Tax Deduction ? Investment Property Repair/Replace

[cheezemonkey]

Hi Everyone,

My better half and I have a two level townhouse that is currently an investment property. Last year we identified that the Balcony on the second level had received water damage and was not structurally sound. Water had seeped through the tiled balcony and soaked the timber beams and support posts for the balcony. The balcony was sagging slightly.

We instructed the tenant to not use the balcony, and got the balcony inspected for repair quotes from a number of builders. The Balcony could not be repaired, so had be replaced totally.

The question I have for the forum is how to deal with the cost of replacing the balcony in our tax return.

The ATO's website indicates at a high level that "repairs" are an expense that can be deducted in the income year that the expense was occurred:

https://www.ato.gov.au/General/Prop...s-you-can-deduct-in-the-income-year-incurred/

However, when I look a little further into the ATO's guidance, there is a section about claiming the compete replacement of an item (a kitchen is used as an example). This section details that:

"If you have to replace something identifiable as a separate item of capital equipment (such as a complete fence or building, a stove, kitchen cupboards or a refrigerator) you have not carried out a repair. This means you cannot claim the entire replacement cost you incurred in the year you incurred it. However, you may be able to claim the cost as a capital works deduction or a deduction for decline in value."

From: https://www.ato.gov.au/Individuals/...m_the_cost_of_completely_replacing_something_

Would the balcony, as a part of the fixed permanent structure be considered a "separate item of capital equipment", thus needing to be depreciated?

Has anyone got any advice on which category this repair/replacement would fall into?

Thanks for everyone?s help!

 

[superAndrew]

Yes so it's not a repair but you can claim the cost as a capital works deduction.

Cheers

Andrew

 

[Terry_w]

I think it could be a repair if the replacement was not of an improved nature - cheap wooden materials replaced with steel materials for example.

 

[depreciator]

As Terry said, if you replace like with like and ideally use some of the existing fixings you can probably call it a 'repair'.
Of course, it also depends on how long you have owned the property for. If when you bought the property the damage was already there (though not visible) then you are now 'improving' the property i.e. you are in 2.5% territory.

 

[Paul@PFI]

I think the answer was in your question...."not structurally sound"....Its part of the structure.

ATO view is "To repair something generally means to fix defects, including renewing parts. It does not mean totally reconstructing something. Repairs do not include substantial improvements to an item or property, such as replacing a dilapidated ceiling with an entirely new and better ceiling."

A cantilevered timber balcony replacement isnt a repair.