Upgrading your investment property can propel it into its next stage of growth, but it can cost a pretty penny along the way.
Knowing which costs are immediately claimable from a tax perspective, and which ones are not, can make all the difference when preparing your reno budget.
Early on, the question must be asked: which repair costs can be funnelled back to you through the means of a well-prepared tax claim? And which costs are classed as a renovation, and are therefore added to your cost base – making their benefit known only once you sell the property?
The Australian Taxation Office (ATO) stipulates that a rental owner is entitled to claim the costs of any type of work done to an investment property, provided that the expense ultimately contributes towards its overall maintenance and repair.
By ‘repairs’, the ATO hones-in on any corrections that are made to damages, defects or instances of ‘wear and tear’, inflicted on the property during the time it is rented out to tenants.
“To repair something means to fix defects, including renewing parts. It does not include total reconstruction,” the ATO confirms.
So, in practice, whilst the replacement of a broken shower head or the re-sealing of a leaking bathtub are both considered tax claimable, transforming a perfectly functioning bathroom into an Art Deco meets Moroccan affair wouldn’t necessarily inspire the tax office’s seal of approval.
On the other end of the spectrum to ‘repairs’, there are the costs that are put towards the ‘maintenance’ of the rental property, which are also tax deductible. But what types of work does this cover?