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Claiming deductions for repairs to leaky rental properties

Whether you can claim or not will depend on the nature and extent of the repair work.

What you can claim

If you have a rental property that is classified as a “leaky” property, you can usually claim deductions for repair work and general maintenance.

But there are some circumstances when the cost of repairs can’t be deducted:

  • When the nature and extent of the work means it has gone beyond repairs, changing (improving) the character of the asset (or substantially the whole of the asset).
  • When the work involves substantial reconstruction, replacement or renewal of the asset (or substantially the whole of the asset).

This kind of work is considered to be a capital improvement.

What we mean by asset

If your property is a standalone property that does not share any structural foundations or facilities with other properties, the asset is your property.

If your property is a unit of many in an apartment building or a large complex that shares structural foundations, walls, roofing, plumbing and other facilities with other units, the asset is the apartment building or the complex and not the individual unit.

This is important. If the repair work to your unit is part of a bigger project to repair the rest of the building, and the end result is a capital improvement to the building, you won't be able to claim deductions to work done to your unit.

Examples of repair work and improvements

Cath and Simon own different types of rental properties that are all leaky. See the tables below for the different types of repair work completed on them, and whether they can claim deductions for the cost of this work.

Property 1 - Standalone house with extension
Asset House
Damage To extension only.
Repair work needed Cladding and windows need to be removed from the extension and refitted.
Result of the repair work No change in character of the whole house, or substantial reconstruction, replacement or renewal of the whole house.
Can Cath and Simon claim deductions? Yes
Property 2 - Standalone house
Asset House
Damage Timber framing across all the house is damaged.
Repair work needed Re-cladding of all the house's exterior walls. Cath and Simon choose a superior concrete block construction system rather than the equivalent substitute cladding system as they figure it should be more durable, and require less maintenance.
Result of the repair work The character of the whole house is changed due to the new cladding.
Can Cath and Simon claim deductions? No
Property 3 - Unit in an apartment building
Asset Apartment building
Damage The apartment building has been leaking badly and the walls and timber framing are extensively damaged.
Repair work needed
  • All the exterior wall cladding is removed and replaced with an equivalent recommended product.
  • Large sections of the building's framing are replaced with treated timber.
  • New flashings are installed around the windows, and portions of the interior walls are relined.
  • The structure has been strengthened which gives the building an extended life expectancy.
Result of the repair work The remedial work done is so extensive it has resulted in the reconstruction of substantially the whole of the building.
Can Cath and Simon claim deductions? No

If you're unsure whether work done on your property is repairs or improvements we suggest you talk to a tax agent.