Claim deductions on rental property

If you have a rental property in need of some care, you may be able to claim a tax deduction. Repairs are tax deductible in the year you incur the expense, provided the property earns rental income.

According to the Australian Taxation Office to repair something means to remedy or make good defects in, damage to, or deterioration of, the property. A repair merely replaces a part of something or corrects an existing worn out part. Also, the work restores the efficiency of function of the property without changing its character.

 Examples of a repair include:

• replacing broken windows

• repairing electrical appliances

• replacing part of the guttering damaged in a storm

• replacing part of a fence damaged by a falling tree branch.

 However, repairs are capital in nature if:

• the works result in an improvement rather than a repair, or

• the work is an initial repair (that is, the defect existed at the time you acquired the property), or

• the extent of the work carried out represents a renewal or reconstruction of the entirety (for example, a complete kitchen renovation).

The following are improvements, not repairs:

• replacement of a dilapidated ceiling with an entirely new and better version

• replacement of canvas awnings on the balconies of holiday flats with sound­ resistant double-glazed partitions to prevent noise pollution

• replacement of a rotten wooden floor in a block of flats with a better, longer-lasting and more moisture-resistant concrete floor

• replacement of cupboards as part of the refurbishment of the whole kitchen

• landscaping or insulating a house.

 Capitalised costs, such as these, are instead written off over time (usually either 25 or 40 years).

Credit: Article ‘Claim deductions on rental property’, Mark Chapman, from Money Magazine ‘Best of the best 2024’