Every year around May, property investors and homeowners across Australia start asking the same question: can I claim any of this renovation work on my tax? The answer depends on what type of property you own, what work was done, and whether you have the right paperwork.
The Australian Taxation Office draws a hard line between repairs (claimed immediately on an investment property) and capital improvements (depreciated over time or added to your cost base). Getting the classification wrong is one of the top reasons the ATO adjusts rental property returns, with over $1.3 billion in adjustments to rental income claims in recent years.
This guide covers which renovation expenses are deductible, how depreciation works, what CGT cost base adjustments you can make, and which licensed tradespeople to engage. It does not replace professional tax advice. Always consult your accountant or registered tax agent before claiming deductions.
1. Investment Property: Repairs vs Capital Improvements
The single most important distinction for tax purposes is whether renovation work counts as a repair or a capital improvement. Your accountant will classify each item, but understanding the basics helps you plan renovations with tax outcomes in mind.
Repairs (immediately deductible in full):
Repairs restore something to its original condition without improving it. If a pipe bursts and a licensed plumber replaces that pipe section with like-for-like materials, that is a repair. If a storm damages roof tiles and a licensed roofer replaces them with the same type, that is a repair. Other examples: fixing a leaking tap, patching cracked plaster, repainting in the same colour, replacing damaged floor tiles, or fixing a faulty power point.
Capital improvements (depreciated over time):
Capital improvements enhance the property beyond its original condition or replace an entire system. Renovating an entire bathroom is a capital improvement even if the old one was falling apart. Examples: full kitchen or bathroom renovation, adding a deck or carport, installing air conditioning, replacing all carpets with timber flooring, building a granny flat, or upgrading the switchboard.
The grey area: Replacing a single element that has worn out can be a repair, but replacing the entire system is usually a capital improvement. Replacing one kitchen cupboard door is a repair. Replacing all cabinetry is a capital improvement. Consult your accountant before classifying large expenses.
2. Capital Works Deductions (Division 43)
Capital works deductions under Division 43 of the Income Tax Assessment Act allow you to claim the construction cost of structural elements of an income-producing property over 40 years. The deduction rate is 2.5 percent per year for properties built after 15 September 1987.
What qualifies as capital works:
| Item | Deduction Rate | Claim Period | Example |
|---|---|---|---|
| Structural walls, floors, roofing | 2.5% per year | 40 years | New bathroom walls |
| Built-in cupboards and wardrobes | 2.5% per year | 40 years | Kitchen cabinetry |
| Plumbing and drainage systems | 2.5% per year | 40 years | Re-piping a house |
| Electrical wiring | 2.5% per year | 40 years | Full rewiring |
| Driveways, fencing, retaining walls | 2.5% per year | 40 years | New Colorbond fence |
Practical example: You spend $40,000 on a bathroom renovation in your investment property. Under Division 43, you claim $1,000 per year (2.5 percent of $40,000) for up to 40 years. Plant and equipment items within the bathroom (tapware, exhaust fans, towel rails) may depreciate faster under Division 40.
Who does the work: Structural renovations typically require a licensed builder coordinating sub-trades: a plumber for wet areas, an electrician for wiring, a tiler for surfaces, and a painter for finishing. Each trade should provide an itemised invoice for your quantity surveyor.
Important: You need a tax depreciation schedule from a qualified quantity surveyor to claim capital works deductions. A schedule costs $400 to $800 and is itself tax deductible. Consult your accountant about whether one is worthwhile for your property.
3. Plant and Equipment Depreciation (Division 40)
Division 40 covers the depreciation of removable assets and fixtures within your investment property. These items have shorter effective lives than structural elements, so they depreciate faster and deliver larger annual deductions in the early years.
