Thinking about adding a bit of paint to your new investment property? While it may brighten the place up, the Australian Taxation Department have pulled the purse strings tighter when it comes to claiming a deduction on repairs.
The thought of an investment property is daunting to some, the up keep, the demand in the rental market and the demand placed on yourself as a property owner. While they’re all important aspects to consider, does anyone consider the tax side of things?
The ATO has become increasingly sceptical on the number of repairs carried out on recently bought investment properties and are now looking closely to distinguish an improvement from a repair.
While repairs are inevitable in an investment property, from the perspective of the ATO, “initial repairs” are changes to the original condition of the property and are therefore deemed non-deductible and are costs incurred by the capital account.
What you can actually you can do:
Step 1: Buy an investment property.
Step 2: Rent the property.
Step 3: Carry out repairs to restore the property to its original state.
Step 4: Claim for a deduction at tax time for the repairs.
When carrying out repairs, it is important to note that any changes to the original condition of the property are in fact considered improvements. The ATO can choose to ask tax payers for substantial evidence that the repairs are in fact not improvements to the original condition.
The ATO has released a set of guidelines to determine whether your “repair” could be considered an improvement;
- The item replaced or renewed was a major and important part of the structure of the property.
- The work performed did more than meet the NEED for restoration of efficiency and function. (Please note: A repair is something that involves the restoration of the original condition without change of character.)
- The replacement was a newer, better version.
- The replacement has considerable advantages over the old item – Such as the likelihood of reduced repair bills.
Do you have an investment property to repair and want to know more? Do you plan to buy one soon? There’s no better time to visit with tax time just around the corner. Contact us today! (08) 9474 6333