The Difference Between a Repair and an Improvement

It is vital for all property investors to understand the difference between repairs, maintenance and improvements. The Australian Taxation Office constantly pays particularly close attention to each of those three on annual tax returns. So, if you have no understanding of the differences you may have made an incorrect claim on your tax return. Fortunately, just before tax return time we will clearly define for you the difference between a repair, maintenance and an improvement.  


A repair is considered to be work completed to fix any damage or deterioration of your property. This could be replacing part of a damaged fence or replacing faulty power sockets. Often, they are simply one-off fixes required for the property. For repairs you are able to claim an income tax deduction for the costs of the repair in the year you paid for it.  


Maintenance is considered any work completed to prevent deterioration of the property. Just like repairs you can also claim an income tax deduction for the maintenance costs within the year you paid them. This means that if you need to maintain the plumbing or the paint you can claim an income tax deduction for it that year. It even applies to deck oiling if that is required, even if the deck is in working condition. So, keep up the maintenance of your investment property! 


An improvement is when a change that you make enhances the condition or value of an item beyond its original state at the time of purchase. So, if you took your rental properties old, broken kitchen and put in a new kitchen with stone benchtops, that would be a capital improvement. While yes, the old kitchen needed fixing up, you instead increased the value of the kitchen and so, made an improvement. A capital improvement must then be classified as either a capital works deduction, and depreciated over time, or as plant and equipment depreciation.  If any plant and equipment items are removed and replaced, for example an air-conditioner, this will also be considered a capital improvement.  

It is important before you fill out any tax return that you talk to your accountant, if you don’t have an accountant that are property specialists, get one. Once that is done, ensure you understand whether any changes made to your property were a repair, maintenance, or a capital improvement. Investors should also contact a specialist Quantity Surveyor for advice before they start any work on the property. This will ensure that you can understand all the costs involved in any work on your property.

For any further advice on your investment talk to Link Living today!

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