Are All Repairs & Maintenance Tax Deductible?
Maximising Tax Benefits for Your Investment Property: A Guide for Smart Investors
Owning an investment property comes with its fair share of responsibilities, and one aspect that can't be ignored is the occasional need for repairs. The good news is that savvy property owners can leverage some excellent tax benefits to offset these costs, making the process more manageable and financially sound.
As we approach the end of the financial year, it's an opportune moment to delve into the tax benefits available to property investors.
Understanding the Distinction Between Repairs and Improvements
When it comes to tax claims, it's crucial to distinguish between repairs and improvements, as they are treated differently. This knowledge is key to streamlining your tax return without unnecessary complications.
Repairs, according to the Australian Taxation Office (ATO), involve restoring something to its original state. This means fixing a broken element and returning it precisely to its pre-damaged condition. For instance, repairing a broken window with the same materials and glass used initially qualifies as a repair. However, any changes that enhance the item, such as switching from wood to metal or adding a double pane of glass, fall under the category of improvements.
Repairs are generally tax-deductible, provided they meet the appropriate criteria. Common repair examples include cleaning stained carpets, plastering damaged walls, fixing garage doors, and repairing appliances. It's important to note that replacing a damaged appliance with a new one does not qualify as a repair.
On the other hand, improvements alter the nature of the property, making it more valuable and desirable. Upgrading an item with higher quality materials is considered an improvement. For example, replacing a broken air conditioning unit with a more efficient model falls into the improvement category.
While improvements may not provide an immediate tax benefit, property owners can still reduce their tax liability in the long run. This can be achieved through claiming depreciation on the wear and tear of property features. Additionally, costs associated with major renovations may qualify for capital works deductions over several years.
Is Maintenance on Rental Properties Tax Deductible?
Maintenance, distinct from repairs, involves preventive work designed to avert future damage and keep the property in top condition. Tasks like routine gardening, plumbing, cleaning, repainting, and re-oiling wooden decks fall under maintenance. Generally, maintenance expenses are tax-deductible and can be claimed as Repair and Maintenance on your rental schedule.
Other Deductible Expenses for Your Rental Property
Apart from repairs and maintenance, there are several other expenses that property owners may be able to claim as an immediate deduction. However, it's essential to consult with your accountant to ensure eligibility. Possible deductible expenses include:
1. Advertising to find tenants
2. Body corporate fees and charges
3. Council rates
4. Water charges
5. Land tax
6. Cleaning
7. Gardening
8. Pest control
9. Insurance
10. Interest expenses
11. Property manager fees and commission
12. Some legal expenses
Property investors have various options to reduce taxable income and recoup some, if not most, of their money spent on repairs. Depreciation deductions, especially for improvements, can be significant. However, it's imperative to always consult with an accountant before making any decisions regarding taxation. An accountant can help develop an optimised tax strategy tailored to your investment portfolio, ensuring you make the most of available benefits.
If you have any further questions regarding investing please feel free to get in touch with Next Level. You can contact us either by calling 0402 866 885 or sending an email to info@nlproperty.com.au. We are here to assist you and are eager to provide any additional support you may need.
