know about.
Choose a time for one of our Home Loan Specialists to call you.
While it may seem obvious, a repair should simply restore a damaged item or feature back to its original condition or function. If you repair a crack in the wall, this is deemed as a repair because it is necessary and won’t increase the property’s value.
Repairs shouldn’t enhance the damaged feature, as it will then be considered an improvement.
For example, if you were to repair a damaged fence, you’d have to use the same kind of materials used on the original fence in order for it to be considered a repair. If you used a higher quality material when repairing the fence, this would be considered an improvement.
So long as your repairs meet the basic criteria, they are considered an immediate tax deduction. Always check the ATO website for up-to-date information. If you are unsure whether something is a repair that can be deducted immediately, speak with an accountant or check out the ATO’s guide on repairs and maintenance.
Read our article on tax deductions for rental property repairs for more information.
Find a great cash out rate in seconds.
An improvement is any work done to alter the property that increases value and desirability. Examples include:
Because of this, you likely won’t be able to immediately claim a total tax deduction on an improvement. However, investors are able to claim depreciation on these improvements over the years under the capital works or capital allowances classifications.
It’s best to seek the help of a Quantity Surveyor and tax accountant to ensure that you make your depreciation claims correctly. The surveyor will arrange a tax depreciation schedule that outlines the depreciation deductions over the life of your property. Their services are tax deductible.
Landlords have the responsibility to maintain their property as suitable for tenants, complying with building, health and safety laws.
Landlords are responsible for most routine and urgent repairs, except in cases where the damage is caused by the tenant — not including reasonable wear and tear.
So, if a tenant or a tenant’s guest engages in negligent or intentional behaviour that leads to damage, they are responsible for paying for repairs.
This depends on whether the repairs are deemed as urgent or routine. Urgent repairs require immediate attention and the landlord (or property manager) typically must act within 3-7 days.
A routine repair is not considered critical, but must still be attended to within 30 days. It’s better to make these routine repairs sooner rather than later to avoid the damage worsening. Many of these repairs may be better classed as ‘maintenance’.
If you take too long to repair something, your tenants may seek compensation for your neglect.
See the table below for examples of urgent vs routine repairs:
|Urgent repairs||Routine repairs/maintenance|
|Gas leak||Faulty, but not immediately unsafe appliances (e.g. air conditioning unit)|
|Fire, flood or significant storm damage||Minor roof leaks|
|Major roof leak or burst water pipe||Loose fixtures|
|Broken or blocked toilet||Routine plumbing work|
|Any faults or damage that make the property unsafe for tenants||Replacing fly screen|
|Potentially dangerous electrical issue|
|Breakdown of electricity, gas or water supply|
Any repairs you make prior to renting out the property are classed as ‘initial repairs’. These usually won’t be an immediate deduction. Instead, you can claim these as capital works or capital allowances on the rental schedule.
If you’re considering buying an investment property, it’s important to factor in the extra ongoing costs involved into your budget. While many of these costs are tax deductible, they are still expenses that you need to be able to manage when they arise.
We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here
The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
Enter a few details about your home loan and see how much you could save on your repayments