You can claim a deduction for repairs and maintenance to your property as long as they are not capital expenses. Many landlords forget about the new tap or roof repair as their primary focus is on the rental returns and capital gains.
A repair is usually partial and restores the item to its original state or fixing defects. It does not mean totally reconstructing it. E.g. replacing two palings on a fence
Maintenance is work that prevents deterioration or fixes current deterioration E.g. oiling a deck.
Repairs and maintenance must relate directly to the wear and tear or damage occurring due to the renting out of the property. Examples can include:
- Maintaining plumbing & fixing leaks
- Repairing electrical appliances
- Replacing broken parts of a whole e.g. glass in a window
An improvement makes something better than it was originally or provides something in a new and more valuable or desirable form:
- substantial improvements to an item or property (eg. installing a new ceiling)
- repairs made to machinery, tools or property immediately after you purchase or acquire them — this is because the price you paid reflects the item’s condition. The ATO calls this“initial repairs” and maybe included in the cost base for capital gains.
- Replacement of an asset e.g. a new air conditioner
- Replacing a worn fence paling with a brick fence — this is not a simple repair but improving the fence with a better material.
Generally speaking, you can claim an immediate deduction for repairs and maintenance in the same financial year, however for improvements you can claim a deduction over a number of years depending on the asset. This area continues to be an audit target for the ATO.
We recommend that prior to any repairs that photos are taken and a detailed description of the work performed is supplied by the contractor. This not only helps the accountant in determining repair versus capital but will assist should the ATO ever audit the decision of the expense being claimed as a deduction.