Understand how repairs and maintenance can be claimed as tax deductions.
What is a Repair or Maintenance?
Repairs or maintenance is basically fixing things that are broken or don't work the way they should. It refers to the expenses incurred to restore or maintain the asset without changing its character. This could include things like fixing defects, renewing parts, or addressing wear and tear.
Deductible Repairs or Maintenance
You can claim a tax deduction for expenses relating to repairs, maintenance, or replacement of machinery, tools, or premises you use to produce business income. For instance, if you own a rental property and you incur costs for fixing a leaky roof or repainting faded walls, these expenses can be claimed as deductions.
When does Depreciation apply?
Depreciation applies when an asset’s value decreases over time due to wear and tear or obsolescence. Under Australian tax law, you can claim a deduction on your taxable income for the depreciated value of assets over time. For example, if you own a business and you’ve purchased machinery for it, you can claim the depreciated value of that machinery over its effective life.
Capital costs refer to the expenses incurred in building the property or carrying out structural improvements, alterations, and extensions to the property. These costs are not immediately deductible but can be claimed over time as tax depreciation. For example, if you’ve added a new room to your rental property, this would be considered a capital cost and its value can be depreciated over time.
The Role of a Quantity Surveyor
A specialist Quantity Surveyor documents every qualifying asset in a property and calculates their depreciable value to ensure that the investor maximises their deductions. This includes measuring rooms, recording assets’ brand or model numbers, and photographing improvements at the property. Engaging a Quantity Surveyor can help you take full advantage of depreciation deductions for your investment property.
Record Keeping Requirements
The Australian Taxation Office (ATO) requires you to keep most records for five years, starting from when you prepared or obtained the records, or completed the transactions (or acts they relate to), whichever is the later. You must have written evidence to prove your deduction claims if your total claims exceed $300. Proper record-keeping ensures you don’t pay more tax than you need to.