Repairs and maintenance or capital improvements?
Concerns about the cost of repairs and ongoing maintenance for an owner’s investment property can be reduced by claiming back these costs when an investor is completing their tax return. Before an investor can start to tally deductions, it is necessary to understand the difference between claiming repairs, maintenance and capital improvements.
Repairs and maintenance
Work completed to fix damage or deterioration of a property is defined as repairs, e.g. fixing part of a damaged fence.
Work completed to prevent deterioration to a property is defined as maintenance, e.g. servicing an air conditioner.
A deduction for expenses incurred because of repairs or maintenance on an investment property can be claimed completely within the current financial year.
Improving the condition or value of an item beyond its original state at the time of purchase is defined as capital improvements. Capital improvements must be depreciated or claimed as capital works deductions over time. Capital improvements are classified as either capital works deductions or plant and equipment. Capital works deductions include structural additions and renovations such as adding and extending an internal wall and also includes items fixed to the property which cannot easily be removed. Plant and equipment items include removable or mechanical items such as carpet, hot water systems and stoves.
To determine how expenses on an investment property should be claimed, an investor can consider the following questions:
Has the property or item been improved beyond its original condition at the time of purchase?
If an item provides something new or changes the character of the original item in any way, it will be considered a capital improvement.
Was the asset partially replaced, or replaced entirely?
Partially replacing an item due to damage or wear and tear is classified as repairs and maintenance. If an owner decides to replace the entire item to improve the property’s value, it will be considered a capital improvement.
A BMT Tax Depreciation Schedule will only include items classified as capital improvements. Repairs and maintenance can be separately claimed as a 100% deduction with an Accountant when an investor is completing their tax return.
To request a depreciation schedule from BMT Tax Depreciation click here.
BMT can also answer questions about alterations, additions, repairs or improvements and the implications they may have on depreciation. To speak with one of their expert staff, phone 1300 728 726.
This article originally appeared online at www.bmtqs.com.au/mav-33-repairs-and-maintenance
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.