Private ruling: Repair - investment property
Date of advice: 10 December 2025
Published: 2 February 2026

Ruling: Q1: Is the cost in relation to works carried out at Property A deductible under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Is the cost for works carried out at Property B in relation to the Gutter damage deductible under section 25-10 of the ITAA 1997? | A2: Yes. | Q3: Is the cost for works carried out at Property B in relation to the laundry damage deductible under section 25-10 of the ITAA 1997? | A3: Yes, but only to the extent that the cost constitutes a deductible repair as explained in our reasons for decision. This private ruling applies for the following periods: Income year ended 30 June 20XX Income year ended 30 June 20XX

Relevant facts and circumstances: Person A is an Australian resident for tax purposes who owns multiple properties which are leased. The relevant properties considered in this ruling are: • Property A purchased in the 20XX income year and rented from that year; and • Property B, in which Person A owns a 50% interest and rented from 20XX. Property A Property A is a double-storey 3-bedroom residential house. The ensuite bathroom (ensuite) at Property A suffered water damage during the COVID-19 lockdown period, and when the water damage in the ensuite was first identified, the tenant refused to allow the tradesmen entry to the property due to COVID-19 concerns. The tenant also claimed that they were not using the ensuite during this time; only the main bathroom was being used. In XXXX 20XX a report from the rental manager stated that the damage was extensive as the tenant had continued to use the ensuite despite claiming otherwise. The report noted that: • water had leaked to other parts of the property; • floor tiles had fractured and were loose, posing a safety hazard; • the shower door seal was missing; • grout had fractured and was missing in areas; and • there was possible damage to the underflooring. Person A engaged Company A and was billed $16,896 (including $1,536 for GST) to fix the water damage at Property A. Invoices 21104 and 23285, dated DDMMYY and DDMMYY for $8,448 (including $768 for GST) respectively, noted payments for the following works: Upstairs ensuite bathroom renovation; Demolition; - Disconnected and removed all fixtures. - Stripped all tiles from walls and floor. - Disposed of all rubbish. Rough in/Sheet off; - Levelled and straightened shower taps. - Supplied and installed new tile underlay. - Sheeted off all areas necessary with 6mm villaboard cement sheet. - Primed all walls and floor. - Waterproofed entire shower recess floor and up walls, approx 2m. - Waterproofed entire bathroom floor and up all walls, approx 150mm. Tiling; - Supplied tiles, colour and size chosen by rental provider. - Installed tiles. - Grouted all areas necessary. Fit off; - Re-installed original vanity, basin, toilet suite and tapware. - Caulked entire shower and bathroom. - Supplied and installed new chrome-framed pivot door shower screen. - Cleaned site. Upstairs main bathroom shower repairs; - Cleaned, primed and caulked shower using matching colour sealant. - Supplied and installed new door seal. The works were completed in XXXX 20XX. Following the completion of the works, Property A was leased shortly thereafter. Property B Property B is a 3-bedroom split-level residential house that suffered water damage due to: • either the tenant failing to properly secure the connecting hose to their washing machine, or the hose continuously leaking (Laundry damage); and • regular high volume of water overflowing from the gutters (Gutter damage). Laundry damage The Laundry damage resulted in water flowing back into the wall behind the cupboard and sink. Further issues were caused due to the non-waterproofing of the laundry floor. The water seeped under the tiles causing the tiles to crack and damaging the ensuite bathroom situated a half level below the laundry due to Property B being a split-level house. Further damage was found throughout the lower-level bathroom's walls and floors, vanity unit and shower space. All rotten studs, framing, skirting, plasterboard, cabinetry, joists and flooring affected by the Laundry damage was recommended to be removed and replaced. This has resulted in a complete bathroom and laundry strip out and renovation. All tiles on the vanity wall and shower wall were removed. The area impacted directly by water damage included flooring of 9.5m 2 and wall of 13.5m 2 (comprising 23m 2 out of 30.5m 2 ). Some wall tiles in the bathroom (7.5m 2 ) were laid to match the replacement tiles laid on other parts of the wall, rather than due to being damaged. Gutter damage Regular high volume water overflowing from the gutters has been running past the gutters and down the external window frame located in the dining area. The water was seeping inside the wall lining and soaking the bottom plate and stud framing. The frame required replacement including the outdoor cladding which was severely impacted where the timber was rotten. Once the plasterboard was removed, further damage was identified in the yellow tongue flooring and pine floorboards. Following the damage to the floorboards, Person A decided to renovate the flooring to the whole house. The cost of the new flooring is not considered in this ruling. Property B works Person A received the invoices shown in table 1, totalling $58,563.30 (GST-inclusive), to address the Laundry damage and Gutter damage: Table 1: invoices