Repair/maintainance or improvement?

[zayne]

Hi all,

Just wondering how do you determine whats a repair/maintainance and whats considered an improvement. I have recently purchased an IP and the shower screen glass is cracked and coming of the rails and the vanity is falling apart as advised by my building inspector. I was thinking of doing a whole reno on the bathroom rather then just fixing a few things. Would replacing the shower screens and vanity be classified as a repair and be tax deductible? And the rest such a retiling etc be classified as improvement?

 

[Rob Williams]

According to Domjan v FC of T 2004 ATC 2204, it is possible to claim a replacement of a damaged vanity as a repair IF you use original piping and it's no bigger than the original and it does not add value to the property. There was some mention of using original taps, too, but who's to say the new vanity will only take a mixer tap, for example.
It was also found that replacement of the vanity was more cost effective than repair.
The cracked glass would be, no doubt, a repair. If they were all cracked and it was cheaper to get a new one than repair the old, then I don't see why the Domjan logic wouldn't apply.
Tiling would be an improvement for sure. Which is a shame, because getting tiles laid by a professional is one of the most expensive jobs around, in my experience.

 

[depreciator]

Zayne, it's all an 'improvement', not repair work.
That's because you have only just bought the place and you are improving it.
If you had owned the place for a while, then some of that work could be claimed as repairs (and that's where the Domjan case would indeed be relevant).
Scott

 

[lizzie]

scott's right - because you bought the place with the broken screen and damaged vanity, anything you do to it will be considered and improvement.

basically it's only a repair if you bring something back to the condition that it was when you bought it. and the ruling gets even tricker when doing something like fencing ... if a portion of a fence has fallen over (but was fine when you bought the place) and you replace only that portion, it is a repair, but if you replace the entire fence it is an improvement.

gotta watch that!

however, i believe that improvements under $300 can be deducted immediately and not wait to be written down - so your screen and vanity may come under this ruling if you can pick them up cheap enough.

 

[depreciator]

The under $300 thing only applies to Assets (fixtures and fittings) not building work. And a shower screen is deemed part of the structure.

 

[zayne]

Hi guys,

Thanks for the responses. What if I wait for the end of the lease and then perform the work before new tenants come in? Would the vanity and shower screen be classes as repair and the remained such as taps, tiling etc be classes as improvement?

 

[Rob Williams]

My understanding was that the repairs would still be "repairs" if they were performed while the property was "available for rent". If you do the work straight away, then that might be difficult to substanitate. Maybe leave it for a while. Who's to say that you didn't need to do the repairs as a result of tenants not wanting to rent as is.
Or get someonw signed up with assurances that you will do the work, then do the "repairs". Not only is it available for rent, but it's actually rented!!

 

[depreciator]

Nope. Strictly speaking 'repairs' are work necessitated by damage done to a property while the current owner owns it. Rectification of damage that was present upon purchase of the property is an 'improvement' because the condition of the property is being improved.
Yep, the longer you leave the work, the better i.e. you can say that the tenants damaged the property. But the higher the repair claim, the greater the chance of a 'please explain' letter. If after, say, 12 months of rental you need to spend a thousand dollars on repairs, you may be okay. But if after 12 months you put in a claim for, say, $5,000, you might be asked a few questions.
The ATO don't say how long a property needs to be rented out for before you can claim repairs. It's up to owners to use common sense.

It doesn't apply in this case, but I think it's always a good idea to take a bunch of photos of a property before you rent it out so that if you do have to make a big repair claim down the track you have proof of the condition of the property before you started renting it out. I've never been asked to substantiate a repair claim, but if I ever have to, I can.