Boost Rental Appeal And Your Back Pocket This Holiday
The holidays are a great time for investors to think about what work they can do to their investment properties to boost their appeal for tenants while increasing their tax deductions.
As many tenants go away at this time of year it can be a good time to make strategic improvements: Upgrading a property will not only improve the aesthetics and livability of a property, it can also help to unlock lucrative tax deductions.
One area where landlords could benefit from spending some extra money on their investment properties over the summer is in the yard and outdoor entertaining spaces.
Backyards are often in need of extra attention at this time of year as they are areas where people spend a lot of time.
It’s a good time to check whether the deck needs to be oiled, to remove leaves from the eaves, to ensure fences are secure and to remove and replace any retaining walls that could be experience wear and tear.
Investors can also breathe new life into entertaining areas by purchasing a new barbeque or outdoor furniture for their tenants to enjoy.
However, we recommend that investors should speak with a specialist Quantity Surveyor before commencing any work on an investment property, as there are a number of intricate rules to be aware of.
The Australian Taxation Office (ATO) provides clear definitions of what work is classified as repairs and maintenance and this work should not be confused with capital improvements.
According to the ATO, repairs are work completed to fix damage or deterioration to a property, such as replacing part of a damaged fence, while maintenance is work which prevents deterioration, such as oiling a deck or removing leaves from the eaves.
Repairs and maintenance can be claimed as an immediate 100 per cent deduction in the year an investor incurs the expense.
However, if an investor improves the condition or value of an item beyond its original state at the time of purchase, this will be considered a capital improvement and must be depreciated over time.
The ATO provides two categories over which depreciation can be claimed – capital works allowance for the structural elements of a property such as walls, floors, kitchen cupboards and retaining walls and plant and equipment deductions for any removable or mechanical assets such as furniture, garbage bins, hot water systems and blinds.
Investors should also be aware of recent changes to plant and equipment depreciation legislation passed by Parliament on the 15th of November 2017.
Owners of second-hand residential properties can no longer claim deductions for previously used plant and equipment assets, however these rules don’t affect owners of brand new properties and investors can still claim deductions for any assets they purchase and install in the property themselves.
For example, if an investor purchases a new freestanding outdoor barbeque they could claim around $1,478 in the first financial year and for outdoor furniture, they could claim around $800.
Updating or purchasing new assets could prove to be particularly lucrative for owners of second-hand residential properties who might not otherwise be eligible to claim plant and equipment depreciation.