Renovating

The distinction that matters most is repairs versus improvements. A repair restores something to its previous condition and is generally deductible in full this year. An improvement makes something better than it was — and however sensible the upgrade, it becomes capital expenditure claimed slowly under Division 43. Replace a broken section of fence and you have a repair; replace the whole fence with a better one and you have an improvement. The ATO polices this line actively because the cash flow difference is enormous.

The second opportunity most renovators miss entirely is scrapping. When you demolish a kitchen, strip out carpets or remove a hot water system, those assets usually still have undeducted value — and that residual value can generally be written off immediately. But only if it was documented before the work: a depreciation schedule prepared after demolition cannot value what no longer exists. On a substantial renovation, scrapping deductions frequently exceed the cost of the schedule many times over.

The right sequence

The tax-optimal renovation sequence is: schedule before works (to capture scrapping values), keep every invoice during works (they are cost base and future depreciation evidence), and update the schedule after works (so new assets and capital works enter your claims). The guides below cover the rules first, then the specific items — kitchens, bathrooms, flooring, roofing, landscaping and dozens more — so you can check the treatment of exactly the work you are planning.

Repair vs improvement

Repairs (restoring previous condition) are deductible now under s25-10; improvements (making it better) are capital works claimed at 2.5% per year under Division 43. The label on the invoice does not decide — the nature of the work does.

Scrapping

Writing off the undeducted value of assets you remove or demolish. Requires the assets to be documented in a depreciation schedule before removal.

Capital works (Division 43)

Structural work and fixed improvements — new rooms, roofing, tiling, built-in cabinetry — claimed at 2.5% of construction cost per year for 40 years.

Plant and equipment (Division 40)

Removable or mechanical assets installed during renovation — appliances, blinds, hot water systems — each depreciated over its own effective life. New assets you install are claimable even in second-hand properties.

Initial repairs trap

Fixing defects that existed when you bought the property is not a deductible repair — it is capital, no matter how soon after purchase you do it.

Repairs vs Improvements: Tax Implications Explained

Repairs restore an asset to its original condition and are deductible immediately, while improvements enhance the asset's value or lifespan and must be depreciated over time. Under…

Can I Claim Scrapping When I Demolish Old Assets?

Yes, you can claim scrapping deductions when you demolish old assets, provided they were part of your investment property and you have not fully depreciated them. Under Division 43…

How Renovations Affect Your Depreciation Schedule

Renovations can significantly alter your depreciation schedule by increasing your property's capital works deductions under Division 43, and potentially adding new plant and equipm…

Do I Need to Update My Depreciation Schedule After Renovating?

Yes, you need to update your depreciation schedule after renovating to ensure all new capital works and plant and equipment are accurately accounted for. This allows you to claim t…

Should I get a depreciation schedule before or after renovating?

Both, ideally — before, to document assets you will remove (scrapping deductions); after, to capture the new works. If you can only do one and demolition is involved, before matters more, and the post-works update can follow.

Is replacing carpet a repair or depreciation?

New carpet is a depreciating asset (Division 40) with its own effective life — not an immediate repair deduction, but claimable over several years. Patching damaged carpet, by contrast, is a repair.

Can I claim renovations done by a previous owner?

Often yes for the capital works component — Division 43 attaches to the building, not the person who paid. A QS can estimate the works where the previous owner’s costs are unknown.

What happens to the old kitchen when I rip it out?

If it was documented in a depreciation schedule, its undeducted value is generally written off immediately as scrapping. Undocumented, that value is simply lost.

Do renovation costs help when I eventually sell?

Yes — improvement costs form part of your CGT cost base (less any capital works claimed, which must be adjusted under s110-45). Keep every invoice; missing records mean a higher assessed gain.