Common depreciable items and their effective lives:
| Asset | Effective Life | Annual Deduction (Prime Cost) | Typical Cost |
|---|---|---|---|
| Carpet | 10 years | 10% per year | $2,000 to $8,000 |
| Hot water system | 12 years | 8.33% per year | $1,500 to $4,000 |
| Split system air conditioner | 10 years | 10% per year | $1,500 to $4,500 |
| Oven and cooktop | 12 years | 8.33% per year | $800 to $3,000 |
| Blinds and curtains | 5 years | 20% per year | $500 to $3,000 |
| Smoke alarms | 6 years | 16.67% per year | $80 to $200 each |
| Exhaust fans | 10 years | 10% per year | $150 to $500 |
| Garage door (electric) | 12 years | 8.33% per year | $1,200 to $3,500 |
The 9 May 2017 rule: For residential investment properties where contracts exchanged after 9 May 2017, you can only claim plant and equipment depreciation on new items you purchase and install. Existing carpets, blinds, or appliances that came with the property cannot be claimed. However, if you replace them with new items, the new items are depreciable. This rule does not apply to commercial properties or Division 43 claims.
Who installs these items: A licensed air conditioning technician for split systems. A licensed electrician for exhaust fans, smoke alarms, and garage door motors. A licensed plumber or gasfitter for hot water systems.
4. Capital Gains Tax: Adding Renovations to Your Cost Base
When you sell a property, you pay capital gains tax on the difference between the sale price and the cost base. Renovation costs that qualify as capital improvements can be added to your cost base, reducing your taxable capital gain.
What counts toward your CGT cost base:
- Structural additions (extensions, granny flats, carports)
- Full room renovations (kitchen, bathroom, laundry)
- New permanent fixtures (built-in wardrobes, fixed shelving)
- Landscaping and retaining walls
- Fencing and driveway construction
- Swimming pool installation
What does not count:
- Routine maintenance and repairs
- Cleaning and gardening
- Items already claimed as a tax deduction (repair claims on investment properties)
- Items already claimed through capital works deductions (you must reduce your cost base by the amount of Division 43 deductions claimed)
Practical example: You purchased your home for $650,000, spent $80,000 on a kitchen renovation and $25,000 on a deck. When you sell for $900,000, your cost base is $755,000 ($650,000 plus $105,000 in improvements). Your capital gain drops to $145,000. With the 50 percent CGT discount (for properties held over 12 months), the taxable gain is $72,500.
For your main residence, CGT cost base adjustments only matter if part of the property produced income (such as a home office where you claimed occupancy expenses) or the main residence exemption does not fully apply. Consult your accountant about your specific situation.
Record keeping is everything. Keep every invoice, receipt, and contract. The ATO can request proof at any time. Digital copies in cloud storage are acceptable.
5. Home Office Renovations
If you work from home and have a dedicated office, some renovation costs for that space may be deductible. The deduction is based on floor area percentage. If your office is 10 percent of total floor area, you can claim 10 percent of the cost. Eligible work includes painting, replacing flooring, installing built-in desks, and upgrading electrical outlets and data points.
Warning about CGT implications: Claiming occupancy expenses (mortgage interest, rates, insurance) for a home office may reduce your main residence CGT exemption when you sell. Running expenses (electricity, internet) do not trigger this issue. Discuss the trade-off with your accountant.
Who does the work: A licensed electrician for power points and data cabling. A licensed painter for repainting. A licensed carpenter for built-in desks and shelving.
6. EOFY Timing: What to Do Before 30 June
The end of the financial year creates a natural deadline for tax-related renovation decisions. Completing certain work before 30 June allows you to claim deductions in the current financial year rather than waiting another 12 months.
Investment property actions before 30 June:
- Complete outstanding repairs. A repair completed and paid before 30 June is deductible in the current year. A repair completed on 1 July falls into the next financial year. If your investment property has a leaking roof, broken tapware, or damaged fencing, book a licensed roofer, plumber, or fencer now.
- Commission a depreciation schedule. If you have never had a quantity surveyor inspect your investment property, arrange one before 30 June. The schedule is deductible, and the surveyor may identify thousands in unclaimed depreciation. Your accountant can lodge amended returns for up to two prior years.
- Install new depreciable assets. Replacing old appliances, blinds, or carpet before 30 June means you start claiming depreciation in the current year.
