ATO and initial repairs

Just bought an IP with tenants already in place. Property is very rundown and there are a number of maintenance issues that need addressing.

How do I collect evidence to show the ATO that these repairs are maintenance (deductible) and not initial repairs (capital account)?

Is it simply taking a few photos to show the damage before replacing - e.g. Holes in guttering ?

 

Initial repairs are capital. You enjoyed a lower purchase price by acquiring a run down property and these costs now are bringing it back to a better standard than what it was when you paid for it.

If you took photo’s now and then suffered damage
from a tenant you could use that as evidence that the repairs brought the property back to its original state when you bought it.

 

No fair!

When does a repair then go from being an 'initial repair' to just a tax deductible repair?

I unnderstand repairs conducted before tenants are in place are initial repairs. but haven't heard a specific time period from when the tenants initially reside in the home stated as required to classify as a 'non-initial repair'.

 

Of course it is fair!

One would expect that you took the rundown condition of the property into account when making your offer to buy. Clearly you got it cheaper than if everything was perfect. Think of that as the baseline condition.

A repair is deductible when you REPAIR something to return it to the condition it was in when you bought the property. If a window is broken next week and you have to pay for it, that is a repair.

If the window was broken when you bought the property, by fixing it you are making an IMPROVEMENT. Not tax deductible, but depreciation may apply for improvements to the building.

So you can't just buy a rundown dump and expect the ATO to finance bringing it up to good condition.
Marg

 

If as an alternative you pay more for the same house in better condition, you simply pay more for it upfront without having to spend additional dollars on maintenance over the first few years of ownership.

Either approach gets you a property in good repair, one is a larger upfront payment, the other is a slightly lower upfront payment with several small incremental costs over the first few years.

Broken windows are an easy example to use, others don't seem as clear cut.

I will seek specific advice, thanks for your feedback.

 

Capital cost.

Might not even be depreciable.

Fair doesnt matter.