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Repairs & Maintenance vs Improvements

#cashflowclarity Sep 03, 2020

Many rental property owners will come up with this question throughout their period of ownership.  Repairs can be claimed against the current year's income, while an improvement must be claimed over a period of time (as depreciation).
What’s the difference between a repair and an improvement? Well, here are some comparisons:

Replacing 1 kitchen door handle is a repair.
Pulling out the whole kitchen and putting a brand new one in is an improvement.

Fixing the leaking hot water system is a repair, but installing a new one in an improvement.

Easy examples, right? Let’s give some trickier ones.
The roof is damaged in a cyclone.  To re-sheet those ones that flew away, but leave the rest as is, is a repair.  But if the whole roof was to be replaced, then that’s an improvement, even if the whole roof was damaged.

The shower waterproofing has stopped working and you have mould everywhere.  To fix the shower, and remedy the mound, is a repair. But the shower’s old and to replace the tiles in the shower and not the rest of the bathroom will make it look silly, so you decide to go ahead and re-tile the whole bathroom.  This turns the repair job into an improvement.

For other fun info about repairs vs improvements go to https://www.ato.gov.au/law/view/document?docid=TXR/TR9723/nat/ato/00001

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