Tax deductions for repairs, maintenance and improvements

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Income tax deductions can be immediately claimed for costs in repairing and maintaining a rental property in the year that you have paid them. Improvements, however, cannot be immediately claimed under income tax. Instead, improvements must be filed under capital works deductions and depreciated over time or as plant and equipment depreciation. Knowing the differences can enable you to lodge forms correctly and receive deductions you are entitled to.

The ATO defines repairs to be “work to make good or remedy defects in, damage to or deterioration of the property.” These are usually one-off adjustments and are often based on accidental or deliberate breakage or being worn out over time. Projects that could fall under repairs are fixing a fence due to a falling tree or replacing a faulty electrical socket. Maintenance is defined as “work to prevent deterioration or fix existing deterioration.” This can include projects such as painting a property, oiling a deck or upkeeping the property’s plumbing.

Improvements occur when the condition or value of an element of the property is enhanced beyond its original state at the time of purchase. Improvements turn the item into a more valuable or desirable form, state or condition than a small repair would do. They can include projects such as remodelling kitchens or bathrooms, or extending the size of a house. If work provides something new, furthers the income-producing ability or expected life of the property or changes the character of the item that has been improved, the ATO will classify it as an improvement and will require it to be filed accordingly.

A project that includes both repairs and improvements on a rental property can only claim income tax deductions for the cost of your repairs, providing you can separate the cost of the repairs from the cost of the improvements.

For all lodging processes, detailed documentation is required by the ATO such as the property’s rental income, deductible expenses paid, costs of purchasing and acquiring the property, conveyancing contracts, loan documentation and any supporting evidence of repairs and improvements from builders or contractors hired.

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