Private ruling: Rental property maintenance
Date of advice: 5 December 2018
Published: March 2019
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim a deduction for your share (as per your legal interest) for the following work undertaken to your rental property? ● A specialist soil stabilisation treatment to part of the slab foundation. ● Pressure testing water service; static test sewer mains and internal pipework; repair leak to hot water service. ● Clear section of drain; CCTV camera inspection; testing internal sewer drains. ● Repair kitchen and bathroom drain junctions; repair faulty vent branch; supply and fit new inspection points in storm water system; repair faulty stormwater drain. ● Install 100mm stormwater pipe; static test stormwater pipe. ● Waterproof shower recess. ● Testing sections of sewer drain and underground stormwater system. ● Painting interior and exterior; fill and sand cracks. | A1: Yes. The above work is not an initial repair, does not result in greater efficiency of function and is not a renewal or reconstruction of an entirety. Therefore, this work is considered to be repairs which are deductible under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997). | Q2: Are you entitled to a capital works deduction calculated in accordance with Division 43 of the ITAA 1997 for your share (as per your legal interest) for the following? ● Upgrade of downpipes; install drain; fit expansion joint fittings. ● Take up shower floor and some wall tiles; repair loose floor tiles. | A2: Yes. In your case, the works done to upgrade the down pipes, fitting of expansion joint fittings, and install the drain have been classified as being capital in nature. This work is considered to be capital works for the purposes of Division 43 of the ITAA 1997 as the work was not undertaken to restore or fix a damaged item. The works are considered to be improvements and capital in nature. Paragraph 59 of TR 97/23 states that expenditure incurred on an initial repair after a rental property is acquired, where the expenses are incurred in remedying defects or deterioration in existence at the time of purchase, is considered capital in nature. Because the pre purchase building inspection report showed some existing cracking to floor tiles, the remedial work to these is considered an initial repair.

Relevant facts and circumstances: You purchased a rental property over 3 years ago. The property was tenanted at the time of purchase, and this has continued, with management by the same rental agency. The property was over 20 years old. You had a building inspection completed before purchase, and some cracking of bathroom wall and floor, shower and bath tiles, and deteriorated grout is shown. The rental agency confirmed the previous owners claim that the cracking had not worsened for many years. Recently your tenant raised concerns that the cracking had substantially increased, including cracks to wet area tiling, ceiling and internal walls. The property manager who has been managing the property for many years has corroborated the rapid deterioration. You were concerned that the concrete slab was beginning to subside, and a specialist builder for an assessment. It was confirmed that a section of the slab had subsided and treatment for underpinning was proposed. The diagram accompanying the proposal indicates that slightly less than 50% of the perimeter of the house slab will be subject to the realignment and stabilisation treatment. The specialist recommended that the plumbing and stormwater systems be checked and repaired as necessary before their underpinning work was carried out. This investigation and repair work was carried out by a licensed plumber. Concurrent with the investigation and restoration of the drain and stormwater systems, some upgrades were carried out. These were the upgrade of downpipes, installation of a drain and fitting of expansion joint fittings. The underpinning was successfully carried out with significant realignment of the concrete slab and closure of the internal cracks. The integrity of the plumbing, sewer and stormwater systems was checked again after the underpinning was completed. Cracks to internal walls and ceiling have since been repaired and the areas repainted. External paving affected by the repair work has be en made good. Temporary bathroom tiling repairs to ensure the integrity of the waterproofing have been made and more permanent repairs to the wet areas will be carried out in the future. The property has remained tenanted while works have been carried out.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 25-10 | Income Tax Assessment Act 1997 section 43-10