Deductions for repairs, maintenance and improvements are areas the Australian Taxation Office pay particular attention to on annual tax returns.
For this reason, it is important that property investors understand the difference between the three.
At a very basic level, repairs are considered work that is carried out to fix damage or deterioration of a property. An example of this would be replacing part of a damaged fence.
Maintenance is considered work completed to prevent deterioration to a property. Oiling a deck would qualify as an example of maintenance.
Any costs incurred to repair or maintain a rental property can be claimed as an immediate 100 per cent deduction in the year of the expense.
A capital improvement occurs when the condition or value of an item is enhanced beyond its original state at the time of purchase. This must then be classified as either a capital works deduction and depreciated over time or as a plant and equipment depreciation.
A common example of a capital works deductions would be replacing the kitchen cupboards with newer or nicer cupboards. If any plant and equipment items are removed and replaced – for example an air conditioner – this will also be considered a capital improvement and eligible for deductions.
To ensure any work they have carried out is properly classified, property investors considering completing a repair or maintenance project or an improvement project on their property should contact a specialist quantity surveyor for advice before they start work.