External painting can be a tax deduction if it qualifies as maintenance rather than as a capital improvement. Under Division 43 of ITAA 1997, maintenance refers to work that restores an asset to its original condition. This includes repainting for wear and tear. However, if the painting forms part of a larger renovation or improvement, it becomes a capital expense.
The most common misconception is that all painting costs are immediately deductible. This isn't the case. Painting that enhances the property's value or changes its appearance significantly is considered a capital improvement. These costs must be depreciated over time, rather than claimed in full in the year they occur.
To see how this plays out, consider a scenario where you own a 2008-built townhouse in Richmond, Melbourne, valued at $950,000. You repaint the exterior in 2023 to address weather damage, costing $5,000. As this work restores the property without altering its character, it's maintenance. At a 37% marginal tax rate, you can deduct the full $5,000, reducing your tax liability by $1,850.
In our experience reviewing thousands of properties across Australia, we find that many investors miss out by not distinguishing between maintenance and improvements. Often, painting is bundled with larger projects and incorrectly classified. Others fail to keep detailed records, leading to disputes with the ATO. A common oversight is not timing maintenance to optimise tax benefits, such as planning work before the end of the financial year.
The answer can differ depending on your situation. For properties purchased post-9 May 2017, any painting of previously used assets doesn't qualify for immediate deduction under Division 40. For pre-1987 buildings, the rules are different as these are not eligible for Division 43 deductions. If you own the property through an SMSF, deductibility depends on fund rules. Joint ownership might affect how deductions are allocated, requiring agreement between parties.
Given the complexities, professional advice is crucial. A Chartered Quantity Surveyor (QS) can help identify which painting expenses qualify as maintenance versus capital improvements. An accountant can then ensure these are accurately reflected in your tax return.