- Pay for completed work. The ATO uses the date of payment (not invoice date) for individual taxpayers. Pay outstanding invoices before 30 June to claim the deduction this financial year.
Owner-occupier actions before 30 June:
- Keep all renovation invoices. Even though you cannot claim deductions on your own home, every capital improvement receipt should be filed for future CGT cost base calculations.
- Photograph completed work. Visual records support your cost base claims if the ATO queries them years later.
- Consider energy efficiency upgrades. Some state government rebates for insulation, solar hot water, and draught-proofing have EOFY deadlines. Check your state’s energy efficiency scheme.
7. Which Trades to Book for Tax-Advantaged Renovations
Different renovation projects require different licensed tradespeople. Hiring licensed trades protects your insurance coverage and ensures the work meets Australian Standards, both of which support your tax claims.
| Renovation Type | Primary Trade | Supporting Trades | Tax Treatment |
|---|---|---|---|
| Bathroom renovation | Builder | Plumber, Electrician, Tiler, Painter | Division 43 (structure) + Division 40 (fixtures) |
| Kitchen renovation | Builder | Plumber, Electrician, Carpenter, Gasfitter | Division 43 (structure) + Division 40 (appliances) |
| Air conditioning install | Air conditioning technician | Electrician | Division 40 (10-year effective life) |
| Roof replacement | Roofer | Plumber, Carpenter | Division 43 (structural) |
| Deck or pergola | Carpenter | Builder, Electrician | Division 43 (structural) |
| Painting (full repaint) | Painter | None | Repair (if like-for-like) or Division 43 |
| Fencing | Landscaper | Builder | Division 43 (structural) |
| Solar panel installation | Solar installer | Electrician | Division 40 (20-year effective life) |
Get itemised invoices. Ask each tradesperson for an invoice that separates labour from materials and lists individual items. This maximises your depreciation claims. A lump-sum invoice for “bathroom renovation: $40,000” is far less useful than a breakdown by trade and component.
Search for licensed tradespeople on TradieVerify’s search page to verify licences before hiring.
8. Common Mistakes That Cost You Money
The ATO scrutinises rental property deductions more closely than almost any other category. Avoid these common mistakes that trigger audits or result in penalties.
Claiming initial repairs as deductions. If you buy a rental property that needs work, initial repair costs are not immediately deductible. The ATO treats pre-rental repairs as capital expenditure added to your cost base. This catches many first-time investors.
Misclassifying improvements as repairs. Replacing a single broken tile is a repair. Retiling the entire bathroom is a capital improvement. Consult your accountant on borderline cases.
Not getting a depreciation schedule. A quantity surveyor typically identifies $5,000 to $15,000 in annual deductions. The schedule cost ($400 to $800) pays for itself within the first year.
Losing receipts. The ATO can audit returns for the past five years. Without invoices, claims are disallowed and penalties may apply. Store digital copies in cloud-based accounting software.
Overclaiming on mixed-use properties. If you rent out your property for only part of the year, you must apportion deductions based on the income-producing percentage. Your accountant can calculate the correct split.
9. State-by-State Licensing for Renovation Trades
Renovation work in Australia requires licensed tradespeople. Using unlicensed trades voids home warranty insurance and may affect tax deductions if the work does not comply with the National Construction Code.
| State | Building Regulator | Licence Required Above | Home Warranty Insurance |
|---|---|---|---|
| QLD | QBCC | $3,300 | Required above $3,300 |
| VIC | VBA | Any domestic work | Required above $16,000 |
| NSW | Fair Trading | $5,000 | Required above $20,000 |
| WA | DEMIRS | $20,000 (building) | Required above $20,000 |
| ACT | Access Canberra | $12,000 | Required above $12,000 |
| SA | CBS | All residential work | Required above $12,000 |
| TAS | CBOS | $20,000 | Required above $20,000 |
| NT | NT BAS | $12,000 | Required above $12,000 |
Verify any tradesperson’s licence before hiring on TradieVerify. A licensed tradesperson provides compliance certificates, which serve as proof that the work meets building standards and supports your depreciation and CGT cost base claims.
