You should all read the ATO's publication "Rental Properties 2002"... it covers a lot of these areas quite clearly.
http://www.ato.gov.au/content.asp?doc=/content/Individuals/22711.htm&bn=AS/IN/IN/IN01/A
Note that no where in this document does it mention that you cannot claim a deduction for repairs made in the first 12 months. Just to be clear though - it does explicitly state that you cannot claim for repairs made to items which were broken or in a state of disrepair when you purchase the property. This is where the contention lies - at which point is it reasonable to conclude that repairs were as a result of items being damaged or breaking while you owned the property ? (hence Dale's assertion of his "12 month rule").
My accountant takes a different approach - and expects detailed documentation on the nature of the repairs and works it out on a case by case basis - there are some repairs in the first 12 months which obviously occurred due to failure after purchase.
You should discuss this with your own advisor - if you have an issue with the ATO it is your own advisor who you will need to rely on to see you through.
I have highlighted some interesting text below:
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Repairs
Expenditure for repairs you make to the property may be deductible. However, the repairs must relate directly to wear and tear or other damage that occurred as a result of your renting out the property.
Repairs generally involve a replacement or renewal of a worn out or broken part - for example, replacing some guttering damaged in a storm or
part of a fence that was damaged by a fallen tree branch.
However, the following expenses are capital, or of a capital nature, and are
not deductible:
-
replacement of an entire structure or unit of property (such as a complete fence or building)
- improvements, renovations, extensions and alterations
-
initial repairs - for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.
You may be able to claim capital works deductions for these expenses - for more information, read the section Capital works (special building write-off) deductions below. Expenses of a capital nature may form part of the cost base of the property for capital gains tax purposes (see the publication Guide to capital gains tax) - but not to the extent that capital works (special building write-off) deductions have been or can be claimed for them.
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EXAMPLE
Repairs prior to renting out the property
The Hitchmans needed to do some repairs to their newly acquired rental property before the first tenants moved in. They paid an interior decorator to re-paint dirty walls, replace broken light fi ttings and repair 2 bedroom doors. They also discovered white ants in some of the floor boards. This required white ant treatment and replacement of some of the boards.
These expenses were incurred to make the property suitable for rental and did not arise from the Hitchmans’ use of the property to generate assessable rental income. The expenses are capital in nature and the Hitchmans are not able to claim a deduction for these expenses.
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Repairs to a rental property will generally be deductible if:
- the property continues to be rented on an ongoing basis
- the property remains available for rental but there is a short period when the property is unoccupied - for example, where unseasonable weather causes cancellations of bookings or advertising is unsuccessful in attracting tenants.
If you no longer rent the property, the cost of repairs may still be deductible provided:
- the need for the repairs is related to the period in which the property was used by you to produce income and
- the property was income producing during the income year in which you incurred the cost of repairs.
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EXAMPLE
Repairs when the property is no longer rented out
After the last tenants moved out in May 2001, the Hitchmans discovered that the stove didn’t work, kitchen tiles were cracked, and the toilet window was broken. They also discovered a hole in a bedroom wall that had been covered with a poster. In June 2001 the Hitchmans paid for this damage to be repaired so they could sell the property.
As the tenants were no longer in the property, the Hitchmans were not using the property to produce assessable income. However, they could still claim a deduction for repairs to the property because the repairs related to the period when their tenants were living in the property and the repairs were also completed before the end of the income year in which the property ceased to be used to produce income.
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Examples of repairs for which you can claim deductions are:
- replacing broken windows
- maintaining plumbing
- repairing electrical appliances.
Examples of improvements for which you cannot claim deductions are:
- landscaping
- insulating the house
- adding on another room.
