Understand the difference between repairs, maintenance & capital improvements

Property investors often worry about ongoing repairs and maintenance costs however these concerns can often be reduced by claiming back these costs when completing a tax return.

Before claiming deductions, it is necessary for investors to understand the difference between claiming repairs and maintenance vs. capital improvements.renovate house repair

Repairs

The Australian Taxation Office (ATO) defines repairs as work completed to fix damage or deterioration of a property, for example replacing part of a damaged fence.

A deduction cost paid to repair a rental property can be claimed as an immediate 100% deduction in the year the expense is incurred.

Maintenance

Maintenance is defined as work completed to prevent deterioration to a property, for example mowing the lawns.
Costs for maintenance of a rental property can also be claimed as an immediate deduction in the year the expense is paid.

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Capital improvements

Improving the condition or value of an item beyond its original state at the time of purchase is defined as a capital improvement.

These are classified as either capital works deductions or plant and equipment and must be depreciated over time.

Capital works deductions include renovations such as adding an internal wall and also includes items which cannot easily be removed from the property.

Plant and equipment items include removable items such as carpet and hot water systems.

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