Deductions for repairs, maintenance and improvements are areas the Australian Taxation Office pay particular attention to on annual tax returns. For this reason it is important that investors understand the difference.
Repairs are considered work completed to fix damage or deterioration of a property, for example replacing part of a damaged fence.
Maintenance is considered work completed to prevent deterioration to a property, for example oiling a deck.
Any costs incurred to repair or maintain a rental property can be claimed as an immediate 100 per cent deduction in the year of the expense.
A capital improvement occurs when the condition or value of an item is enhanced beyond its original state at the time of purchase. This must then be classified as either a capital works deduction and depreciated over time or as plant and equipment depreciation. An exam
ple of a capital works deductions could be replacing the kitchen cupboards. If any plant and equipment items are removed and replaced, for example an air conditioner, this will also be considered a capital improvement.
Investors considering completing any work to their property should contact a specialist Quantity Surveyor for advice before they start work.