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  • Repairs

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    Expenditure for repairs you make to the property may be an allowable deduction. However, the repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.

    Repairs generally involve a replacement or renewal of a worn out or broken part-for example, replacing some guttering damaged in a storm or part of a fence that was damaged by a fallen tree branch.

    However, replacement of an entire structure or unit of property, such as a complete fence or building, is not a repair. Expenses of this type are of a capital nature and are not deductible.

    Expenditure you incur on initial repairs-for example, in remedying defects, damage or deterioration that existed at the date of acquisition of a property-is capital expenditure and not deductible. However, the expenditure may form part of the cost base of the property if you incur it to enhance the value of the rental property and it is reflected in its state or nature when you later dispose of the property.

    Example
    Repairs prior to renting out the property

    The Johnsons needed to do some repairs to their newly acquired rental property before the first tenants moved in. They paid an interior decorator to re-paint dirty walls, replace broken light fittings and repair 2 bedroom doors. They also discovered white ants in some of the floor boards. This required white ant treatment and replacement of some of the boards.

    These expenses were incurred to make the property suitable for rental and did not arise from the Johnsons' use of the property to generate assessable rental income. The expenses are considered to be capital in nature. Therefore, the Johnsons are not able to claim a deduction for these expenses.

    Repairs to a rental property will generally be deductible where:

    • the property continues to be rented on an ongoing basis
    • the property remains available for rental but there is a short period when the property is unoccupied-for example, where unseasonable weather causes cancellations of bookings or advertising is unsuccessful in attracting tenants.

    If you no longer rent the property, the cost of repairs may still be deductible provided:

    • the need for the repairs is related to the period in which the property was used by you for income production and
    • the property was income producing during the income year in which you incurred the cost of repairs.

    Example
    Repairs when the property is no longer rented out

    After the last tenants moved out in May 2001, the Johnsons discovered that the stove didn't work, kitchen tiles were cracked, and the toilet window was broken. They also discovered a hole in a bedroom wall that had been covered with a poster. In June 2001 the Johnsons paid for this damage to be repaired so they could sell the property.

    As the tenants were no longer in the property, the Johnsons were not using the property to produce assessable income. However, they could still claim a deduction for repairs to the property because the repairs related to the period when their tenants were living in the property. The repairs were also completed before the end of the income year in which the property ceased to be income producing.

    Improvements, extensions and alterations are capital in nature and are not considered to be repairs. You cannot claim for expenses of this nature. However, the expenditure may be taken into account for special building write-off purposes. For more information, read the section Capital works deduction (special building write-off below.

    Expenses considered to be for repairs which you can claim as deductions include:

    • replacing broken windows
    • maintaining plumbing
    • repairing electrical appliances.

    Expenses considered to be for improvements which you cannot claim as deductions include:

    • landscaping
    • insulating the house
    • adding on another room.

    Although you may not be able to claim a deduction for expenditure as a repair, or as part of a capital works deduction (special building write-off deduction) , the expenditure may form part of the cost base of the rental property for capital gains tax purposes. For more information, see the publication Guide to capital gains tax and Taxation Ruling TR 97/23-Income tax: deductions for repairs. See also Capital gains tax in this document.

    Last modified: 28 Jul 2003QC 16187