received by Person A to address the laundry and gutter damage Business name Date Invoice No. Description on invoice Amount GST-inclusive Business A 15 September 20XX Inv 2037 Disconnect and remove washing machine and dryer. Disconnect plumbing and remove laundry trough and cabinet and store. Remove any other required laundry cabinets and store. Remove all tiles from laundry floor. Cut up and remove any water damaged/rotten sunken floor to laundry. Supply and install new flooring to laundry. Reinstall previously stored laundry cabinets and laundry trough. Supply and install new charcoal coloured floor tiles to laundry floor. Supply and install new grout to floor tiles. Remove all debris from site. $2,999.15 Business A 20 October 20XX Inv 2061 $2,999.15 Business B 8 December 20XX Inv 73 Deposit for cladding works $3,000.00 Business B 8 December 20XX Inv 74 Cladding works $9,825.00 Company B 24 April 20XX Inv 653.40 Water damage to Laundry and lower bathroom $39,740.00 Total Not applicable Not applicable Not applicable $58,563.30 The cladding works undertaken by Business B for $12,825 (GST-inclusive) due to the Gutter damage included approximately 2 to 3 square meters of flooring being removed to do sufficient repairs to the wall. All rotten studs (most of the framework & window), skirting, shadowclad, flashings, plasterboard and flooring affected by the water damage was removed and replaced. Person A made an insurance claim in respect of the Laundry damage in XXXX 20XX. The claim was approved by the insurer for an amount of $5,998.30 (equivalent to the costs paid by Person A for the works carried out by Business A in XXXX 20XX (per invoices 2037 and 2061)) and paid to Person A shortly thereafter (less a $200 excess). Person A included the payment of $5,798.30 as assessable income in the 20XX income year. The specific works undertaken by Company B in relation to invoice 653.40 for $39,740 was specified in Quote 653 received by Person A on DDMMYY. The description on the quote is shown in table 2: Table 2: The specific works undertaken by Company B in relation to invoice 653.40 Not applicable Amount Carpentry structural works. Not applicable New sheet flooring, new joists, new studs, Install new tile underlay to laundry and bathroom Install of new HWD architraves. Install of new door stile to ensuite Materials $1,000.00 Labour 2 days 2 people $2,560.00 Cabinetry Not applicable New cabinet to laundry $1,500.00 New laundry cabinet install $80.00 Fixtures Not applicable 2 x Frameless Glass Panel 700x2100x10mm -- 2400 Not applicable 2 x EDEN Nero Robe Hook Matte Black Not applicable 1 x ALORA Tornado Wall Faced Toilet Suite Not applicable 2 x EDEN Nero Hand Shower Matte Black* Not applicable 2 x EDEN Solid Surface Bench Mount Basin Matte White Not applicable 1 x KIMBERLEY Curved Wall Hung Vanity 1800mm Beech Finish Not applicable 2 x MONSOON Round Shower Head Matte Black 300mm* Not applicable 2 x OMEGA Integrated Shower System Matte Black* Not applicable 1 x PURE WHITE 20mm Thick Curved Stone Top with cut outs 1800mm Not applicable REFLEKTA Pencil Edge Mirror 1800x1200mm Not applicable 2 x SPIN Gooseneck Sink Mixer Matte Black Not applicable 2 x SPIN In Wall Mixer Set Matte Black $7,750.80 Labour for fixtures $640.00 Plumbing Not applicable Disconnection of old water, reconnection of new water and drains. $1,500.00 New shower grate $800.00 Tiles Not applicable New tiles on laundry floor and splashback 40m2 $1,600.00 New tiles floors and walls to ceiling in ensuite Not applicable Labour for tiling $100 per sq meter $7,000.00 Waterproofing 500 materials 8hrs labour $1,140.00 Plastering Not applicable New wr board to laundry walls, ensuite $2,000.00 Painting Not applicable Painting of walls and ceiling in laundry $680.00 Painting of ceiling in ensuite Not applicable Electrical Not applicable Electrician to rough in and fit off new switches and lights $1,000.00 Removal of rubbish 1x 4m3 Skip $600.00 Labour demolition 2 days 2 people $2,560.00 Insurance $450.00 Builders margin 0.10 $3,276.08 GST included $3,603.68 TOTAL $39,740.56

Relevant legislative provisions: Income Tax Assessment Act 1997 section 25-10

Reasons for decision: Summary: All subsequent legislative references are to the ITAA 1997. The costs in relation to the works carried out at Property A (totalling $16,896, inclusive of GST) are deductible under section 25-10. Half of that cost is deductible in the 20XX income year and the other half in the 20XX income year. The costs for works carried out at Property B in relation to the Gutter damage (totalling $12,825, inclusive of GST) are deductible under section 25-10 in the 20XX income year. Person A may claim 50% of that deduction. The costs for works carried out by Business A at Property B (totalling $5,998.30, inclusive of GST) in relation to the Laundry damage are deductible under section 25-10 in the 20XX income year. Person A may claim 50% of that deduction. The costs for works carried out by Company B at Property B (totalling $39,740.56, inclusive of GST) in relation to the Laundry damage fall into 3 categories, being: • those that are deductible in full under section 25-10 in the 20XX income year; • those that are deductible in part under section 25-10 in the 20XX income year; and • those that are not deductible. Person A may claim 50% of the deductible costs paid to Company B. | Detailed Reasoning - Detailed reasoning: Section 25-10 allows a deduction for expenditure incurred on repairs to income producing premises and depreciating assets provided the expenditure is not capital or capital in nature. The following are examples of expenses which are capital or of a capital nature: • replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator); • improvements, renovations, extensions and alternations; and • initial repairs, for example, in remedying defects, damage or deterioration that existed at the date you acquired the property. Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the circumstances in which deductions for repairs are allowable under section 25-10. TR 97/23 states that in its context in section 25-10, the word 'repairs' has its ordinary meaning. It ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired and contemplates the continued existence of the property. Repair for the most part is occasional and partial. It involves restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. What is a repair for the purposes of section 25-10 is ultimately a question of fact and degree in each case having regard to the appearance, form, state and condition of the particular property at the time the expenditure is incurred and to the nature and extent of the work done to the property. Repair costs are deductible where they are incurred during the period the property is held for income producing purposes and are attributable either to damage that occurs during your income producing use of the property or to defects that emerge suddenly during that time. | Detailed Reasoning - Improvement or repair: When work is done to restore or fix a damaged item, we need to determine if the work undertaken is a repair or an improvement. The work may go beyond a repair for the purposes of section 25-10 if it changes the character of the property or does more than restore its efficiency of function. While repairs generally restore the item to its former function and efficiency, improvements increase an item's functionality and/or efficiency. A repair may increase the item's efficiency slightly and still be classed as a repair; a minor and incidental degree of improvement, addition or alteration may be done to property and still be a repair. However, where the item's function or efficiency is improved substantially or the work changes the function of the item, the work is an improvement and capital in nature. If individual parts of the total project involving an extensive renovation or restoration can be separated and characterised as repairs, and if their cost can be segregated and accurately quantified, their cost is deductible under section 25-10. It must be possible to segregate the cost of the repairs actually effected from the capital cost of the improvements. If, however, repair work is inextricably bound up with work of an improvement nature, and the repair work cannot be separately segregated and its cost accurately quantified independently from the cost of the improvements, the cost of the entire work is regarded as being of a capital nature (and not deductible under section 25-10). | Detailed Reasoning - Rental property damage: In Wulf v FC of T [2022] AATA 3094 ( Wulf ), the Tribunal considered at length existing case law along with the guidance provided in TR 97/23 to arrive at a conclusion that some of the expenditures incurred by the taxpayer on their rental property were repair expenses whilst some other expenditures were capital improvements. The rental property was subject to water damage and the bathroom, ensuite and kitchen were completely rebuilt with contemporary new fittings and cabinetry. It was found that those rooms had been modernised compared to their state prior to the water damage occurring and, as a result, the cost of the materials which modernised the rooms was considered capital expenditure (as they could be expected to produce revenue savings over time and extend the useful life of the asset) whilst the cost of other materials was in respect of repairs. The fact that the works were necessary was not a major consideration. The focus is whether, on the facts, the work/expenditure is of a nature that the property has been enhanced such that significant benefits will be enjoyed going forward. | Detailed Reasoning - Application to the circumstances: Property A The works carried out by Company A at Property A to address the water damage to the ensuite included stripping all the tiles from the walls and floor, the removal of all fixtures, waterproofing the floor and walls, the installation of new tiles, grouting and the reinstallation of all original fixtures (including the vanity, basin, toilet suite and tapware) except for a new chrome-framed pivot door shower screen. These works predominantly constitute a restoration of the ensuite's former appearance, state and condition and, in doing so, have merely restored the efficiency of function of the ensuite without changing its character in any way. They are therefore repairs within the ordinary meaning of that word incurred by Person A in relation to an income producing property, and the expenditure for those repairs are not of a capital nature. He is consequently entitled to a deduction for the cost of those repairs ($16,896, inclusive of GST) under section 25-10 in the income year or years they were incurred. Based on the copies of the invoices provided to the Commissioner, $8,448 was incurred in the 20XX income year and $8,448 was incurred in the 20XX income year. Property B Similar to the circumstances in Wulf ,some of the works carried out at Property B were to restore the damaged area