Under What Tax Category Do Renovations Fall?
Have you been wondering if a renovation is an expense or a capital expenditure?
This is one that often tricks investors. Because a renovation is often done to fix a house up after a tenant, or to modernise a house for rental, many investors think that they can charge the renovation to their expenses for that financial year.
An expense is where you are replacing an item in the house that is deemed to be necessary for the rental of the property. In other words, an element on a stove, or replacing a light fitting because the old one got broken.
A capital works would be where you replaced a badly chipped bath (a fixture) or put in new sliding doors because the old ones had rusted. These two are adding value to the house, so are seen to be capital works.
So with an repair, as above, they can be charged to your expenses for the current financial year, but the capital works can be depreciated. If a capital item is under $300 it can be depreciated in the year of purchase, but over $300 there is a choice of two depreciation methods, diminishing value or prime cost method.
You will need to discuss with your Quantity Surveyor which method you should use.
Filed Under: Renovations • Tax Tips
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