Taxpayers who have work done on their rental property should consider the following factors in determining claims for expenses.
Repairs and general maintenance are expenses for work done to remedy or prevent defects, damage or deterioration from using the property to earn income. These expenses can be claimed in the year the expense occurred.
Initial repairs include any work done to fix defects, damage or deterioration existing at the time of purchase. These are capital repair expenses and cannot be claimed as a deduction.
Capital works are structural improvements, alterations and extensions to the property, claimed at 2.5% over 40 years (with some exceptions). Deductions for capital works can only be claimed after the work has been completed.
Improvements or renovations that are structural are also capital works. Work going beyond remedying defects, damage or deterioration which improves the function of the property are improvements.
Repairs to an ‘entirety’ are also capital and cannot be claimed as repairs. Repairs to an entirety generally involve the replacement or reconstruction of something separately identifiable as a capital item (for example, a depreciating asset).
Depreciating assets must be claimed over time (as ‘capital allowances’) according to their ‘effective life’.
