ATO has recently revealed it will be targeting rental property income and deductions this tax season.
One of the most common mistakes made by property investors when claiming tax deductions is repairs, maintenance, and improvements.
According to ATO, the repairs and maintenance costs must relate directly to ‘wear and tear or other damage that occurred as a result of renting out the property.
Repairs mean work to make good or remedy defects in, damage to, or deterioration of the property. It generally involves a replacement or renewal of a worn-out or broken part (e.g. replacing guttering damaged in a storm, fixing a fence damaged by a falling tree branch, etc).
Maintenance is preventing or fixing existing deterioration (i.e. painting the property, oiling the deck, etc.).
Improvement means work that provides something new; furthers the income-producing ability or expected life of the property; changes the character of the item you have improved or goes beyond just restoring the efficient functioning of the property.
Any costs incurred to repair or maintain your investment property can be claimed as an immediate tax deduction in the year of the expense.
You cannot claim the total costs of ‘improvements’ in the year you paid them as they are capital expenses and claimable over a number of years as capital works deductions or deductions for decline in value.
If you carry out a project that includes both repairs and improvements to your property, we recommend you ask for an itemised invoice so that you can work out the cost of repair items to claim a tax deduction.
Get in touch with us today if you have any questions on claiming tax deductions for investment property expenses.
Disclaimer: This article is provided as general information only and does not consider your specific situation, objectives, or needs. It does not represent accounting or tax advice upon which any person may act. Implementation and suitability require a detailed analysis of your specific circumstances. Before taking any action, consider your own circumstances and seek professional advice.