In general you can only claim for wear or damage caused during the period the rental property was rented or available for rent – however the timing of the expense can be during or after the period – provided it relates to wear or damage through rental activities. video links
Claim Later – will be capitalised
Initial Repairs – buy a property in need of TLC – renovate before renting out
The ATO view repairs & maintenance in the first 12 months with suspicion, so if you try to claim large amounts for repairs & maintenance – expect a “please explain” letter. If the wear or damage was in existence at the time of purchase – all costs to fix will be capitalised (added to the cost of the property when you come to sell it). If however a tenant trashes the property in the first 12 months – no problem you can claim – however you may still get a “please explain” letter from the ATO- but you’ll be able to justify the costs were fresh wear or damage not previously in existence, so OK to claim now.
Repairs – which improve the function or the replacement of an entire structure
Example – if you replace the whole fence, kitchen or bathroom as opposed to repairing damaged palings or cupboard doors. The ATO will view this as a Structural improvement (making up the fabric of the house) and not a repair, as such you will need to depreciate it at 2.5% depreciation over 40yrs, however a new hot water service, ovens, carpets, etc. – are replacement assets, so are depreciated over their effective life, ranging from 5-15 years in most cases. Any residual values remaining will be added to the cost of the property for calculating any profit on sale.
Claim Now – in your tax return
Fresh wear, tear or damage can be claimed at any time during the rental activity
- If you are required to take the property off the rental market to fix – all holding costs can still be claimed (interest on loans, etc ) provided the repairs are done in a reasonable time frame.
- Or at the end of a tenanted period and prior to selling or moving it to live in yourself.
It’s not uncommon for a landlord to want to do a number of repairs after an extended period of renting before selling, or freshen up before moving in themselves to live. For example a beach front unit to retire in could be repainted and all the general wear or damage caused to the house from previous renting fixed – are all tax deductable now.