A: The answer is dependent on whether the new fence constitutes a repair or an improvement.
Furthermore, if it meets the definition of a repair, was it in that condition at the time of purchase?
What determines something as a repair rather than an improvement is a question of fact, determined by case law. However, in general terms, the following rules can be applied to assist you in your decision-making.
Work carried out is more likely to be a repair if:
• It relates directly to wear and tear.
• It is a replacement or renewal of a worn out or broken part.
• It restores something to its former condition and remains functionally the same.
Work carried out that has the following characteristics may be classified as an improvement if:
• It changes the character or functionality of the item.
• It becomes a restoration of substantially the whole building in its entirety.
An immediate deduction is available for work considered a repair, regardless of cost. However, an improvement or a repair to a condition that existed prior to purchase date is considered capital in nature and therefore not deductible. In some cases, a capital allowances deduction may be available in line with Division 40 of the Income Tax Assessment Act 1997 over the life of the asset.
Applying these facts, if the fence in question is a result of work required to repair damage or wear and tear that has occurred since the property has been rented out, then a deduction will be granted in full.
However, no outright deduction would be available if the new fence is:
• Of a different material to the old one (and therefore resulting in a change in character and functionality).
• An addition to the existing fence line.
• A repair to a fence that was already damaged at sale date.
You may be entitled to a deduction under the capital allowances provisions of Division 40 over a number of years.
Finally, remember this information is general and does not take into account your circumstances. You should speak with an adviser to consider if it’s suitable for you.
Source : Australian Property Investor (April 2012)