Correctly Dealing with Rental Property Repairs

When it comes to rental properties, knowing whether an expense counts as a repair or a capital improvement can make a big difference at tax time. Getting it wrong could mean missing out on deductions – or worse, claiming something you shouldn’t.

Repairs vs Capital Expenses

Repairs and maintenance are costs you incur to fix wear and tear or prevent deterioration on your property. Think of replacing a few roof tiles after a storm or repainting peeling walls – these are generally deductible immediately in the same financial year.

However, work that improves the property beyond its original condition or replaces an entire structure often counts as a capital expense. Examples include replacing the entire roof, remodelling a kitchen, or installing a new air-conditioning system. These are treated differently for tax purposes – you can’t claim them outright, but you may be able to depreciate or claim them over time.

Initial Repairs After Purchase

Repairs made soon after buying a property can be tricky. Even if the damage wasn’t obvious when you bought it, fixing pre-existing defects usually counts as part of the property’s acquisition cost – not a repair. These are included in the cost base for capital gains tax (CGT) when you eventually sell the property.

Depreciating Assets and Capital Works

Structural improvements, alterations and extensions (like a new deck or garage) fall under capital works and can usually be claimed at 2.5% per year over 40 years. Meanwhile, items such as appliances or carpets are classed as depreciating assets, with deductions spread across their effective life. Remember that second-hand depreciating assets generally can’t be claimed by new property investors.

Getting it Right

When in doubt, keep detailed records, invoices, and before-and-after photos. The ATO frequently reviews rental property claims, and a clear paper trail can help support your position.

If you’re unsure how your property expenses should be categorised, it’s always worth getting tailored advice to ensure you’re maximising legitimate deductions – and staying on the right side of the ATO.

Simmons Livingstone can help property owners correctly classify repairs and improvements to optimise their tax outcomes and ensure full compliance with ATO requirements. Contact us today on 1800 618 800 or email admin@simmonslivingstone.com.au to arrange a review of your investment property deductions.