Tax matters: P lab repair costs

Are costs incurred to repair damage to a rental property from use as a P lab tax deductible? The answer is not as straight forward as one may think.
Here are some key points.

If the repair cost is covered by insurance then any compensation received from an insurance claim would offset the cost of the repair and any claim would be limited to the net amount.

Whether the repair cost is deductible or not will depend on the work done. Any expense that is capital in nature will not be deductible. The test here is if the work results in the reconstruction, replacement or renewal of the asset or there are changes to the character of the property then it would be considered capital expenditure. The argument (rightly or wrongly) is likely to be that the property has been improved and therefore could now be rented at a higher value.

If the work is just restoring the property to its original condition replacing like with like materials then it is would be deductible repairs and maintenance and would not be capitalised to the asset.

This would apply if the property is being prepared for new tenants. If the property is not going to be rented following the repair then a deduction would not be able to be claimed on any repairs and maintenance expenditure if there is any, because there would not be a connection between the expense and income.

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