Accountants for property developers

Are you planning to upgrade your property or some parts of it? Did you know that you can write off some of these costs? That’s right! You just need to know the best way to do it.

Firstly, it is important to know the difference between an improvement and a repair to your investment property to determine whether your expense is an improvement or a repair. This is because a repair can be written off immediately while an improvement can be written off over a longer period through depreciation.

To increase the value of your investment or attract higher rental income, you can renovate your property but as mentioned earlier, repair and improvement get different tax treatments.

To repair means to renew parts or fix defects, excluding total reconstruction. It also allows the property to be used in its current state. An improvement, on the other hand, provides a greater function to the property and makes it more desirable or valuable compared to repair. The improvement often extends the property’s income-producing ability and enhances its market value significantly.

A renovator should focus on value instead of just tax because an improvement should increase rent and market value, which will be compounded over time. Under improvement, you can claim painting, gutter part replacements, plumbing maintenance, water leak repair, kitchen door or window replacement and carpet replacement as repair items.

You may also need to look at the size and frequency of the project to know whether it is a renovation expense – like replacing kitchen cupboards one at a time. If you replace all carpets and gutters at once, it is considered an improvement and could be depreciated. Note that different rates apply based on useful life. The expenditure will be split between equipment and plant or capital works as well.

If you complete a repair before your property is first rented, the costs are considered an improvement because the purchase price must likely have taken into account the disrepair.

Confused? Get a depreciation schedule when you renovate and make sure it’s broken down to maximise allowable depreciation. If you need help with this, give us a buzz and we’ll be on it!

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