Repairs, Maintenance vs Capital Improvements

It is common for investors to confuse repairs, maintenance and capital improvements. They are all legitimate tax deductions, but capital improvements  are treated differently to repairs and maintenance when recording your deductions for tax purposes each year. Capital improvements should be deducted over time via depreciation, and under the latest Federal Budget changes, the timing of these deductions may impact when you receive the tax benefit.

What is the difference between capital improvements and repairs and maintenance?

It’s important to understand the difference to ensure you are meeting your tax obligations as well as maximising your tax deductions!

Below we will discuss what is considered a repair, what is considered maintenance, and what is considered a capital improvement. You can also read the Tax Ruling – TR 97/23 for further information.

What is considered a repair for a rental property

Repairs for your residential property means repairing or servicing an asset with the purpose of keeping it in the same condition as when it was purchased.

Examples of repairs include:

• The oven door is broken and needs to be replaced;
• A hole in the wall needs to be repaired;
• The resealing of a leaking bathtub;
• A broken window needs to be replaced;
• Roof tiles are broken and need to be repaired.

Repair costs can be deductible in full in the year the cost is incurred. However, under the proposed 2026 Budget changes, these deductions may only be claimable to offset rental income for a property that is not new at purchase. Otherwise that deduction will accrue as a loss for future application.

What is considered maintenance for a rental property

Maintenance for your residential property means maintaining the asset to prevent deterioration or fixing of an asset.

Examples of maintenance include:

• Repainting an interior wall as it has marks on it;
• Re-staining of the deck;
• Cleaning of the pool;
• Lawn and garden maintenance;
• Pest control.

Maintenance deductions will follow the same rules as repairs, see above.

To claim for repairs and maintenance expenses your property must be income producing.

What is a capital improvement?

Capital improvements and additions to your residential property are improvements made to an asset that are beyond the condition of that asset at purchase.

Examples of capital improvements include:

• Replacing a roof;
• Repiering the whole house;
• Replacing walls;
• Adding rooms;
• Replacing fences,
• Repainting, or
• Replacing assets such as ovens, cooktops, rangehoods, blinds, carpets.

Depreciating brand-new assets for a residential property that cost less than $300 (eg. exhaust fan, bathroom accessories, smoke alarm) can be claimed in full, in the financial year in which the item was purchased and installed.

Capital improvements and additions that cost in excess of $300 must be depreciated over time, which means only a portion of the expense can be depreciated in the year of purchase, and the balance is claimable proportionally each year for the effective life of the brand-new asset.

For example, a new tile roof, installed on the 1st July, for a cost of $20,000, has an effective life of 40 years, and will depreciate at 2.5% per annum.

A capital improvement will fall under one of the two categories either:

• Capital works deductions;
• Plant and equipment depreciation.

We discuss both of the depreciation deductions further below.

This Australian Taxation Office (ATO) quick reference chart below, can help you decide between repairs, maintenance and capital improvements:

What is capital works deductions?

The Capital Works deduction is also known as Division 43 Capital Allowance. It refers to the depreciation of the construction component of a building.

It encompasses things such as floorboards, aluminium window frames, bricks, tiles, gyprock, paint, and doors.

The ATO is very prescriptive when it comes to effective lives and depreciation rates for Division 43 Allowances.

Typically, a standard residential investment property built after 15/07/1987 will have an effective life of 40 years and depreciate at 2.5% per year.

However, variations apply depending on the exact construction date of the building, and the use or type of property being depreciated. A table of different property types and their rates can be found below.

To claim for the Division 43 Allowance you need to organise a depreciation schedule from a quantity surveyor.

While depreciation rules themselves have not changed, the 2026 Federal Budget proposals mean these deductions may be deferred for some investors, increasing the importance of accurate depreciation schedules.

What is plant and equipment depreciation?

Plant and equipment depreciation is also known as Division 40 Allowance.  It refers to the ’plant and equipment’ assets of an investment property. Typically, this includes items such as:

• Blinds
• Air conditioners
• Hot water systems
• Light shades
• Rangehood
• Carpet
• Curtains
• Stovetops
• Ovens

The effective life and depreciation rate for plant and equipment items are individualised for every asset. That means blinds depreciate at a different rate to a stovetop, and at a different rate to bathroom accessories, remote controls for garage doors and light shades.

To claim for the Division 40 Allowance you need to organise a depreciation schedule from a quantity surveyor.

Repairs, maintenance and capital improvement for commercial property owners and lessees

Commercial properties are treated differently again. Unfortunately, commercial property owners and lessees are not using a commercial depreciation schedule to claim all their available depreciation deductions.

The Australian Taxation Office (ATO) allows commercial property owners and lessees to claim tax depreciation for the wear and tear of their building, and for the depreciation of their plant and equipment assets over time.

Many commercial property owners and lessees are missing the accelerated deductions available when they complete a refurbishment on their commercial building space.

Examples of commercial spaces that regularly complete refurbishments are pubs, hotels, office spaces, restaurants and retail shops etc.

If you are an owner or lessee of a commercial property our articles below can help you get the most out of your commercial property space, case studies included:

• Refurbishing business spaces.
• Your fit-out is your friend in leased premises
• Accelerated tax deductions when renovating and refurbishing your hotel

Importantly, recent Federal Budget changes targeting residential property investors do not apply to commercial property, nothing has changed with commercial property.

2026 Federal Budget Update – What Investors Need to Know 

The 2026 Federal Budget introduced significant changes to how property losses are treated. 

From 1 July 2027, deductions relating to established residential properties — including repairs, maintenance and depreciation — may no longer be offset against your personal income (such as wages). Instead, these deductions can be applied to current rental property income, or carried forward to offset future rental income or capital gains.

This makes correctly classifying and maximising your deductions more important than ever, as timing and record-keeping will play a much bigger role in your overall tax outcome.

Claiming your depreciation deductions

Regardless of the type, if you own an investment property, the best way to ensure your depreciation deductions have been maximised is to use a depreciation schedule prepared by Capital Claims Tax Depreciation.

We can complete a free personalised quote for you. Contact our expert team with any questions on 1300 922 220.

FAQs

How can I tell if the work is a repair, maintenance or capital improvement?

To determine if the work on a rental property is a repair, maintenance, or capital improvement, consider the purpose and extent of the work.

Repairs restore something to its original condition (e.g., fixing a broken window), maintenance involves routine upkeep to prevent deterioration (e.g., repainting walls), and capital improvements enhance the property or extend its life (e.g., installing a new roof).

The key is whether the work simply fixes, maintains, or significantly upgrades the property.

Is painting a repair, maintenance, or capital improvement?

Painting can fall under either repair or capital improvement. How to differentiate the two:

Repair – If you have a hole in the wall and you patch the hole, then paint over it, this is a repair.

Capital Improvement – If you paint the interior or exterior of the investment property, this is a capital improvement.