Claim deductions for repairs and maintenance expenses

Repairs and maintenance expenses are allowed as deduction under DA 1 only if they are not caught under capital limitation DA2 (1) ITA 07. Firstly, the taxpayer must prove that there is a sufficient nexus with the derivation of assessable income. After the general permission is satisfied, there are two steps that the taxpayer needs to consider before claiming deductions:

The first step is to identify the relevant asset that is being repaired. The purpose of this step is to identify the asset in order to measure the extent of the work done to the asset.

The second step is to assess the nature and extent of work done to the asset. If the nature and extent of the work is capital in nature, a deduction will not be permitted for repairs and maintenance expenditure. For a work to be capital in nature, these following principles must apply:

• Work has resulted in the reconstruction, replacement or renewal of the asset.
• Work that has the effect of changing the character of the asset.
• New materials used results in an asset which is more advantageous, or performs or functions better and the character of the asset has changed.
• Changes to an asset’s value, its earning capacity, its useful life, function or operating capacity.

Thus, if the work is capital in nature, deduction is not permitted. 

Disclaimer: The following answer necessarily sets out general principles only. The facts of particular cases always need to be considered carefully, and it may be necessary to obtain advice from a tax expert.

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