Exception to the repairs rule

As a general rule, if you own a rental property and undertake repairs or maintenance you can claim a tax deduction for the costs incurred. That rule may not apply, however, where you have only recently purchased the property and have undertaken repairs shortly afterwards.

Such work is often referred to as “initial repairs” and treated for tax purposes as capital expenditure, meaning that instead of being tax deductible straight away these expenses are added to the cost base of the property, hence reducing the capital gain when the property is ultimately sold.

The tax office considers an initial repair to be work to remedy defects, damage or deterioration existing at acquisition and applies a short cut to highlight such expenses by generally disallowing any repairs undertaken in the first 12 months.

That can be fair enough where the repair really does relate to work to fix existing defects but not all repairs undertaken in the first 12 months fit that criterion, so it’s important to stand your ground if the work was a genuine repair, such as fixing a fence that blew over in a storm.

So if you can prove that the work wasn’t to rectify an existing defect and arose as a result of post-purchase events, you should make your claim. Keep good records, however, because there’s every chance that the ATO will query it.

MARK CHAPMAN IS DIRECTOR OF TAX COMMUNICATIONS WITH H&R BLOCK. MCHAPMAN@HRBLOCK.COM.AU.