Looking to revamp or renovate your investment property? We break down the difference between a ‘repair’ and ‘maintenance’ to simplify tax time.
As an investor it is crucial to understand the difference between repairs, maintenance and improvements because the Australian Tax Office pays particular attention to these types of deductions on your annual tax return.
To help you understand the difference here is how to define the difference between a repair, maintenance and capital improvement;
- Repairs are considered work undertaken to fix damage or deterioration of a property, for example replacing a broken fence panel or broken front porch light fitting.
- Maintenance is considered any work completed to prevent deterioration. For example oiling a deck, sealing a driveway etc. Any costs incurred to repair or maintain a rental property can be claimed as an immediate 100 percent deduction in the year of the expense!
- A capital improvement is classified as work completed to enhance the condition or value of an item beyond its original condition at the time of purchase. This type of work must then be classed as either a capital works deduction and depreciated over time or as plant or equipment depreciation. An example of a capital works deduction could be replacing the taps in the bathroom sink to chrome fixtures or updating the kitchen cupboards and door handles. On the other hand, an example of a capital improvement is when an item is removed or replaced for example an old in-wall air conditioning unit and replaced with a split-system unit.