Tax Tip For Renovation

Jennifer Thai

Jennifer Thai

Renovation and repair can boost the value of the property and also can increase investment yield. However, investors should also seek expert advice on tax implications.

1. Difference between repairs and renovations

Repairs and renovations have very different tax treatments.
Repairs are maintaining what is already there and generally a deductible expense.
Renovations are improvements of the property condition, replacement of the existing plant and equipment. It doesn’t have to be a primary construction job to consider a renovation. Renovations are usually a capital expense and may be able to be depreciated over time.

2. When to renovate or repair?

Be mindful that repairs made right after purchasing the property and before any tenant move in can be regarded as initial repairs and therefore treated as capital expenses, thus not deductible.
Repairs are fixing wear and tear caused by the tenants thus deductible.

3. Keep detailed records

Repair and renovation can easily be mistaken. Therefore, it’s recommended that investors should keep records of the work being done. When doing renovations, some of the works can be regarded as repair, and some can be renovations. Thus they should allocate them separately.
Capital item cannot be deducted immediately on that financial year. However, they can be added to the cost base of capital gain tax when investors come to sell the property.

4. The $300 deduction rule

Depreciated items can be deducted they cost less than $300. Therefore, Investors should try to stay under this cap or buy smaller items separately.

5. Consider the GST implications

Newly built homes are sold subjected to GST, and this might also apply to significantly renovated homes. Investors should seek advice before renovation