Buying an investment property and claiming deductions for repairs, maintenance, and capital works

Suppose you just purchased an investment property. My understanding is:
1. If you buy a property and make repairs to it before it is rented out, then you can't claim that as a deduction.
2. A property must be constructed after 1985 in order to claim any capital works such as kitchen renovations.
3. Suppose it has been occupied by a tenant, then you can claim any repairs or maintenance that you perform after they have occupied the property e.g. lawn upkeep, pest control.

Yet, I've heard others saying that Div 43 can even apply if a residential property is constructed way before 1985, and that you can claim any expenses incurred in making the property habitable prior to it being rented out.

Care to shed some light?

 

1. Yes. Initial repairs are possibly eligible for Div 43
2. No.
3. Yes, provided the cost is not capital in nature in which case it may be depreciable. There are some unusual expections. I will use a client example. Purchased property in 2010. 2016 a cyclone caused damage and needing roof repairs. Full cost of the roof was deductible. (A roof is a part of the building not the whole)

The age of the property doesnt guide Div 43 capital allowances. The date when these costs were first used to produce income is more relevant.
- You buy a 98 year old property that has a 2010 extension / renovation etc
- You (or former owners) install new improvements and structural enhancements eg renovation, kitchen etc eg The Block Glasshouse.
- A share of strata capital works may enhance Div 43.
- An extensively renovated property may have oads and loads of Div 43. Very common to inner city dwellings in most cities. Old exterior. New heart. eg new flooring, linings, plum,bing, wiring etc

This is the realm of a QS to attend to site and identify such things.

 

I'm really keen to understand more about this too, speficially:

So, in the scenario where I purchased an IP, settled and added some value by improvements (carpet, paint, bathroom etc) but BEFORE they moved in - would this still be tax deductible and be able to be depreciated? Trying to glean when the best time to undertake these basic improvements would be and maximise the tax concession

 

The could be claimed via depreciation with some being building costs and some being fixtures and fittings.

if they were genuine repairs they would have been claimable in full - but not for 'initial repairs'.

Tax Tip 206: What are ‘initial repairs’ and why they are not deductible? Tax Tip 206: What are ‘initial repairs’ and why they are not deductible?

 

Initial repairs and improvements are capital in nature and not deductible. The rationale for this is the defects were evident when the price was agreed (even if not evident !!) and therefore the buyer paid less expecting to remedy those defects. Also the property damage is not a repair, and the defect is not attributable to the taxpayer production of assessable income ie it is damage prior to tenancy. Waiting until the tenant occupies doesnt change anything either as the damage doesnt relate to the tenant.

These may be eligible for Div 43 capital allowances - which assume a 2.5% pa deduction.