Expert Advice with Tyron Hyde
Classifying repairs and improvements can be tricky enough at the best of times, but what happens when a repair and improvement occur together?
Let’s look at the following example. A rental property’s 25-year-old fence has been slightly damaged during a thunderstorm. A carpenter assesses the damage and advises that repair work will cost $7,000. However, due to a special offer, a brand-new Colorbond fence can be provided for $11,000. The landlord proceeds with the new fence.
Can the owner now claim the $11,000 as a repair? In simple terms, the answer is no. This is because there is no separately identifiable repair involved.
A deduction may only be claimed to the extent that the repair can be separately identifi ed from improvement at the same time.
In summary, because repair work to the wooden fence (which would have been deductible) did not in fact occur, it is a ‘notional repair’ which cannot be deductible as part of the $11,000 capital cost of the new fence.
The owner may be able to claim the fence over a 40-year period at 2.5% per annum, but that’s a far cry from a $7,000 outright deduction they may have claimed if they had only fixed part of the fence.
Tyron Hyde is the CEO of Washington Brown and is considered one of Australia’s leading experts in property tax depreciation. He is also a registered tax agent. Washington Brown manages construction costs worth over $2 billion and completes 10,000 schedules annually. For a depreciation schedule quote CLICK HERE and follow the 3 simple steps or estimate your depreciation cost.
The Washington Brown Free Depreciation Calculator will give you an estimate of the depreciation deductions you could claim on your investment property
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.