Question: Last year, we moved out of our home to relocate and signed an agency agreement and got the real estate agent to find tenants and set up a rental arrangement for the house. There are some repairs that really should be done to the house including carpentry repairs to the deck at the back of the house, replacement of the dishwasher, replacement of the carpet and painting of the exterior of the house. Can I get a deduction for the money spent on those items?
Answer: For the money spent on carpentry repairs to the back deck and painting, you can get an immediate deduction. For replacement of the dishwasher and carpet, you won’t be able to get an immediate deduction but could claim depreciation on the dishwasher and the carpet.
Explanation: This situation is distinguished from the usual circumstance of initial repairs on purchasing of a property where the repairs are considered to be of a capital nature. In this case, the repairs are on revenue account except for the carpet and dishwasher where there is the replacement of an entire depreciable item.
The Tax Office says in the relevant ruling that:
In appropriate circumstances, expenditure for repairs can qualify as a deduction even though the property has previously been held, etc., by the taxpayer for non-income purposes. This situation is different from an initial repair done to newly purchased or newly leased property, where the repair expenditure is capital expenditure.
In the next paragraph of that ruling, the Tax Office also says that a deduction is allowable… even though some or all of the defects, damage or deterioration arise from, or are attributable to, the taxpayer’s holding [of the property for non-income earning purposes]…
TR 97/23 paras 76-77
Andrew and Tony Lovett
22 February 2016
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