Private ruling: Special levy - repairs
Date of advice: 13 February 2026
Published: 30 March 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 01 July 20XX

Ruling: Q1: Is the expenditure incurred deductible as a repair under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. We accept that works done were undertaken to restore the efficiency and function of the property and did not change its character. The works are therefore correctly characterised as 'repairs'. Balcony and window works were not included in the loan and were invoiced and paid for separately. | Q2: On the assumption the expenditure is deductible, is the entire amount of $X 'incurred' and therefore deductible in the income year ended 30 June 20XX? | A2: No. You cannot claim the full amount of $X in the income year ended DD MM 20XX because the works were not completed until MM 20XX and further you did not pay this full amount in the income year. However, as the works have now been completed and the special levy funds have been expended, as a lot owner you are entitled to claim a deduction for the 'special levy' amount on receipt or payment of the quarterly notices.

Relevant facts and circumstances: You own unit X in the apartment complex at the Property which you acquired on DD MM 20XX. The unit is currently tenanted and solely used for producing assessable income. The Property was constructed in 19XX and was converted into residential apartments in 19XX. At purchase, you obtained an Owner's Corporation certificate and the most recent minutes of the Owner's Corporation Annual General Meeting (AGM). The Owners' Corporation Certificate confirms that no notices or orders had been issued to the Owners' Corporation in the past 12 months that had not been satisfied. You did not obtain a building inspection report. Façade rectification project The need for façade remediation works was first raised in or around 20XX by the Owners' Corporation committee. In Month 20XX, Company A were engaged to perform an engineering assessment of the building and produced a technical specification report outlining the scope of works required. You have provided us with a copy of this report. The Owners' Corporation engaged in a tender process to select a contractor to conduct the works. Company B was engaged as the builder. The Owners' Corporation struck a special levy for 'repairs to the façade, balcony and window works. The total estimated costs of the project were $X, with your share of the works amounting to $X. During Covid 19, the Owners' Corporation did not convene AGMs; therefore, you do not have meeting minutes for these years. You are unsure of the exact date the X Council issued the building order; you understand it was in or around 20XX. You have provided the 20XX Extraordinary General Meeting minutes, which includes a statement from the Building Committee dated DD MM 20XX.This statement notes that the Committee has been planning the remediation of the façades for more than 4 years, following the issuance of a building order by X City Council in relation to concrete falling from the western façade onto an adjacent property. Scope of Works The façade The engineering report provides,the façade is reinforced concrete construction, with much of its outer surface being covered in a sand and cement -based render layer that is coated. The scope of works are extensive, A brief summary of some of the works are as follows: 1. Patch and crack repair of concrete 2. Reinstatement of deteriorated render 3. Crack repair of render 4. Application of concrete/render protective coating 5. Replace missing or loose structural steel bolts During 20XX, these works were undertaken and completed in full by DD MM 20XX. The works were carried out continuously until complete. The special levy funds have been fully expended. Balcony and window works were not included in the loan and were invoiced and paid for separately. Strata loan facility funding The total estimated costs of the project are $X, with your share of the works amounting to $X. The Owners' Corporation resolved to finance the project works by entering into a loan contract with a finance company. The loan was obtained exclusively for the façade works. The Owners' Corporation ballot pack states, the purpose of the funding facility is to assist the borrower to meet expenditure that it is permitted by law to incur. Each lot owner had the choice between paying for their share of the works in full or participating in the strata loan. You elected to take up the strata loan which means you will incur an increase in the annual fees for 15 years. Special levy notices • You provided us with the special levy notices that have been issued to you. • Special Levy Major Building Works Loan 01/02/20XX - 31/03/20XX $X • Special Levy Major Building Works Loan 01/04/20XX - 30/06/20XX $X (Due date 01/07/20XX) • Special Levy Major Building Works Loan 01/07/20XX - 30/09/20XX $X (Due date 01/07/20XX) • Special Levy Major Building Works Loan 01/10/20XX - 31/12/20XX $X. Issued 01/09/20XX (Due date 01/10/20XX) • Special Levy Major Building Works Loan 01/01/20XX - 31/03/20XX $ X (Due Date 01/01/20XX) Normal loan repayment levy resumes DD MM 20XX. Assumptions The façade repair works arose due to X council building order(s) issued in or after 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subsection 25-10(1) | Income Tax Assessment Act 1997 subsection 25-10(3)

