Rental Property Repairs: ATO Audit Traps to Avoid

Claiming repairs and maintenance on your rental property may seem straightforward, but one wrong step could trigger an ATO audit or lead to denied deductions.

Here’s what you need to know to stay compliant and protect your tax return.

🚨 The Most Common Mistake: Repairs vs. Improvements

The ATO draws a clear line between:

✅ Repairs & Maintenance (immediate deduction allowed)
❌ Improvements, Initial Repairs, or Capital Works (must be claimed over time or added to cost base)

✅ What You Can Claim as a Repair

You can immediately deduct costs for:

• Fixing a broken fence after storm damage
• Replacing a faulty hot water system part (not the whole system)
• Patching and painting walls due to tenant damage
• Plumbing repairs due to wear and tear

 Key Rule: The damage must relate to wear and tear or tenant-caused damage during the rental period.

❌ What Triggers ATO Scrutiny

1. Initial Repairs (Before First Tenant)
   If you fix anything that existed before you rented the property, even if you do it just after purchase, it's not deductible as a repair. It’s considered capital in nature.
2. Upgrades and Improvements
• Replacing an entire kitchen or roof
• Installing brand-new features (e.g., air conditioning where there was none)
• Renovations that increase the property’s value

These must be claimed over several years under capital works (Division 43) or depreciation (Division 40).

1. Lack of Documentation
• No clear invoices or description of work done
• Mixing repairs with improvements on one invoice
• Paying in cash with no evidence

📁 Stay Audit-Ready: Best Practices

• Keep detailed invoices that describe the work (repair vs. replacement)
• Ask your tradie to clearly separate repairs from capital works
• Take before and after photos
• Know the difference between deductible repairs and capital improvements

The rules are more complex than they seem — and the ATO is watching closely. If you’re planning to claim significant repair costs this year, let us review the details to ensure the deduction is valid and properly recorded.

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 Yan Qi CA

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