Drainage work repair, maintenance or capital work?

Discussion in 'Accounting & Tax' started by Riddle, 24th Oct, 2021.

Join Australia's most dynamic and respected property investment community
  1. Riddle

    Riddle Member

    Joined:
    21st Jul, 2018
    Posts:
    8
    Location:
    Melbourne
    My IP had an under driveway drainage issue(cost about $11,000) which was leaking to my neighbors. We had to cut the concrete, fixed it and re-concreted it. For tax purpose, would that be considered repair, maintenance or capital work?

    I also have the same question for the fence, had to get a new fence for one side as neighbors was worried about my tenant's bulldog.
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Assuming there are no initial repairs its possible its a repair. A repair fixes a defect. eg a leak. You didnt replace the driveway but also repaired it after access.

    Being worried about a dog may be insufficient grounds for a repair. There must be a defect to have a deductible repiar. Replacing something "just in case" may fail the test of deductibility. We see that with trees. Big tree and someone fears a limb and they call in the tree lopper. Thats not deductible. However if it had termites etc then it is.

    Good questions for your tax adviser.
     
    Riddle likes this.
  3. Kim_DuoTax

    Kim_DuoTax Active Member Business Member

    Joined:
    9th Jul, 2021
    Posts:
    36
    Location:
    Australia
    ATO states an expense can be claimed as a repair or maintenance cost if the expense does not change the character (material, quality or function) of that item and brings it back to its original state. If there is any improvement in the character of that asset, then its considered a capital improvement/works and will be depreciated over the effective life.

    Regarding your fence, this would be considered an improvement as I am assuming you're not replacing the fence with exactly the same fences quality or character and going with something of stronger material.
     
    Riddle and Heinz57 like this.
  4. Riddle

    Riddle Member

    Joined:
    21st Jul, 2018
    Posts:
    8
    Location:
    Melbourne