Rental properties – repairs, maintenance and capital expenditure
It is important to determine the type of expense correctly to ensure they are treated correctly for tax purposes and claimed in the appropriate part of the return i.e. either the rental schedule or the depreciation schedule. The types of expenses are:
Repair – replacement of something that is worn out, damaged or broken as a result of renting out the property e.g. replacing part of a storm damaged fence or getting a plumber to fix a leaking tap.
Maintenance – preventing or fixing deterioration of an item that occurred while renting out the property e.g. repainting walls or re-oiling a deck.
Capital works or Improvements – replacement of an entire structure that is only partly damaged, renovation or addition of a new structure to the property e.g. replacing all the fencing or adding a carport.
Depreciating Asset – installation of a brand new appliance or floor/window covering e.g. purchase of a brand new dishwasher or installing new carpet.
Initial repair – repair of damage that existed when the property was purchased (whether it was known about at the time or not) e.g. fixing damaged floorboards.
If a project includes both repairs and improvements (capital works), a deduction for the cost of the repairs can only be claimed if the cost of the repairs can be separated from the cost of the improvements; an itemised invoice from the works provider will assist in working out the claim.
If you have any questions or would like more information, please contact our office.