The types of repairs and maintenance expenses you can claim as income tax deductions.
When we say 'repairs', we mean work to make good or remedy defects in, damage to or deterioration of the property, for example:
- replacing part of the guttering or windows damaged in a storm
- replacing part of a fence damaged by a falling tree branch
- repairing electrical appliances or machinery.
When we say 'maintenance', we mean work to prevent deterioration or fix existing deterioration. For example:
- painting a rental property
- oiling, brushing or cleaning something that is otherwise in good working condition
- maintaining plumbing.
You can claim a deduction for the costs you pay to repair and maintain your rental property, in the year you pay them.
You can't claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage that occurred due to renting out your property. These are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value.
You cannot claim the cost of repairing defects, damage or deterioration that existed when you obtained the property, even if you carried out these repairs to make the property suitable for renting. This is because these expenses relate to the period before the property became an income producing property.
Example
Stephen needed to do some repairs to a rental property he recently purchased before the first tenants moved in. He paid tradespeople to repaint dirty walls, replace broken light fittings and repair doors on two bedrooms. He also had to have the house treated for damage by white ants.
Because Stephen incurred these expenses to make the property suitable for rental, not while he was using the property to generate rental income, the expenses are capital expenses. This means he cannot claim a deduction for them.
If you have to replace something identifiable as a separate item of capital equipment (such as a complete fence or building, a stove, kitchen cupboards or a refrigerator) you have not carried out a repair. This means you cannot claim the entire replacement cost you incurred in the year you incurred it. However, you may be able to claim the cost as a capital works deduction or a deduction for decline in value.
Example
Janet has owned and rented out a residential property since 12 January 1983. In 2006 she replaced the old kitchen fixtures, including the cupboards and appliances. The old cupboards had deteriorated through water damage and wear and tear.
The kitchen cupboards are separately identifiable capital items with their own function. This means the cost of completely replacing them is a capital cost. Because of this, Janet can only claim a:
- capital works deduction for the construction cost of this work
- deduction for the decline in value of the kitchen appliances.
This is the case regardless of whether or not any of the following apply:
- the new fittings are of a similar size, design and quality as the originals
- the new cupboards are made from a modern equivalent of the material used in the originals
- that the layout and design of the new kitchen may be substantially the same as the original.
When we say 'improvement' we mean work that:
- provides something new
- generally furthers the income-producing ability or expected life of the property
- generally changes the character of the item you have improved
- goes beyond just restoring the efficient functioning of the property.
You cannot claim a deduction for the total cost of improvements to your rental property in the year you incur them.
Example
Tim replaced a fibro wall inside his rental property, which was damaged by tenants, with a brick feature wall.
The new wall is an improvement because Tim did more than just restore the efficient function of the wall. This means Tim cannot claim the cost of the new wall as a repair.
However, had Tim replaced the fibro with a current equivalent such as plasterboard, he could have claimed his costs as a repair. This is because it would have merely restored the efficient function of the wall without changing its character, even though a different material was used.
If you conduct a project that includes both repairs and improvements to your property, you can only claim a deduction for the cost of your repairs if you can separate the cost of the repairs from the cost of the improvements.
If you hire a builder or other professional to carry out these works for you, we recommend you ask for an itemised invoice to help work out your claim.
Example
Caitlin has modernised her rental property by hiring tradespeople to render and paint the external walls. She also asked the painter to paint the internal walls, which had deteriorated during the time she rented out the property.
As Caitlin requested an itemised invoice from the painter, she could separate the cost of the internal and external painting, and rendering. Due to this, she could claim a deduction for the cost of painting the internal walls as a repair.
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If you receive income other than rent for your rental property (for example, an insurance payout for the cost of repairs), you must include this amount as income on your tax return.
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You must keep proper records in order to make a claim, even if you use a tax agent to prepare your tax return. This includes records of:
- the rental income you receive and the expenses you pay for which you can claim a deduction – keep these records for five years from 31 October or, if you lodge later, for five years from the date your tax return is lodged
- all costs you incurred when you purchased the property, while you owned the property and when you sold the property – you may need to keep some of these records for longer than five years, depending on how long you own the property.
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As capital gains tax may apply if you sell your rental property, we recommend you keep records of every transaction over the period of ownership of the property. This would include contracts of purchase and sale, and conveyance and loan documentation.
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Keeping these records will help you work out your capital gain or loss correctly and ensure you don’t pay more tax than you need to.
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For more information about easy ways to keep your records, refer to 'asset registers' in chapter 3 of part A of Guide to capital gains tax (NAT 4151).
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For more information about other rental property expenses you can claim, you can refer to the following:
For help in applying this information to your own situation, phone us on 13 28 61 between 8.00am and 6.00pm, Monday to Friday.
Last Modified: Friday, 27 March 2009
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