Can Renovations Help or Hurt Your Tax Position as a Property Investor?
- johnry8
- Sep 5
- 2 min read
Renovating your investment property can add value, attract better tenants and increase your rental income. But did you know it can also change how much tax you pay? Many investors assume all renovation costs are tax deductible right away, only to realise later that the rules are not that simple. Understanding how renovations affect your tax position can help you avoid costly mistakes and get the most out of your investment.
1. Understanding Repairs and Improvements
The ATO treats repairs and improvements differently, and knowing the difference is key.
Repairs involve restoring something to its original condition. For example, fixing a leaking tap or patching a damaged wall. These costs are usually claimable as immediate deductions.
Improvements are changes that enhance the value of the property. This might include renovating a bathroom, upgrading the kitchen or adding a new outdoor area. These are considered capital works and are claimed over several years.
Helpful Tip: Keep detailed records of everything you do. This includes receipts, before and after photos and a clear explanation of each job. These will make things easier at tax time.
2. Can You Claim Renovation Costs Straight Away?
Not always. This is where many investors get confused.
You can usually claim minor repairs and routine maintenance in the same year you paid for them.
Larger renovations and upgrades are treated differently. These are capital expenses and must be claimed over time through depreciation.
If you carry out renovations immediately after purchasing the property, those costs may not be deductible right away. They are seen as improving a property that was already in poor condition when you bought it.
What You Can Do: Speak to your accountant before starting any work. This can help you plan better and possibly spread the work across multiple financial years for better tax outcomes.
3. Mistakes to Avoid When Renovating
Renovating can be exciting, but it’s important to avoid these common traps.
Renovating before you have tenants can limit your ability to claim some expenses.
Not keeping receipts means you might lose out on deductions.
Assuming all costs are deductible right away could lead to errors on your tax return or even penalties later.
What We See Often: Many investors forget to organise a depreciation schedule after their renovation, which means they miss out on valuable tax deductions.
4. How to Maximise Your Tax Benefits from Renovations
Here are a few ways to make sure your renovation works in your favour:
Organise a depreciation schedule from a qualified quantity surveyor once the renovation is complete.
Keep a folder with all your receipts, invoices and photos so everything is ready come tax time.
Try to complete small maintenance jobs during a tenancy if possible, so they may qualify for immediate deductions.
If you're planning major renovations, bundle them together to make the most of your longterm depreciation claims.
Wondering How Renovations Will Affect Your Tax Position?