When you rent a property out in Australia, all expenses incurred in keeping that property in a tenantable condition are allowable as an expense.
These will be allowed either in full for general maintenance issues or as a progressive depreciation claim for more substantial items such as stoves and carpets.
If you intend to move back into the property, you are allowed to claim any expenses in bringing the property back to a satisfactory condition at the expiration of the rental period.
This may include painting, garden maintenance and general repairs.
It is recommended that these be done prior to you moving back into the property, however as long as they are done within a reasonable period then you can claim these type of expenses in full.
How long the property has been owned and rented may have a bearing on the amount of the claim. For example if you had only recently acquired the property and rented it for only 6 months, then the total tax deduction may be reduced if it is seen that the property is being improved substantially from the time it was acquired rather than maintained over the course of a rental.
The longer the property has been rented, the more likely maintenance expenses will be allowed at the termination of the rental period.
Other expenses that improve the nature of the property are likely to not be allowed as an expense. These may include new carpets, kitchen equipment or any structural improvements to the property.
These type of expenses are normally allowed as a partial annual write off if there is rental income, so if the rental ceases then so does the tax deduction entitlement as these items will provide future benefit to the occupier.
It may allow you to claim any residual amount on the old items that were replaced, such as the stove, where any unclaimed depreciation will be allowed as a full write off in the year the item was replaced.
Depending how old the item was, this could amount to a reasonable tax offset in the final year of rental.
If the items were recently replaced, then only the depreciation allowance for the rental period would be allowable, and this would cease to be a deduction from the day the property ceases to be available for rental. You will not be able to write off any remaining value unless the item is replaced and scrapped.
We are often asked whether it is worth doing the major repairs prior to moving in, and generally speaking the depreciation write off is not sufficient to warrant the fact that you may prefer to be the first user of the item rather than the tenant.
If you have substantial expenses to be incurred on the changeover form tenant to yourself, then it would be sensible to seek professional advice on the different expenses to determine the tax deduction that may be available to you, prior to the expense being incurred.
