Repairs and Capital Works deductions

Discussion in 'Accounting & Tax' started by PFrankyX, 19th Jul, 2021.

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  1. PFrankyX

    PFrankyX Member

    25th May, 2020
    Gold Coast, Australia
    Hi all... I trust this may have been answered previously and I have searched, however I wanted to post specific on my property and hope to get the best advice.

    Property was rented out for a few years and we were notified last year of a mould issue and after an inspection and testing resulted in a long term leak that needed repairs.

    The tenants were given vacate notice due to the unliveable nature (mould) and repairs were arranged.

    The damage was in an adjoining ensuite & main bathroom that seen damage to the walls & floors as well as slow leak onto bedroom & hallway carpet and painting was also required to these areas to ensure it was habitable.

    We therefore had to demolish the entire bathrooms and rebuild to fix the leak and repair. This also included carpet to the bedroom & hallway as well as painting these areas.

    At the time, we opted to replace all carpet in the entire house and paint the entire house also.

    Is the advice that I have received of the bathroom/ensuite/hallway/bedroom repair costs as immediately deductable (approx 65% total cost) and the remaining painting & carpet as a capital work that is therefore deductable over 40yrs?

    For example, if the total cost was $30,000, 65% of costs being $19,500 and remaining $10,500, can I add a repair cost of $19,500 to claim immediately?
  2. Will Callaghan

    Will Callaghan Active Member

    1st Mar, 2021
    You can claim the repairs and maintenance items at 100% write-off in the financial year that the costs occurred.

    The extra “while we’re in there” work is broken down into their respective categories.

    Carpet (assuming cost is greater than $1,000) will go into the Diminishing Value Method schedule - claimed at 20%pa.

    ...if under $1,001 then it will go into the Low Value Pool schedule at 18.75% 1st year increasing to 37.5% forever after.

    Paint will go into the Capital works schedule - claimed at 2.5%pa

    Hope that helps (I do Tax Depreciation reports for a living)
    craigc likes this.
  3. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    18th Jun, 2015
    If the defects occurred prior to the tenancy vacating AND the property is expected to be rented then it may be a repair cost provided certain conditions are met. eg its not also a renovation etc. If the repairs are being made and the property use is changing to private use that may be slightly different or deductible. Hard to determine given the info.

    Existing carpet may be a write off ...if it not now in a pool. And the new commences.

    The apportionment of the costs is a risk and should be given advice. However a QS may be able to assess the works performed as each element of the total cost and provide a more diligent approach to that. This comes up with kitchens. If the invoice is a fixed sum and includes new appliances you cant just estimate what each element is. And if you asked the kitchen company they will show the appliance cost and miss the installed costs. You cant win. Thats a area where QS expertise and skills are recognised by the ATO in determining "cost" for each element. The ATO will accept a detailed and apportioned invoice but will also look at it with curiousity as its not unusual for a taxpayer to ask for the split based on their needs, not the facts. The ATO will disallow maters if you cant satisfy them its diligent and correct. And as ataxpayer you likley cannot do that. Its why accountants cant also apportion etc. I would be recommending you discuss that with a QS and you dont try to estimate it. The ATO would find that reckless and could deny the deduction, impose penalties etc. If you had a QS approprtion and produce a chedule for property inclusive of new works they can.