March 2026
It is starting to seem like that.
In the last few months, we have had three clients come to us with huge renovation bills after a meth lab has been found in their rental property. And that would surely be the tip of the iceberg.
Most meth labs would not be terribly sophisticated operations – we’re not talking people with the knowledge and nous of Walter White in Breaking Bad. But there is a bit involved, so how do they go undetected?
The most recent post meth lab reno we had to add to an existing Depreciation Schedule was a house in a fairly dense suburb of Melbourne. How can that happen? It’s a warning to all investors that a tenant who pays in advance and never complains might not be a dream tenant.
And a property manager that fails to carry out regular inspections might not be a great property manager. It’s a fact that a lot of property managers need to be managed.
Do you have a question about claiming depreciation for a new investment property, or how to treat a repair, make an enquiry here.
Key Points
- 1. Repairing the damage after a tenant has used your property for a home based business like a meth lab can run into the hundreds of thousands. Make sure your Property Manager is conducting regular inspections – including photos.
- 2. Landlord’s insurance doesn’t always cover the damage. Check your insurance for exclusions to better understand what you’re covered for….and what you’re not.
- 3. A lot of the repair work can be claimed as an immediate deduction. Be careful not to improve the property and include that with the repairs. The ATO will notice.
- 4. Want to learn more about depreciation? Head to our website here.
How bad can a home-based business be?
Bad.
Really bad.
So bad that one of the clients we dealt with recently was in tears telling us about it – the property had been the home they lived in for ages before renting it out, so there was an emotional dimension to the pain. That lab came to light when there was an explosion during some careless cooking.
When a meth lab is discovered in a property, the police are involved initially. If it’s an active lab, different states would then have various protocols, but a Hazmat team is usually sent in to deal with hazardous materials on site. They’re often the ones in the yellow truck who wear the full body cover and breathing equipment. Fun for local kiddies to watch enter a property, but not as much fun for a landlord.
After they have gone, the hard work starts for the property owner.
The fumes from cooking meth seep into everything, not just lungs. Carpets and curtains are the first things to toss out.
If the cooking happened in the kitchen of the property – and that’s the logical place to cook – that will likely have to go. Yep, it will need to be stripped out. Cupboards, benchtops, the lot.
Then testing happens. There are companies that do this and their equipment can be so sensitive that if somebody has just smoked meth in a property, it will detect it. Imagine what it’s like when a property has housed a lab.
Often the gyprock on the walls needs to come off – at least in the rooms in closest proximity to the cooking.
Worst case? We had a client who needed to remove the gyprock on all walls and the ceilings, and the floorboards in the kitchen had to come up – they were solid timber with nothing covering them.
And then when the house is put back together, it needs to be tested again for meth residue. Imagine how nerve wracking that would be after spending $137,950 (in one case) on repairs.
Will Landlord’s Insurance cover the damage?
‘Not to worry’, some people think. ‘I have landlord’s insurance and I’ll get a near new house out of this episode and a good story to tell – lol.’
It surprises some people when they find out that in the exclusions listed by their insurer (I mean, who reads that stuff?) is a clause that states no insurance is payable on problems caused by illegal activities.
And cooking meth is right up there in terms of illegal activities. So all you will get out of your insurer is possibly a sympathetic email. (What a lucky escape for the insurer.)
Next port of call for some people is their property manager. ‘Surely they were remiss in managing the property and should pay to fix it blah blah…’ Not going to happen, even if the property manager was tardy.
One of our clients who has been through this whole ordeal thought they had dream tenants. They paid 6 months rent up front and were always months ahead. They never flagged repairs or asked for anything to be done to the property and they kept the front lawn and garden nice and tidy. They even planted flowers.
They were such good tenants that when the property manager found it hard to arrange regular inspections, his advice was that given the tenants were so good, maybe it was best to not force the issue. Especially given the tenant was supposedly a busy single mum with two young kids – great cover. The actual tenants probably left “kids’’ bikes in the driveway to maintain the confection.
How is the rectification work treated?
And that brings us to the question of how this rectification work is treated from a tax perspective. It’s the light at the end of a long, dark and smoke filled tunnel.
Much of it will be treated as ‘repairs’, which is a relief.
People sometimes take the opportunity to make improvements to the property and will need to depreciate that work via a Depreciation Schedule. Be careful to not lump the improvements in with the repairs as the ATO will likely scrutinise a huge repair claim. (Before and after photos will be essential and detailed records of all work done.)
And the property will perhaps be off the market for at least 6 months, so there is a significant loss of income there.
There will possibly be some lingering stigma attached to the house – not sure if agents need to let prospective tenants know. There might also be a requirement for periodic meth testing. Tenants will find out then for sure.
And you know how the smell of pet urine can come back long after you have thought it was dealt with? Imagine a test down the track detecting legacy traces of meth.
We’ve written before about the difference between repairs and improvements. You can read more here.
Depreciation Know-How
If you’re keen to learn more about Depreciation and Depreciation Schedules, or if you have a friend who would benefit from learning more, our website is a treasure trove of information.
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