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1

March

2015

The difference between maintenance and building costs

This is an important issue when owing a rental property. As a general rule, any repairs or maintenance or other damage suffered whilst the property is being rented out is tax deductible in the financial year the cost was incurred. Repairs generally involve replacement or renewal of a worn out or broken part. Maintenance is classed as preventing or fixing deterioration. This can include painting your house.

Remember that if you have work done before the property is rented for the first time, the cost is initially not deductable, however will be when you go to sell your property. These costs will be added on to the overall cost of your purchase for capital gains calculations.

Another interesting point, is if a repair involves renewal of a structure, e.g. a fence has been completely renewed instead of repaired, this is classed as a building cost and is not immediately deductable. A same principal is applied if you replace a bathroom or kitchen in your rental property. These costs are also classed as building costs and are usually tax deductable at 2.5% /year over a 40 year period. Remember any maintenance or repairs of said bathroom or kitchen will be immediately deductable.

 

Lastly, a portfolio of rental properties is very much about cash flow management so it is important to also understand that the tax deductions can be pre-claimed for the current financial year.

A PAYG Withholding Variation  application can be lodged if you're a wage earner to reduce your weekly or monthly tax for the CURRENT financial year. Your accountant can assist or you can go online at the link below

ATO PAYG Withholding Variation
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