Deduction for Repairs

Q&A Tax

Question :

Mike purchased a home unit in Gold Coast in December 2015 with the intention of renting it out as an investment property. At that time, he undertook
some repairs to ensure that the property was suitable to be rented out. This included repairing some walls, replacing broken light fittings and repairing
wardrobe doors in some of the bedrooms. The costs of the repairs were incurred shortly after acquisition and the property was tenanted by January

Is Mike entitled to claim a deduction for repair cost?


Answer :

The costs incurred by Mike in December 2015 to remedy defects in the property after its acquisition and to make it suitable for renting are capital in
nature and not deductible under s 25-10. Such repairs are referred to as “initial repairs”.

A repair is an initial repair if it is needed when the property is acquired in the sense that the property has defects, damage or deterioration or is not
good order and suitable for use in the way intended (Taxation Ruling TR 97/23).

Although, the costs of the initial repairs are not deductible they can be included in the cost base of the property when calculating the capital gain on
sale (as the property is a CGT asset).

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