Not all repairs on your commercial property investment are tax-deductible

Did you realise that some of the repairs you make to your commercial property are not necessarily deductible against your rental income?

Often, it comes down to something as simple as timing.

As a general rule: Any repairs made to a commercial property held for the purpose of producing assessable income are deductible — so long as they are not deemed to be of a capital nature.

In other words, your repairs must directly relate to "wear and tear". Or they must be as a result of a breakdown or damage caused, in the process of gaining rental income from the property.

Furthermore, your commercial property must continue to be rented on an ongoing basis for you to be able to claim these repairs as deductible. However, the property need not always be occupied — so long as it is being actively marketed for lease.

What are some of the exceptions to you being unable to claim deductions? Broadly speaking, they appear to fall into three categories.

These relate to items requiring immediate attention in order to rectify any defects or damage existing at the time you first acquire a commercial property. Such things may include fixing items of equipment, repairing sections of the carpet or simply repainting walls.

While these repairs may not be deductible against rental income, they can be added to your initial cost base for the purpose of reducing your capital gains tax down the track.

Once again, items of this nature are not immediately deductible. However, you may be able to depreciate a significant portion of them over your period of ownership.

Otherwise, they will also form part of your cost base for the purposes of calculating GST.

Here you're talking about things like complete replacement of the roof, air-conditioning or security system.

Again, these items would be treated as capital in nature and would form part of your cost base. But they can also provide you with some handy structural depreciation.

There is one line of thinking that these "replacements" could become "repairs", if they were spread over two financial years. But it would be best for you to explore that further with your tax lawyer or accountant.

Bottom line: It's always worthwhile to seek professional advice from the outset in order to maximise your opportunity to claim repairs to commercial property as tax-deductible.

Chris Lang is an advisor to commercial property investors and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.