Australian property tax and expatriate tax expert STEVE DOUGLAS advises on
the tax implications of moving back into a property you previously rented to a
third party.

Q I’ve been renting out my house in Australia but plan to move back in shortly. Can I claim any maintenance expenses before that?

A When you rent out a property in Australia, all expenses incurred in keeping it in a tenantable condition are considered an expense which can be claimed either in full as general maintenance or as a progressive depreciation claim for more substantial items such as stoves and carpets.
     If you intend to move back into the property, you can claim all expenses incurred in bringing the property back to a satisfactory condition at the end of the rental period. This includes painting, garden maintenance and general repairs. If possible, initiate all repairs before moving back into the property or within a reasonable period to claim the expenses in full.
     The length of your ownership may have a bearing on the amount you can claim. For example, if you recently acquired the property and have rented it for only six months, the total tax deduction may be reduced if it appears the property is being improved substantially from the time it was acquired rather than being maintained over the course of the short rental period. The longer the rental period, the more likely full maintenance expenses will be allowed when the rental period comes to an end.
     Expenses to improve the nature of the property – new carpets, kitchen equipment or any structural improvements – aren’t usually considered an expense but allowed as a partial annual write off if there’s rental income. So if the rental ceases so does the tax deduction entitlement, as these items will provide benefit to the owner-occupier in the future. This may allow you to claim any residual amount on old items you replaced, such as a stove. Any unclaimed depreciation will be allowed as a full write off in the year the item was replaced and could amount to a reasonable tax offset in the final year of rental depending on how old the item was. If the items were recently replaced, then only the depreciation allowance for the rental period will be allowed. But this will cease to be a deduction once the property is no longer rented. You’ll also not be able to write off any remaining value unless the item is replaced and scrapped.
     I’m often asked if it’s worth doing major repairs prior to moving in. Generally speaking the depreciation write off is not sufficient to warrant the fact that you may prefer to be the first user of the item rather than the tenant. If you have substantial expenses to be incurred during the changeover it’s wise to seek professional advice on the various expenses to determine the tax deduction available to you, prior to the expense being incurred.