Is Building A Pool Tax Deductible?
If you’re thinking of building a pool, you’re probably wondering if you can claim installation costs at tax time. After all, it’s a great way to offset your expenses – and maybe even justify the purchase to your partner or financial planner.
But there are eligibility requirements when it comes to claiming pool expenses, which can be confusing, particularly if you’ve never owned a pool. What’s more, there could be penalties if you give the Australian Taxation Office (ATO) misleading or incorrect information.
In this article, you’ll find out who’s eligible for pool tax deductions and what expenses you can claim. We also answer frequently asked questions, like whether you can claim a medical expenses offset (if the pool is being used to treat a medical condition) and how much installing and maintaining a pool really costs. Let’s get stuck in!
Who can claim tax deductions on a pool?
Let’s start with the bad news – if you’re a homeowner and you want to build a pool in your backyard, you won’t be able to claim building or maintenance costs. This is because residential pools are a private or domestic expense. In other words, they’re not used to make an income.
However, you will be eligible to claim deductions if you fall into one of these two categories: you’re running a business with a pool or spa, such as a swim centre or gym, or if you have an investment property with a pool. So if your pool helps generate business or income, you can claim tax deductions for your building, equipment and maintenance costs.
What pool deductions can you claim?
If you meet the ATO’s eligibility criteria, there are three things you can claim:
Capital works
If you install a new pool or make improvements to a pool in your swim centre or rental property, this counts as capital works under Division 43. As a result, you can claim a capital works deduction at the end of the financial year.
According to the ATO, capital works include expenses incurred in building the property as well as carrying out structural improvement, alteration and extensions to the property’. This may include installing or renovating a pool, adding a spa and installing a pool fence (yes, this is classified as a permanent structure!). However, keep in mind that capital works can only be claimed if the rental property was built after 17 July 1985 and is currently being rented.
If you meet the eligibility criteria, deductions are 2.5 per cent over 40 years (properties build between 18 July 1985 and 15 September 1987 are eligible for 4 per cent over 25 years). To give you an idea of what this might look like, one pool owner added a new pool shell for $23,440, which is claimable at 2.5 per cent. This means he was able to claim $586 in the first year in deductions.
However, if you get a new pool installed, the returns could be much higher. According to Mike Mortlock, managing director of MCG Quantity Surveyors, total deductions for a new $50,000 pool might be around $3,400. The bad news is that deductions won’t stay at this rate each year. They’ll go down over time – like most depreciable assets – but you’ll still get a sizeable deduction each year.
Note: Above-ground pools are not considered a fixed structure, so they’ll fall under the plant and equipment category. See below for more information.
Plant and equipment depreciation
In addition to capital works, which apply to the structure of the pool, you can also claim depreciation of plant and equipment, which includes removable or mechanical items on your property. When it comes to pools, that includes equipment like salt chlorinators, filters, pool pumps and pool cleaners. In some cases, it may also include outdoor furniture and pool accessories.
However, there are exceptions to this rule. If you rented your property after 2017 and it’s not owned under a company name, you can’t claim depreciation costs on your pool equipment. However, if the property was bought new or you’ve added assets yourself, you can claim depreciation costs.
For example, if you already have a pool and decide to add solar pool heating, you can claim depreciation costs which can produce deductions of up to $7,000, depending on the size and number of solar panels.
If you have an above-ground pool, however, you won’t be able to claim depreciation deductions unless the pool is new, you were renting the property before 1 July 2017 (when regulations on plant and equipment claims changed) or you own the property under a company name. To find out more about eligibility requirements, contact the ATO or speak to a tax professional.
Capital works deductions based on a 2.5 per cent rate (2016). Source: BMT Tax Depreciation
Pool maintenance costs
Pool maintenance can cost you anywhere between $600 and $1500 a year – not including equipment replacement or repairs. That’s a hefty chunk of your budget if you’re also paying insurance, general business maintenance and staff wages.
Luckily, you can claim most of your pool maintenance at tax time. Maintenance costs include pool fencing compliance checks (which need to be done every 1–4 years, depending on your state or territory), equipment repairs, servicing by a pool company (which may include balancing the pool water, checking equipment, cleaning, emptying the skimmer, etc.) and insurance.
Make sure you keep track of your invoices and give them to your tax accountant at the end of the financial year. You may even be able to get an instant write-off for items under $300, such as skimming nets, thermal pool blankets or pool brushes.
If you own a property in a body corporate (i.e. strata apartment or villa/townhouse) and it has a pool, a quantity surveyor can measure your pool to calculate the overall value and divide this up so you can claim your share of deductions each year.
Can you claim the medical expenses tax offset?
In countries like the US, pool owners can claim the installation and/or maintenance costs of a pool if it’s being used for medical purposes, such as treating arthritis or managing disability. In Australia, the medical expenses tax offset was discontinued on 1 July 2019, so if you want to install a pool because a doctor or healthcare provider has prescribed it for treatment, you can no longer claim it, even if you did so in the past.
How much does it cost to build and maintain a pool?
If you’re thinking of building a pool for your residential or investment property, it’s important to consider the upfront and ongoing costs. In-ground pools can cost $31,500–$100,000 to install, depending on the size, pool type, access and location. (See What You Need to Know About Building a Pool for more information.) Ongoing maintenance costs can be around $600–$1,500 a year, not including equipment repairs and replacements.
Before building a pool, make sure you do your research and budget for these expenses. To minimise these costs, keep your receipts so you can claim deductions for capital works, plant and equipment deductions (if eligible), and maintenance at the end of the financial year. (If you want to save even more money, see our article on how to reduce your pool running costs.)
However, even with deductions, pools can be time-consuming and expensive to maintain, so don’t install one unless you know you’ll get a return on your investment. Typically, pools are an asset if you live in a warm climate, your property is located in an affluent suburb or there’s demand for pools in your area. For expert advice, chat to your local estate agent or financial planner.
Takeaways
Pools are a great way to add value to your property. However, if you’re a residential pool owner, you won’t be able to claim building or maintenance deductions at tax time – unless the pool is being used for commercial purposes. To be eligible for deductions like capital works, equipment depreciation and maintenance costs, you need to run a pool business (pool or swim centre) or own an investment property with a pool.
If you fall into this category, it’s still important to speak to a tax professional about eligibility requirements. As we mentioned earlier, there are restrictions if you started renting your property after 2017 or if the property isn’t under a company name. On the other hand, if you meet all of the eligibility criteria and continue to make improvements to your pool area, you could be enjoying thousands of dollars in deductions each year!
Want to know more about pool maintenance before investing in a pool? Then dive back into your Pool & Spa Guides or chat to one of our authorised dealers.
Disclaimer: Information in this article is based on available data. It should not be used as a substitute for tax or legal advice.