Tax Treatment: Repairs and Capital Works

It’s tax time again! If you own residential or commercial investment property and have spent money during the financial year on repairs, maintenance or other improvements, then you will be wanting to claim these as a tax deduction.

In June 2019, the ATO advised that it will be paying close attention to those who attempt to claim capital works expenditure as repairs and maintenance. So, what’s the difference?

Generally, expenditure on repairs and maintenance is something that is directly attributable to the generation of income.  This means that, generally, such costs are fully claimable for the relevant financial year. Understanding what constitutes repairs is also important in preparing and recovering outgoings from tenants. 

Examples of repairs and maintenance:

  • Patching walls
  • Fixing taps
  • Replacing fence palings
  • Replacing cracked tiles
  • Gardening services
  • Cleaning gutters
  • Having smoke detectors checked

Generally, capital expenditure involves the acquisition of assets or the completion or works on items that are to be used for income producing purposes over longer periods. Expenditure on capital items will not be immediately claimable but may be depreciated over a number of years depending on the effective life and value of the asset.

Examples of capital expenditure:

  • Replacement of an asset (i.e. air conditioner)
  • Replacing a worn paling fence with a brick fence
  • Purchasing new equipment, machinery and plant
  • Substantial improvements to an item or property (i.e. installing new ceiling)

If you would like more information about repairs, capital works and deductions, please visit our website or give us a call.

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