Question about deductibility of maintenance costs

Hello, I would like some advice on deductibility of expenses for an investment property.
On the first of July I will move out of my current PPOR, which will become an investment property. I need to have some rectification work done to my solar system to take it up to current standards. If the work is done during the month of June while I’m still living in the property, can I consider this to be maintenance work done to prepare the property for rental and therefore deduct the cost from my taxable income?
What about a service to the aircon system done at the same time?
Thanks.

 

It likely would be considered by the ATO as an initial repair since the defect is evident prior to the tenancy. Even a unknown ssue falls into this. eg The day the tenant moves in its found the sewer is root bound. The roots didnt grow that day.

Costs preliminary to income production are never deductible as they fail the nexus to the income being produced due to timing

Servicing the AC would also be preliminary unless performed aftre you move out.

 

might be some Div 40 or Div 43 if new but if it's a repair then probably nothing

 

So, if understand right, the repair to the solar system is not deductible even if it’s performed after the property is tenanted, correct?

 

Simplistic way of looking at it.

The house is in a certain condition when you first rent it.
Repairs, to bring the house back to the condition it was in when first rented are usually deductible.
Fixing any defect present when first rented is an improvement, and generally not deductible.

So if the solar needs repair now, it won’t be a deductible expense no matter when you do the repair.

So basically you can’t have a run down house then gradually renovate it at taxpayer expense.

But, as always, get professional advice to be sure.

 

This makes perfect sense, and I’m aware that my comment below will not make any difference on the answers I’ve received already (which I’m totally fine with btw), but just for the sake of clarity, renovating my house at the taxpayer expense is not what I want to do.

The property is an almost new, higher end house, and the solar system is very recent, but it was installed by a cowboy electrician and needs to be brought back to compliance to the code. I would compare this work to having to install linked smoke detectors in a property prior to renting it out.

I also know that I could have it done for free under warranty by the original installer but I’d rather pay someone who know what they’re doing.

 

It doesnt matter when the repair is conducted and paid. It is a question of when the solar unit was in need of maintenance. If that occurs prior to tenancy the cost is non-deductible but can be depreciated. Repairs must have a nexus to the period of tenancy. I see rental where aftre 6 months there is need for $6K of repaint and maintenance. Unless the tennat has trashed the place the costs isnt deductible. The ATO will seek information such as P&B report that shows the damage wasnt evident earlier. eg storm damage etc. Heaps of people get affected by this. There is a high audit review risk for large repairs within the first year etc without reason.

 

All the answers keep referring to “repair” and “maintenance” which are activities needed to rectify wear and tear occurred over time, but once again this is not what I’m talking about. If that was the case, I would not be asking the question as I understand that the cost would only be deductible if the wear and tear occurred during the income producing period.

My situation is different: the system was incorrectly installed and I want it to be brought to be compliant to current electrical code, for safety reasons, before renting out the house.
Think installing smoke detectors compliant to current code on a property which doesn’t have compliant smoke detectors. Would this cost be deductible?

I’m not trying to get the answer I want; if my clarification doesn’t change the answer to my question, I’m absolutely fine with it and I will cover the cost anyway, I just want to make sure that my situation is clearly understood..

 

Repair and maintennace are generally similarand the tax ruling explains the legal concepts and ATO views. However not all maintenance is deductible eg Pruning a tree that seems healthy is non-deductible as there is no defect. Changing the materials may also fail to repair and be a enhancement etc Changing functionality eg upgrade a switchboard and replace wiring. Termite ridden limbs are OK... There is a defect. Performing works to correct defects prior to use will be capital in nature irrespective of value. It is preliminary to income. Its is not a rectification of tenant damage or tenant wear and tear. Private expenditure to repair a evident defect prior to tenancy if the premises were not ever used.... its a initial repair. If it was your house its private ...but depreciable from the date first used to produce income IF Div 40 allows it. If the old unit was previously used only the new works may be eligible if the old element was a used asset. There is a bit not known.

Capital expenditure isnt made deductible through changes and additions. Its like putting a crated new engine into a car because the old one doesnt work. However, rebuilding the existing engine could be deductible. Adding a blower and mods to the car etc wont be. For an enhancement / improvement depreciation applies from the time installed and first used to produce income. Its capital. An exception can be absestos replacement only because a deductible provision ...while tenanted.

This is a area where seeking advice from YOUR tax adviser can avoid penalties andensure mistakes are minimised.

 

Ok thanks, I think I know the answer now. If I understand right it will be a capital expenditure. I am planning to get a tax advisor soon, but right now I just wanted to know if postponing the work to be done after the house is tenanted would have made a difference or not, which it doesn’t, so I’ll have it done straight away.

If I borrow to cover the cost of this capital expenditure, is the interest deductible? Again, I’m just asking right now to understand if it’s worth using debt recycling to pay for the cost or not, I’ll put everything in the hands of a tax advisor soon.

 

Surely this should have been addressed immediately for the safety of you and your family?

 

No. Postponing doesnt change anything. Its like breaking your leg at weekend soccer and trying to argue it occurred at work on Monday

Yes, internet would be deductible when the borrowed funds can be directly used for acquisition, outgoings (except paying loans), maintennace or capital expenditure and improvements for the property.