Tax Deduction When Making Improvements to Rental Property

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Improvements, repairs, and maintenance may sound similar, but they’re treated differently by the Australian Tax Office (ATO).

When you purchase an investment property, especially a used one, you’ll encounter various costs associated with renting it out.

Many first-time investors lack the tax knowledge to claim their repair and maintenance expenses correctly, leading to confusion during tax filing.

In a recent review, the ATO found that about 9 out of 10 property investors were making mistakes on their claims, especially regarding rental property expenses.

To help, we’ve created a guide to help you understand the differences and make the most of tax benefits.

What Sets Apart Repairs, Maintenance, and Improvements?

What Qualifies As A Repair?

Repairing your rental property involves fixing any defect or damage, like wear and tear or direct damage from renting it out.

Understanding Maintenance

Maintenance includes actions to prevent property deterioration or fix existing damage.

Exploring Improvements

Improvements enhance and advance your investment property, often aiming to increase its value or income potential.

What Can You Claim on Your Investment Property?

You can claim repair and maintenance expenses as an immediate tax deduction if they occurred while the property was rented out.

What Can’t You Claim on Your Investment Property?

You can’t claim expenses for fixing pre-existing damages upon property purchase, known as Initial Repairs.


Improvements, like renovations, are considered capital improvements and can be claimed over time for periods of investment use.


Replacing an item beyond repair isn’t considered a repair by the ATO, but it can be claimed as a capital improvement or depreciating asset.

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