to its previous condition, thereby constituting repairs, whereas some of the works were in the nature of an improvement where the damaged area was rebuilt with contemporary new fittings to modernise Property B from what it was prior to the water damage, thereby constituting capital expenditure. Laundry damage The works carried out by Business A in October 20XX to address the Laundry damage included: • the removal of the washing machine, dryer, laundry trough and cabinets, all tiles from the laundry floor and any water damaged and rotten sunken floor; • the supply and installation of new flooring (including tiles); and • the reinstallation of the previously stored laundry cabinets and laundry trough. These works were contained to the laundry and constitute a restoration of the floor to its original state prior to the water damage. They are therefore repairs within the ordinary meaning of that word incurred in relation to an income producing property, and the expenditure for those repairs are not of a capital nature. Person A is consequently entitled to a deduction for 50% of the cost of those repairs ($2,999.15, inclusive of GST) under section 25-10 in the income year they were incurred (i.e. 20XX), equal to his ownership percentage in Property B. Some of the works carried out by Company B in the 20XX income year to address the Laundry damage were necessary to restore the efficiency of function of the laundry and bathroom without changing their character. Those works are set out in table 3: Table 3: some of the works carried out by Company B in the 20XX income year | Detailed Reasoning - Carpentry (structural): Remove plaster board and install new walls, joists, studs and HWD architraves in laundry and bathroom. Install new flooring sheets, tile underlay to laundry and bathroom. Installation of a new stile for door in ensuite. Materials Labour $1,000.00 $2,560.00 | Detailed Reasoning - Plastering: New "wr" board to laundry walls and ensuite. $2,000.00 | Detailed Reasoning - Plumbing: Disconnection of old water, reconnection of new water and drains. A new shower grate. $1,500.00 $800.00 | Detailed Reasoning - Electrical: Electrician to rough in and fit off new switches and lights $1,000.00 | Detailed Reasoning - Painting: Laundry walls Ceiling in laundry and ensuite. $680.00 Labour demolition $2,560.00 Rubbish removal $600.00 | Detailed Reasoning - $12,700.00: The above works are non-capital repairs within the ordinary meaning of that word incurred in relation to an income producing property. Person A is consequently entitled to a deduction for 50% of the cost of those repairs ($6,985, inclusive of GST) under section 25-10 in the 20XX income year, equal to his ownership percentage in Property B. The works carried out by Company B in the 20XX income year to address the Laundry damage also included the supply and installation of new tiles to the floor and splashback in the laundry and the floor and walls in the bathroom. These works are recorded in the invoice issued by Company B as shown in table 4: Table 4: works recorded in the invoice issued by Company B | Detailed Reasoning - Tiles: New tiles on laundry floor and splashback, and floors and walls in bathroom ($40 per square metre) Labour ($100 per square metre) Waterproofing $1,600.00 $7,000.00 $1,140.00 To the extent that these tiling costs relate to the laundry, they were necessary to restore the efficiency of function of the laundry, did not change its character, and are non-capital repairs. Person A is consequently entitled to a deduction for 50% of the GST-inclusive cost of those repairs under section 25-10 in the 20XX income year, equal to his ownership percentage in Property B. However, to the extent that these tiling costs relate to the bathroom, they are only regarded as non-capital repairs to the extent they related to the restoration of the efficiency of function of the bathroom, i.e. to the extent that the costs relate to the area impacted by the water damage and not the area which was not damaged but retiled. The GST-inclusive portion of the tiling costs relating to the area impacted by the water damage in the bathroom are deductible under section 25-10. [1] Person A is entitled to claim 50% of that deduction, equal to his ownership percentage in Property B. The balance of the costs invoiced by Company B (totalling $13,696.88 excluding GST), including those relating to new laundry cabinetry or fixtures, are not related to the restoration of items to their former function and efficiency and are therefore not considered to have been incurred for repairs that are deductible under section 25-10. Gutter damage The works carried out by Business B in the 20XX income year to address the Gutter damage included the removal and replacement of rotten studs (most of the framework & window), skirting, shadowclad, flashings and plasterboard. These repairs were required to reinstate the wall to its original state prior to the water damage having occurred and did not change the character of the property or the dining room. The works are therefore repairs within the ordinary meaning of that word incurred in relation to an income producing property, and the expenditure for those repairs are not of a capital nature. Person A is consequently entitled to a deduction for 50% of the cost of those repairs ($6,412.50, inclusive of GST) under section 25-10 in the 20XX income year, equal to his ownership percentage in Property B. [1] That portion should be determined on fair and reasonable basis.