Rental repairs, maintenance and capital expenses

You can visit the ATO Publication Ordering Service to download a copy of the Rental repairs, maintenance and capital expensesExternal Link fact sheet.

Quick reference guide

A guide to where to include deductions for rental properties in your tax return.

Repair

If you replace a part of something that is worn out, damaged or broken because of renting out the property, it's likely to be a repair. For example, replacing part of a fence damaged in a storm or getting in a plumber to fix a leaking tap. Claim repairs at Repairs and maintenance in the tax return in the income year the expense is incurred.

Maintenance

If you do work to prevent deterioration or fix existing deterioration to keep the property in a tenantable condition, it's likely to be maintenance. For example, getting faded interior walls repainted or having a deck re-oiled. Claim maintenance at Repairs and maintenance in the tax return in the income year the maintenance expense is incurred.

Initial repair

If you repair damage that existed when the property was bought (whether it was known about at the time of purchase or not), it's likely to be an initial repair. For example, fixing floorboards or repairing deteriorated window frames. Initial repairs are capital expenses and aren’t deductible. In some circumstances, the expense may be claimed as capital works deduction (generally 2.5% of the expense over 40 years). Claim these types of initial repairs at Capital works.

Capital works

If you renovate, replace an entire structure that's partly damaged, or add a new structure to improve the property, it's likely to be capital works. For example, replacing all the fencing, not just the damaged portion, or adding a carport. This should be claimed at Capital works, generally 2.5% of the expense over 40 years. Unclaimed costs can be used to work out your capital gain or capital loss when you sell the property.

Depreciating assets

If you install a new appliance or window covering, it's likely to be a depreciating asset and its cost must be claimed over the asset’s effective life. For example, buying a new dishwasher or installing new carpet. This should be claimed at Capital allowances.

Detailed guide

Find out about repairs, maintenance, improvements and capital expenses.

Repairs and maintenance

The cost of repairs and maintenance may be deductible in full in the year you incur them if:

• the expense directly relates to wear and tear or other damage that occurred while renting out the property
• the property either
  • continues to be rented on an ongoing basis
  • remains available for rent, but there's a short time when the property is unoccupied (for example, where unseasonable weather causes cancellations of bookings or all reasonable efforts to attract tenants were unsuccessful).

Repairs

To claim a deduction for the cost of repairs they must either:

• occur after your property was rented or made available for rent, and have been caused by the rental activity of the person making the claim (not from a previous owner), or
• caused by special circumstances beyond your control, such as a natural disaster or deliberate damage by tenants.

Generally, repairs can be claimed in full in the same year you incurred the expense.

Examples of repairs include:

• replacing broken windows
• repairing electrical appliances or machinery
• replacing part of the guttering damaged in a storm
• replacing part of a fence damaged by a falling tree branch.

Maintenance

Maintenance generally involves keeping your property in a tenantable condition. It includes work to prevent deterioration or to fix existing deterioration.

Examples of maintenance include:

• repainting faded or damaged interior walls
• oiling, brushing or cleaning something that is otherwise in good working condition (for example, oiling a deck or cleaning a swimming pool)
• maintaining plumbing.

Capital expenses to claim over several years

Find out about capital expenses you can claim over several years.

Depreciating assets (capital allowances)

Depreciating assets are items that can be described as plant, which don't form part of the premises. These items are usually:

• separately identifiable
• not likely to be permanent and expected to be replaced within a relatively short period
• not part of the structure.

When claiming a deduction for decline in value for each asset, you can choose to use either:

• the effective life determined for these types of assets
• your own reasonable estimate of its effective life.

Where you estimate an asset's effective life, you must keep records to show how you worked it out.

Examples of assets that deductions for decline in value can be applied to include:

• floating timber flooring
• carpets
• curtains
• appliances like a washing machine or fridge
• furniture.

Second-hand depreciating assets

Second-hand depreciating assets are depreciating assets that were already installed ready for use or used:

• by another entity (except as trading stock)
• in your private residence
• for a non-taxable purpose, unless that use was occasional (for example, staying at the property for one evening while carrying out maintenance activities would be occasional use).

You can’t claim a deduction for the decline in value of a second-hand depreciating asset used in a residential rental property, unless:

• you purchased the asset before 7:30 pm on 9 May 2017
• you installed it into your rental property before 1 July 2017.

Capital works

Capital works describe certain kinds of construction expense used to produce income.

The rate of deduction for these expenses is generally 2.5% per year for 40 years following construction.

When you sell the property, any unclaimed costs can be used to work out your capital gain or capital loss.

Capital works include:

• building construction costs
• the cost of altering a building
• major renovations to a room
• adding a fence
• building extensions such as garages or patios
• adding structural improvements like a driveway or retaining wall.

In some circumstances, initial repairs will also be treated as capital works.

Improvements

An improvement can be anything that makes the property better, more valuable or more desirable, or changes the character of the item that works are being carried out on.

Improvements can be either:

• capital works – a structural improvement (for example, remodelling a bathroom or adding a pergola)
• capital allowances – the item is a depreciating asset (for example, carpet or a dishwasher).

Improvements include work that:

• provides something new – for example, adding a gazebo or carport
• improves the income-producing ability or expected life of the property
• goes beyond restoring the efficient functioning of the property.

It's important to correctly categorise each expense incurred to ensure its treated correctly for tax purposes.

Initial repairs

Initial repairs are costs you incur to remedy defects, damage or deterioration that existed at the time you acquired the property to make it suitable to rent out. They are not immediately deductible. It doesn’t matter if you were unaware of the need to make repairs to the property at the time you purchased it.

Similarly, initial repairs to a depreciating asset when you purchased the property that aren’t from your tenant's use of the property, aren’t deductible.

Where an initial repair relates to capital items associated with the building structure, like kitchen cabinets, you can claim the cost as a capital works deduction. Generally, this deduction will be at 2.5% per year for 40 years.

Before renting the property out, if you replace an old depreciating asset with a new one, such as a new dishwasher, you can claim a decline in value deduction for this asset over its effective life.

The cost of remedying initial repairs that existed at the time of purchase form part of the CGT cost base when you sell the property. You must reduce the CGT cost base by amounts claimed (or that you were entitled to claim) as capital works for the initial repairs.

 

 

This is a general summary only.

For more information:

• see Residential rental properties
• watch our short videos at Rental property video series
• download our Rental properties guide
• read our Capital gains tax guide.