Can you claim the cost of repairs you make before you rent out the property?
You cannot claim the cost of repairing defects, damage or deterioration that existed when you obtained the property, even if you carried out these repairs to make the property suitable for renting. This is because these expenses relate to the period before the property became an income-producing property.
Can you claim the cost of completely replacing something?
If you have to replace something identifiable as a separate item of capital equipment (such as a complete fence or building, a stove, kitchen cupboards or a refrigerator) you have not carried out a repair. This means you cannot claim the entire replacement cost you incurred in the year you incurred it. However, you may be able to claim the cost as a capital works deduction or a deduction for decline in value.
Can you claim the cost of improvements?
You cannot claim a deduction for the total cost of improvements to your investment property in the year you incur them.
When we say ‘improvement’ we mean work that:
- Provides something new
- Generally furthers the income-producing ability or expected life of the property
- Generally changes the character of the item you have improved
- Goes beyond just restoring the efficient functioning of the property.
If you conduct a project that includes both repairs and improvements to your investment property, you can only claim a deduction for the cost of your repairs if you can separate the cost of the repairs from the cost of the improvements.
If you hire a builder or other professional to carry out these works for you, we recommend you ask for an itemised invoice to help work out your claim.
Caitlin has modernised her investment property by hiring tradespeople to render and paint the external walls. She also asked the painter to paint the internal walls, which had deteriorated during the time she rented out the property.
As Caitlin requested an itemised invoice from the painter, she could separate the cost of the internal and external painting, and rendering. Due to this, she could claim a deduction for the cost of painting the internal walls as a repair.