A well-designed bathroom renovation can significantly add value to a property. Given the expenses involved in carrying out a bathroom renovation, however, you might be wondering about the implications of a bathroom renovation on your payable taxes and eligibility for tax deductions.
If you’re considering house extensions in Perth for your home or investment property, it’s worth understanding whether a bathroom renovation is tax deductible, as well as how it will factor into your payable taxes when the end of the financial year comes around.
Understanding Capital Gains Tax and Bathroom Renovations
In Australia, capital gains tax (CGT) is a levy applied to the earnings that are gained when selling an asset, such as a property, that has increased in value from the time that it was owned. CGT first came into effect on 20th September 1985 and applies to properties that are owned after this date.
Depending on whether the property is classified as an investment or a primary residence, owners may be liable to pay CGT when the property is sold.
Capital works deductions, on the other hand, allow owners of investment properties to reduce the amount of taxable rental income each year based on the amount spent on capital works, such as a bathroom renovation.
Can Bathroom Renovations Be Claimed on Taxes?
Bathroom renovations are tax deductible, but only if the property is an investment property. If the property is a primary residence, it will generally be exempt from capital gains tax when it is sold.
For investment property owners, tax deductions can be claimed on repairs, maintenance and capital improvement works. The main reason for this is that the Australian Taxation Office considers the investment property as a business asset, with any associated works for upkeep or improvement being part of the cost of business.
Bathroom renovations often enhance the value of the property and are classified as capital improvement work. As the expenses of the bathroom renovation are considered to add to the baseline cost of the property asset, they can be claimed as tax deductions to reduce the amount of taxable rental income.
Residential homes in which construction commenced after 15th September 1987 are eligible to claim capital works deductions at a rate of 2.5% over 40 years. Property owners must obtain a depreciation schedule through a quantity surveyor’s services before claiming these deductions.
Example Calculation of Capital Works Deductions for A Bathroom Renovation
Let’s use an example of a $30,000 bathroom renovation performed in the 2025-26 financial year, covering a complete layout redesign, tiling, cabinetry, and fixtures.
A bathroom renovation project of this scale is treated as capital works and is eligible for a tax deduction rate of 2.5% per year over 40 years.
Annual tax deduction: $30,000 × 2.5% = $750 per year
This means that the property owner can claim up to $750 each year on their rental income to reduce their taxable income.
When the property is sold, the amount of capital works deductions claimed beforehand is applied to the base cost of the property for capital gains tax purposes. Assuming the property is sold 10 years after the renovation, the property owner would have claimed a total of $7,500 in tax deductions.
The claimed amount ($7,500) is deducted from the renovation cost, which translates to $22,500 being added to the property’s cost base rather than the full $30,000.
Extent of Bathroom Renovation Works That Apply to Capital Works Deductions
The cost of a bathroom renovation is claimed differently from repair or maintenance work on the property, with the main difference being that a bathroom renovation involves a significant upgrade rather than general work to upkeep the condition of the bathroom.
For example, replacing a few cracked tiles or fixing a leaking tap would be classified as repairs and maintenance, the cost of which can be claimed immediately under a tax deduction in the year of the expense. This, however, does not apply to initial repairs for any damage that existed when the property was first purchased.
Like extensive kitchen and laundry renovations, replacing the entire bathroom (including new plumbing, fixtures, and tiling) will fall under capital improvement works and cannot be claimed immediately in the same year, with the cost depreciated over time instead under capital works deductions. Here are some of the common types of bathroom renovation work that can be claimed as capital works deductions:
- Major installation works for the replacement of fixtures, tiling, cabinetry.
- Bathroom remodelling involving structural changes to the layout of the space.
- Upgrading or installing new plumbing and drainage systems to support new fixtures in the bathroom.
- Installing energy efficient fixtures, lighting, or heating systems as part of a renovation.
- Replacement of old tiling to enhance the waterproofing of the bathroom.
Are Bathroom Renovations Tax-Deductible if You Live In the Property?
No, bathroom renovations are not tax-deductible for properties that are listed as a primary residence for owners. However, carrying out a bathroom renovation in your home can still add to your property’s value in the same way, which can benefit you if you decide to sell the home in future. To get the most value out of claiming tax deductions for a bathroom renovation, owners may want to consider conducting it on an investment property instead of their own home.
While the cost of a bathroom renovation can be claimed for tax deductions, it’s still important to partner with a bathroom renovation specialist who can ensure a profitable outcome. At Venaso Selections, our dedicated team of bathroom designers are adept at transforming bathroom spaces, delivering end-to-end services from initial concept design to final installation.
Book in with us to plan your dream bathroom, or custom kitchen renovation in Perth.