Repairs & maintenance vs improvements

As you will know, landlords spend money on their properties, either to repair them and keep them in good condition, or to make improvements/improve the living conditions of their tenants. For tax purposes, there is sometimes a very fine line between these two things.

Sometimes, the purchase of something that would normally be considered to be an improvement (like putting a dishwasher in) can be claimed as an expense for tax purposes. This makes the cost of that item able to be offset against the rental income in the year that it is paid, so that reduces the taxable profit for the landlord. The situation where they are able to do this is where that item cost less than $500.00.

Other items that fall in to that category could be furniture, heat pumps, hot water cylinders, vacuum cleaners – anything that would normally be considered to be an improvement to the property or the livelihood of the tenant. Often those items are over $500 and they therefore can’t be offset against the rental income in one year. The cost of them is offset over several years, and this is known as depreciation.

In the special Covid-19 tax relief legislation, any items like this that are purchased between 17.3.2020 and 16.3.2021 and are under $5,000 can be claimed/offset straight away – that could be a really good thing for many landlords who are currently putting in heat pumps or rangehoods or insulation. Depending on their situation, it could save them as much as $1,500 tax on one $5,000 item, in the year that it is purchased.

The $5,000 allowance drops down to $1,000 for items purchased after 16.3.2021, but it is still double the amount allowed before Covid-19!

Guest writer Alannah Stewart, Director, Walker Wayland accountants | p: 0272745493 | e:

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