By ANGELA WILLIAMS
Accountant
Noel G. O’Meara & Associates
As Tax Time comes around once again, remember the following general rules to follow, in order to claim a deduction are:
- You must have spent the money yourself and not have been reimbursed.
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- The deduction must be directly related to your income.
- You must be able to substantiate the deduction.
Focusing on rental property repairs and improvements
The cost of repairs and maintenance for a rental property may be deductible in full in the year they are incurred if both the following apply;
• The expense directly relates to wear and tear or damage that has occurred while renting out the property
• The property either;
- continues to be rented in an ongoing basis, or
- the property remains available for rent, but there is a short time where it is unoccupied. For example, all reasonable efforts to find new tenants were unsuccessful.
Examples of repairs include;
• Replacing part of a fence that has been damaged.
• Replacing a broken window.
• Fixing a broken dishwasher
Examples of maintenance include;
• Repainting interior walls that have become faded or damaged due to wear and tear.
• Re-oiling a wooden deck.
Initial Repairs
These are the costs incurred for any maintenance, repairs or improvements prior to getting tenants in.
They include existing damage present when the property was purchased, even if you don’t fix the issues immediately.
For example; replacing damaged floorboards.
Initial repairs are not an immediate deduction; however, they may be able to be claimed over several years as a capital works deduction.
Capital expenditure
1. Depreciating assets are items which don’t form part of the premises. For example; replacement of carpets, curtains, or appliances such as a new oven. Such items are claimed as a decline in value deduction over a period of time.
2. Capital works are certain kinds of construction expenses, including;
- Major renovations.
- Adding structural improvements, such as a driveway or retaining wall.
- Building extensions, such as a patio.
The rate of deduction for capital works is generally 2.5% per year following construction.
Of note, the Australian Taxation Office has advised that one of the most common adjustments for rental properties they have made following an audit related to costs claimed as a repair when they should be deducted over time as capital works expenditure.
