Australian property tax and expatriate tax expert STEVE DOUGLAS explains how to claim rental property renovation expenses.

Q. Can I claim renovations on a rental property against my income tax?

A. It’s always a good idea to renovate your property regularly in order to improve the quality of your asset and boost its capital value and revenue generation capabilities. Under Australian taxation rules you’re entitled to claim any expenses incurred in renovating or improving a rental property as either a full income tax deduction, or as a depreciation write-off over a period of years. But you need to establish if the renovation is a “maintenance” issue, or was undertaken to “improve” your asset.

          If you’re fixing something that’s general wear-and-tear, worn or damaged – including painting, gardening, replacing a broken item, plumbing repairs or general maintenance – this is considered to be a repair. As such, the cost of the repair can be written-off in full during the year the expense is incurred, reducing your income tax immediately.

          Expenses incurred during refurbishment – such as new carpets, a dishwasher or even structural changes and building additions – are allowed as an annual depreciation amount, based on the life expectancy of the item, determined by the Australian Taxation Office on an annual basis. Some expenses may be claimed over a short period of two years, while others such as structural changes and additions, will need to be claimed over a 40-year period.
          To determine the merit of spending on improvements or renovation, you should aim to recoup the interest cost of the capital spent. If you don’t think you’ll able to increase the rental accordingly to justify your maintenance expense, it may be wiser to preserve the property in its current state. For example, if the interest rate is 6 percent per annum and you intend to spend A$10,000 on improvements, then you should expect to receive an additional A$600 per year (A$11.54 per week) in rent, at the least. If the repairs are needed to keep the property in a satisfactory rental condition, go ahead and undertake the necessary costs to keep it in order.

          If your intention is to sell your property, a refurbishment can do wonders to catapult its market value, or act as equity to assist with your next property purchase. In any case, it’s always worth keeping your rental property in good shape – a happy tenant will continue with you in the long haul. The tax man will always allow a claim – one way or another – so there’s no excuse not to look after your property.