Is repair work deductible?
Question from David updated on 21st May 2018:
I've recently purchased a property and put it into a Trust. I've had to do some minor repair work: I've got the fireplace repaired, replaced some damaged carpet and exterior, done some interior painting as it was in poor condition, and replaced some broken steps and the shed as they were not usable. I'm also in process of competing a minor alteration to give the residence a third bedroom, which I assume is a capital improvement.
What I want to know is can I claim the minor repair work being carried out to bring it up to a livable standard? And am I able to treat the residence as a rental and deduct interest from the taxable income?
Our expert Mark Withers responded:
No, the repairs are not deductible. When you acquire a property in a dilapidated state the costs to make it fit to rent are capitalised. A good rule of thumb is to ask yourself "am I remedying issues caused by my tenants or the previous owners tenants"? If the repair is not as a result of wear and tear from your tenants it is almost certainly capital. The price you paid for the property would also have reflected the need for the work so the costs to get it fit for purpose are effectively a cost of acquisition.
Yes, interest is deductible on the mortgage from day one if the property is to derive rental income "in any income year" - ie: holding costs through the time you are dealing with the capital works remain deductible.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.