Frequently Asked Questions
Can I claim renovations on my own home on tax?
No. Renovations on your principal residence are not tax deductible. However, capital improvements can be added to your CGT cost base, reducing capital gains tax when you sell. Keep all invoices filed for that future sale. Consult your accountant for advice specific to your circumstances.
How much can I claim in depreciation on a renovated investment property?
A renovated investment property can typically generate $5,000 to $15,000 in annual deductions through Division 43 (capital works at 2.5 percent per year) and Division 40 (plant and equipment). A qualified quantity surveyor prepares the schedule for $400 to $800, and that fee is tax deductible.
Do I need to use licensed tradespeople to claim tax deductions?
The ATO does not specifically require licensed tradespeople for a deduction to be valid. However, unlicensed work may not comply with the National Construction Code and may void your home warranty insurance. Licensed tradespeople provide compliance certificates that support your claims. Search for licensed trades on TradieVerify.
Can I claim a tax deduction for repairs done before I rent out a property?
No. Pre-rental repairs are treated as capital expenditure, not deductible repairs. Only repairs done while the property is available for rent are immediately deductible. Initial repair costs are added to the cost base for CGT purposes. Discuss timing with your accountant before starting work.
What records do I need to keep for renovation tax deductions?
Keep itemised invoices (separating labour and materials), contracts, before-and-after photographs, compliance certificates, and your depreciation schedule. Store digital copies in cloud-based accounting software. The ATO can audit returns for the past five years, so retain records for at least that long.
Is the cost of a quantity surveyor’s depreciation report tax deductible?
Yes. The fee ($400 to $800) is fully tax deductible in the year you pay it. The schedule covers up to 40 years of deductions, making it one of the highest-return tax expenses for property investors.
Key Takeaways
- Repairs on investment properties are immediately deductible. Capital improvements are depreciated over time under Division 43 (2.5 percent per year for 40 years) or Division 40 (varies by asset type).
- Owner-occupiers cannot claim renovation deductions, but can add capital improvement costs to their CGT cost base to reduce capital gains tax when selling.
- Commission a tax depreciation schedule from a qualified quantity surveyor. It typically identifies $5,000 to $15,000 in annual deductions for a renovated investment property.
- Complete and pay for repairs before 30 June to claim them in the current financial year.
- Keep itemised invoices from every licensed tradesperson and store digital copies.
- Always consult your accountant or registered tax agent before claiming deductions. Individual circumstances vary, and tax law changes regularly.
Search for licensed tradespeople in your area on TradieVerify to ensure your renovation work is completed by qualified professionals.
Related Guides
- How Much Does a Bathroom Renovation Cost? Full 2025–2026 Price Guide — Our bathroom renovation costs
- How Much Does a Kitchen Renovation Cost? Full 2025–2026 Price Guide — Our kitchen renovation costs
- Renting Out Your Property: Required Trade Inspections — Our rental property inspections guide
Sources
- Australian Taxation Office, “Rental expenses,” ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses
- Australian Taxation Office, “Renovating properties,” ato.gov.au/businesses-and-organisations/assets-and-property/property/property-development-building-and-renovating/renovating-properties
- Australian Taxation Office, “Property improvements and additions,” ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/property-improvements-and-additions
- Australian Taxation Office, “Depreciating assets in rental properties,” ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses/depreciating-assets-in-rental-properties
- Australian Taxation Office, “Cost base adjustments for capital works,” ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/calculating-your-cgt/cost-base-of-asset/cost-base-adjustments-for-capital-works
- Australian Taxation Office, “Working from home expenses,” ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/work-related-deductions/working-from-home-expenses
- BMT Tax Depreciation, “Quantity Surveyors Australia,” bmtqs.com.au
- Duo Tax Quantity Surveyors, “Claiming Tax Deductions For Property Renovations,” duotax.com.au/insights/claiming-tax-deductions-for-property-renovations