Thinking about renovating your investment property? While upgrades can raise your property’s value and rental potential, it’s important to know how renovation expenses are treated for tax reasons. The Australian Taxation Office (ATO) distinguishes between repairs and capital improvements—and getting it wrong could cost you valuable deductions.
Need Clarity on Your Renovation Expenses?
Renovations: Capital vs. Repairs
The main tax issue is how the ATO classifies your renovation costs, either as capital improvements or repairs and maintenance.
One common area of confusion is whether renovation work qualifies as a repair or a capital improvement:
- Repairs and maintenance: These restore the property to its original condition—such as fixing broken windows, plumbing, or repainting. They’re usually immediately deductible in the same financial year.
- Capital improvements: These enhance or raise the property’s value—such as installing a new kitchen, building an extension, or upgrading the flooring. These costs are not immediately deductible but are depreciated over time under capital works (Division 43) or plant and equipment (Division 40) rules.
Tip: Keeping detailed records and differentiating between repairs and improvements will help maximize your claimable deductions.
Renovating a Rental vs. Personal Residence
If you’re renovating a rental property, you may qualify for:
- Immediate deductions for repairs
- Depreciation claims on new fixtures, fittings, and construction costs
- Capital gains tax (CGT) cost base adjustments when you sell
If you’re renovating a primary residence, expenses are usually not tax-deductible. However, you can use them to lower your CGT liability if you later rent out or sell the home.
Don’t leave deductions behind.
Timing Matters
When you renovate before renting a property, many expenses count as capital improvements rather than repairs. This means no immediate deductions. However, if you renovate while tenants are living there, some costs may qualify as repairs and be deductible right away.
Let Refund MyTax Now Help You Maximize Your Tax Position
Renovation tax rules can be complicated. Misclassifying expenses can result in missed deductions or ATO scrutiny. At Refund MyTax Now, we assist you to:
- Identify claimable renovation expenses
- Distinguish between capital works and repairs
- Maximize depreciation and capital gains tax benefits
- Keep your tax return accurate and compliant
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