Tax question, regarding maintenance claim

[RedApple]

Hi forum members who are tax experts,

Was just wondering if you could please let me know, is the cost of major maintenance work (similar to renovation) done within the first 12months of purchasing an IP tax deductable ?

I had no intention of renovating when purchasing as the place was just fully renovated when purchased. However the bathroom is now leaking as waterproof membrane behind the shower tiles was not installed, i.e reno not done properly

I am planning to hire tradies to re-do the tiling and put in the proper waterproof membrane in order to prevent termites and futher damage as water has now leaked into the timber flooring and carpet. It is a serious issue.

Would the ATO allow tax deduction on the cost of the job or will they consider this as part of the capital cost ? (if done within the first 12months of purchasing ?)

Many thanks

 

[depreciator]

I'm not a 'tax expert' but here goes:
Roughly speaking, the ATO definition of a repair is to fix something has gone wrong while you have been renting out a property. That rules out pre-existing issues.
So the cost to remove the tiles and install a membrane and retile would probably not been seen by the ATO as a repair because the membrane was faulty when you bought the property even if you didn't realize it.
But if the leak has caused recent damage to timber floors and carpet, that to me would be a repair.
So you would split the work between repairs (expense) and improvements. Hopefully, the former would cost more than the latter.
That's just what I reckon and if it was me that is how I would suggest to my accountant it could be treated.

 

[RedApple]

thanks depreciator, so instead of re-tiling, if i were to install an enclosed shower screen to stop the leakage then that wouldn't be considered as repair then i.e cannot claim the cost as a maintenance expense ?

 

[depreciator]

Read carefully what I said. I don't think you can claim the new membrane and retiling as a repair because the fault existed when you bought the property.
I said I felt you could claim subsequent damage to the sub floor from recent water leakage as a repair, though. Yes, it's splitting hairs probably.
Most people would put it all through as a repair and hope there are no questions. It's only going to be $2,000 or so.
Putting in an enclosed shower screen would definitely not be a repair, so it will be claimed at 2.5%.

 

[marg4000]

The bottom line is that you bought a property in a certain condition (which would have been reflected in the price), whether you knew of a problem or not.

If anything subsequently goes wrong, it is a repair if you restore it to the condition it was when you bought the property.

If you "fix things up" once you have bought, then it is a capital improvement and can be added to the purchase price when calculating CGT. If you do substantial renovations you can depreciate them in line with building depreciation.
marg

 

[RedApple]

thanks depreciator.

marg4000, thanks. btw i got the property at market price, it wasn't any cheaper than the comparable ones sold on the market the time. It's a pity the building inspector didn't noticed the membrane bit