When you can claim the cost of renovating your investment property


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Renovating a rental property can be an expensive and time-consuming business, but the good news is that many of the costs can be claimed as a tax deduction.

Broadly speaking, any work you do to renovate your property will be tax deductible straightaway or will qualify as an improvement, which is an item of capital expenditure that will need to be written off over time.

Items that potentially can be claimed straightaway against your current year's rental income include repairs to make good or remedy defects in, damage to or deterioration of the property.

Major renovations, such as remodelling a bathroom, are classed as capital improvements and are either depreciated over the life of the asset or claimed as capital works deductions, so you'll spread the cost over several years or even decades.

If you have just acquired your investment property and you are fixing defects that existed when you bought it, the costs should be capitalised and will not be immediately deductible, even if the type of work would normally be deductible as a repair.

If you get a builder to do work that consists of both repairs and improvements, the ATO recommends that you separate these costs.

Ask your builder to produce an itemised invoice to help you work out your claim.

Otherwise, all the expenditure will need to be treated as capital and written off over time.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.

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