January 12, 2025
When managing property investments, distinguishing between repairs, maintenance, and capital improvements is crucial for accurately claiming tax deductions. While all three categories can offer tax benefits, they are treated differently under HMRC regulations. Capital improvements, for instance, are depreciated over time, whereas repairs and maintenance are deductible in the same financial year they occur.
At TDQS, we specialise in helping property owners and tenants navigate these distinctions to ensure they maximise their deductions while remaining compliant.
What’s the Difference Between Repairs, Maintenance, and Capital Improvements?
Understanding how to classify property expenses ensures that you can claim deductions correctly and avoid errors. Here’s a breakdown:
- Repairs: Work done to restore an asset to its original condition.
- Maintenance: Routine tasks to keep the property in good condition and prevent further deterioration.
- Capital Improvements: Enhancements that increase the property’s value or extend its useful life.
Below, we’ll explore each category in detail with examples and tips for claiming deductions.
What Qualifies as a Repair?
Repairs are minor fixes undertaken to restore a property or asset to its original condition. These expenses are necessary due to general wear and tear and are immediately deductible in the year incurred.
Examples of Repairs:
- Replacing broken windowpanes
- Fixing damaged roof tiles
- Patching holes in walls
- Repairing faulty plumbing or electrical systems
By addressing wear and tear, repairs help maintain the property’s value and functionality.
What Qualifies as Maintenance?
Maintenance involves routine work to ensure the property remains in its current condition and continues to generate income. Like repairs, maintenance expenses are fully deductible in the year incurred.
Examples of Maintenance:
- Repainting faded walls
- Restaining wooden floors or decks
- Regular pool cleaning and servicing
- Lawn mowing and gardening
- Pest control treatments
For maintenance expenses to be deductible, the property must be income-generating
What Are Capital Improvements?
Capital improvements go beyond simple repairs or maintenance by significantly enhancing the property’s value, extending its lifespan, or upgrading it beyond its original state. These expenses cannot be fully claimed in a single year and are instead depreciated over time.
Examples of Capital Improvements:
- Adding a new room or extension
- Installing a new roof or fence
- Upgrading the kitchen or bathroom with new fixtures
- Installing advanced security or HVAC systems
For smaller improvements costing less than £300, such as smoke alarms or taps, you may be eligible to claim the full amount immediately. Larger improvements, however, are claimed through a depreciation schedule based on the asset’s effective life.
Depreciation Deductions: Division 43 and Division 40
Capital improvements are divided into two categories for depreciation purposes:
- Division 43 – Capital Works Deductions:
- Covers structural improvements such as walls, roofs, and floors.
- Depreciated at 2.5% per year for up to 40 years.
- Division 40 – Plant and Equipment Depreciation:
- Applies to removable assets like carpets, appliances, and blinds.
- Depreciation rates vary based on the asset’s effective lifespan.
At TDQS, we prepare tailored depreciation schedules to ensure full compliance and maximum deductions for both categories.
Repairs, Maintenance, and Capital Improvements for Commercial Properties
Commercial property owners and tenants are also eligible to claim depreciation for improvements. In many cases, fit-outs and renovations qualify for accelerated deductions.
Examples for Commercial Spaces:
- Repairs: Fixing a leaking roof in an office building.
- Maintenance: Cleaning air conditioning systems in a restaurant.
- Capital Improvements: Installing partition walls in a retail shop.
Commercial property owners and tenants can also claim deductions for scrapping assets removed during renovations.
How to Claim Depreciation Deductions
Whether you own a residential or commercial property, a professionally prepared depreciation schedule is essential for capturing all eligible deductions. At TDQS, we specialise in ATO-compliant schedules that streamline the process and optimise cash flow.
Contact us today for a free personalised quote or call us at 02 5502 5500 to learn how we can help.
FAQs
How Can I Tell if Work is a Repair, Maintenance, or Capital Improvement?
- Repairs: Restore the property to its original state (e.g., fixing a broken door).
- Maintenance: Prevent wear and tear (e.g., routine painting).
- Capital Improvements: Add value or upgrade the property (e.g., building a new extension).
Is Painting a Repair, Maintenance, or Capital Improvement?
- Repair: Touching up a specific area damaged by wear or accidents.
- Capital Improvement: Painting the entire interior or exterior to upgrade the property.
Maximise Your Tax Deductions with TDQS
Understanding the distinctions between repairs, maintenance, and capital improvements is crucial for taking advantage of all eligible tax deductions. With a detailed, ATO-compliant depreciation schedule from TDQS, you can maximise your deductions and improve your property’s cash flow for years to come.
