Expenses incurred and depreciable assets
With the arrival of the new Financial Year upon us, landlords are currently preparing tax returns for their investment properties.
A significant expense for owners of property investments is the repair work done to maintain a property. However, knowing what you can and can’t claim as part of your tax return is very important.
The Australian Tax Office defines a repair as ‘restoring something to a working condition’: in other words, it should not be made better than before.
For example, if the tiles in the bathroom are broken, retiling that area is accepted as a repair. However, using a few broken tiles as an opportunity to remodel the entire bathroom will be judged as an improvement by the ATO and therefore a capital cost which cannot be claimed as an expense.
Capital costs can, however, be depreciated. The ATO recognises that certain items in a home lose their value over time and has a schedule of more than 150 types of items and the accepted ‘depreciation life’ for them.
Many investors engage a Tax Depreciation specialist as soon as they purchase a property to provide a report showing what can be depreciated, including any recent improvements done to the property. It is worth noting that just like the fees paid for Property Investment Managers, the cost of these depreciation reports are a tax deductible expense.
But remember, as always, you should consult your tax accountant for clarification about any taxation related queries you have.