Many taxpayers confuse the difference between repairs, maintenance and improvement. They are tax deductions but are treated differently for tax purposes. Here are the differences:

Repair

Repair is work to resolve wear and tear to the property to bring it back to its original condition. E.g. Replacing part of a fence, fixing a crack in the plaster, patching a roof, repairing a malfunctioning piece of machinery

Maintenance

Maintenance is work to prevent deterioration in the condition of an asset. E.g. Repainting walls, maintenance plumbing

Improvement

Improvement is increasing the value of the property by enhancing the item beyond its original state at the time of purchase. This would either be classified as a capital works deduction or a capital allowance deduction.

Capital works: Deductions relating to building’s structure and items fixed to it. These are claimed at a rate of 2.5% per year for 40 years following construction. E.g. retiling the bathroom, replacing all the fencing, major renovations, adding a fence

Capital allowance: Deductions that can be easily removed from the property. These are claimed over the effective life the Commissioner has determined or your own reasonable estimate of its effective life. E.g. Replacing a light fitting in the bathroom, installing a new carpet, installing, new curtains

There are exceptions to this. When you first purchase an investment property, you may need to carry out repairs before renting it out. These are known as ‘initial repairs’ and will be added to the cost base.

If you are still confused about the distinction, please contact our office at 03 9973 5905.