Hi All,
Have read a number of posts regarding my topic, and there seems to be a bit of confusion as to what exactly a repair or improvement is and whether they are tax deductable.
Does anyone know of some websites apart from the ATO, that simply lists what is or isn’t tax deductable?
Thanks,
Ian
Hi Ian,
I doubt whether you’ll find such a site. To be honest, this forum would be your best resource. As you said this issue has been discussed a few times.
Admittedly, it is a bit of a grey area. Essentially, a ‘repair’ is something that restores an item to its original state i.e. fixing 3 bung elements on a stove or patching a hole in a fence. If you elect to replace the whole structure, it becomes an improvement as opposed to a repair. You can patch that fence until the whole thing is a collection of patches and each patch will still be a repair – ref: TR97/23.
Timing is also an issue. Let’s say you have a door that is peeling and needs painting. If you do it after settlement and prior to renting the place out, it’s regarded as a ‘cost of acquisition’ and not claimable at all. If you do it after you have been earning income from the property, it would be a repair.
Not sure whether this has cleared anything up for you or confused you further. Feel free to email me.
ScottTax Depreciation Schedules
Australia wide service
1300 660033
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http://www.depreciator.com.auAmbo72,
Repairs and Maintenance, not improvements are deductible. For example if the house needed painting when you bought it then painting it would be an improvement or if the house did not have a garden hose then purchasing one would be an improvement, therefore not deductible. On the other hand if during the time of your ownership the hose wears out and you replace it or the paint starts to peel and you repaint, these expenses would be a deduction. No deduction is available for your own labour. Take care to perform repairs only when the premises are tenanted or in a period where the property will be tenanted before and after with no private use in the middle (IT180). Do not make repairs in a financial year during which you may not receive any rental income (IT180). If a property is used only as a rental property during the whole year then a repair would be fully deductible even though some of the damage may have been done in previous years when the property was used for private purposes (TR 97/23). Note this does not apply if the damage was done in a period you did not own the property. If the state of disrepair the property was in at the time you purchased it is directly responsible for further damage when you own it, all the repairs relating to that damage are considered improvements (Law Shipping Co. UK). A repair can become an improvement if it does not restore things to their original state (case M60) i.e. replacing a metal roof with tiles. The whole cost of the tiled roof would be an improvement and no deduction would be available for what it would have cost you to put up another metal roof. But a change is not always an improvement. In ID 2002/330 the ATO states that the cost of removing carpets and polishing the existing floorboards is deductible. Yet in ID 2001/30 underpinning due to subsidence was considered by the ATO to be an improvement not a repair. It is not necessary to use the original materials to restore the thing or structure to its original state. Modern materials can be used even when these might be a slight improvement because they are more efficient. As long as the benefit is only minor or incidental it can still be considered a repair.
Work that replaces the whole thing or structure is an improvement not a repair. So don’t pull down all of the old fence and replace it just replace the damaged area. TR 97/23 recognises that eventually the whole thing or structure may be replaced in a progression of repairs. These repairs are still deductible providing each repair is on a small scale, the progression is over a long period of time and that it is not just in reality a replacement done over time but individual repairs.
Tree removal is claimable if the tress have become diseased or infested during the time of ownership. Removal is also claimable if the tree is causing damage such as roots interfering with pipes and the damage was not present when you purchased the property. If a tree is removed because it may cause damage in the future or you are fed up with the leaf litter that has always happened since you bought the property, then you are making an improvement which is not deductible.
Note improvements that are still present when the property is sold can increase your cost base for CGT purposes.Julia Hartman
[email protected]
http://www.bantacs.com.au
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