The cost of a repair or maintenance can generally be deducted in full in the year it is incurred when it deals with wear and tear or other damage that happened while the property was rented out. Repairs to damage that was already there when the property was bought are capital, and so are improvements: they can’t be claimed straight away, some may be claimed over several years, and what is left unclaimed counts toward the capital gain or loss on a sale.
General informationThe ATO’s categories in plain words, not advice about any job or claim. The ATO’s page on repair and maintenance expenses is the place to check, and a registered tax agent can advise on a particular claim. Figures in the example are illustrative.
Five kinds of work
The ATO’s tax time material for investors sorts work on a rental into five kinds, each with its own timing.
| Kind | What it is | The ATO’s examples | When it is claimed |
|---|---|---|---|
| Repair | Fixing or replacing part of something worn out, damaged or broken because the property is rented out. | Replacing the storm-damaged section of a fence; a plumber fixing a leaking tap. | Generally in full in the year it is incurred. |
| Maintenance | Work that prevents deterioration, or fixes deterioration already there, to keep the property fit to rent. | Repainting faded interior walls; re-oiling a deck. | In the year, on the same two conditions as a repair (below). |
| Initial repair | Repairing damage that existed when the property was bought, whether or not anyone knew of it then. | Fixing broken floorboards; repairing deteriorated window frames. | Not at once. Structural items can be claimed as capital works over several years. |
| Capital works | Renovating, replacing a whole structure that is only partly damaged, or adding a new structure. | Replacing all the fencing, not only the damaged part; adding a carport. | Over several years. |
| Depreciating asset | Installing a new appliance or window covering. | A new dishwasher; new carpet. | Over the asset’s effective life. |
The last two have detailed rules of their own on rates and schedules, which this guide leaves to the ATO’s capital expenses page.
The two conditions for claiming in the year
The damage came from the renting. The cost relates directly to wear and tear or other damage that happened while the property was rented out.
The property is still earning, or ready to. It continues to be rented on an ongoing basis, or stays available for rent on commercial terms, even through a short empty spell, such as bookings cancelled by unseasonable weather.
An owner who has stopped renting may still be able to claim a repair if both the need for it arose while the property was producing income, and the property produced income in the year the cost was incurred.
Damage that came with the property
Initial repairs are works on damage that existed when the property was bought; the ATO’s examples include painting scuffed walls and repairing damaged floorboards. They can’t be claimed as an immediate deduction, and it makes no difference that the owner didn’t know about the problem at the time of purchase.
They still count. Where they are capital works, their cost forms part of the cost base for capital gains tax when the property is sold, reduced by any amounts claimed, or that could have been claimed, as capital works deductions for them.
When a repair becomes an improvement
For the ATO, an improvement is work that leaves part of the property better, worth more or more wanted, or that alters the nature of the thing worked on; a renovation is one example. Improvements include work that:
- provides something new
- adds to the property’s ability to produce income, or to its expected life.
An improvement is capital works when it is structural, and a capital allowance when the item is a depreciating asset.
Two jobs on one invoice
When repairs and improvements are done together, the repair can be deducted only if its cost can be separated from the cost of the improvement. That is why the ATO recommends asking a builder or other professional for an itemised invoice. Each expense record must also include the supplier’s name, the amount, what was supplied, the date the expense was incurred and the date of the document.
Illustrative example, not a real caseOn one visit a plumber replaces a worn section of pipe that burst while the property was let ($600), and installs an outdoor tap where there was none before ($900).
- Itemised: on these assumed facts, the $600 pipe work is a repair, and the $900 tap provides something new, so it is an improvement and capital.
- One lump sum of $1,500, with no breakdown: the repair can’t be separated from the improvement, so under the ATO’s rule it can’t be deducted as a repair.
Three more lines the ATO draws
The owner’s own labour
An owner who does the work themselves can’t claim the value of their own labour, but can claim the materials bought for it.
Body corporate levies
Payments into the body corporate’s administration fund for a rental unit can be claimed in full in the year they are incurred. Money raised for a special purpose fund, such as major capital improvements or repairs of a capital nature, can’t be claimed straight away.
A holiday home that is also rented
Repairs and maintenance become an ownership and use expense, claimable only if the home is used, or held for use, mainly to produce assessable income.