Reasons for decision: Detailed Reasoning - Detailed reasoning: Under section 25-10 of the ITAA 1997, you can deduct expenditure that you incur for repairs to premises (or part of premises) or a depreciating asset that you held or used solely for the purpose of producing assessable income. However, you cannot deduct capital expenditure under section 25-10. | Detailed Reasoning - Were the special levies 'incurred' when you elected to take up the strata loan?: Taxation Ruling TR 97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions (paragraph 4) explains that there is no statutory definition of the term 'incurred' for income tax purposes. However, as a broad guide: • you incur an outgoing at the time you owe a present money debt, that you cannot escape (paragraph 5). • an outgoing is 'incurred' if you are 'definitively committed', or 'completely subjected', to the outgoing (subparagraph 6(a)). • the debt must be more than impending or expected. There must be a presently existing liability that is not contingent, or dependent on some other thing (paragraph 18). Special purpose funds established by body corporates are discussed in Taxation Ruling TR 2015/3 Income tax: matters relating to strata title bodies constituted under strata title legislation , which explains that a 'body corporate' is established by the proprietors (paragraph 2) under the strata legislation of the various states and territories. Body corporates may impose levies on proprietors for special purpose funds to meet expenses common to all proprietors. Depending on the nature of the transactions, and weighing a range of factors, these levies may amount to 'mutual receipts'. Relevant factors include: • the relationship between a special levy amount and the common fund • the purpose for which the payment is made - ie whether the payment is to meet the member's proportion of their mutual liabilities • the capacity in which an amount is paid - ie whether the member is dealing with the strata title body in their role as a member (TR 2015/3, paragraph 25). The special levies are 'mutual receipts' (refer paragraph 24 of TR 2015/13) that are held by the Body Corporate for the common benefit of all the proprietors (refer paragraph 67) to undertake the Works. The special levies are not 'incurred' on receipt or payment of the notices as you are not definitively committed to debts at that time. There is only an 'expectation' of debts to be paid in the future - when expenses are incurred for the Works. The special levies are an estimate of the contribution in respect of unit X, to the expected mutual liabilities for the Works, the mutual Works expenses (refer TR 2015/13, paragraph 67). The special levy fund was used progressively to pay for the Works, which have now been completed. | Detailed Reasoning - Are the Works expenses incurred to date 'for repairs' to property or capital in nature?: Taxation Ruling TR 97/23 Income tax: deductions for repairs (TR 97/23) provides the Commissioners view regarding circumstances in which expenditure is deductible under section 25-10. | Detailed Reasoning - Deductions for repairs: Section 25-10 allows a deduction for the cost of repairs to premises used for income producing purposes. However, subsection 25-10(3) does not allow a deduction for repairs where the expenditure is of a capital nature. The following are examples of expenses which are capital or of a capital nature: • replacement of an entire structure or apartment of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator) • improvements, renovations, extensions and alterations, 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 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. 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 - Initial repair: 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, damage or deterioration in existence at the date of acquisition, is capital expenditure and is not, therefore, deductible under section 25-10. The cost of effecting an initial repair is still not deductible even if some income happens to be earned after acquisition but before the repair expenditure is incurred. Paragraph 60 of TR 97/23 states that the main consideration in relation to initial repairs is the appearance, form, state and condition of the property and its functional efficiency when it is acquired. Expenditure that remedies some defect or damage to, or deterioration of, property is capital expenditure if the defect, damage or deterioration: (a) existed at the time of acquisition of the property; and (b) did not arise from the operations of the person who incurs the expenditure. It is not considered material whether you were aware of the condition or the need for repair of the property at the time of purchase. Expenditure on initial repairs lacks a connection to the income producing activities of the property and is considered an additional cost of acquiring the property or an improvement in the quality of the property you acquired. An initial repair expense is not the type of repair expenditure ordinarily incurred as a working or operating expense in producing assessable income or in carrying on a business. This is because it lacks a connection with the conduct or operations of the taxpayer that produce the taxpayer's assessable income. It is essentially an additional cost of acquiring the property or an improvement in the quality of the property acquired. Initial repair expenditure relates to the establishment of the profit - yielding structure. It is capital expenditure and is not deductible under section 25-10. | Detailed Reasoning - Application to your circumstances: In your case you acquired the Property in MM 20XX. As detailed above, the complex was constructed in 19XX with damage to the external facades first identified by the Owners' Corporation in or around 20XX. The building was subject to X Council rectification order in or around 20XX. Rectification works commenced during 20XX and were completed by MM 20XX. We accept the works were undertaken to restore the efficiency and function of the external façade and did not change its character. The works are therefore correctly characterised as 'repairs'. You cannot claim the full 'special levy' amount of $X in the income year ended 30 June 20XX because the works were neither completed until MM 20XX and nor did you pay this full amount in the relevant year. However, as the works have now been completed and the special levy funds have been expended, as a lot owner you are entitled to claim a deduction for the 'special levy' amount on receipt or payment of the quarterly notices which you have elected to pay over a X year period. Therefore, you cannot claim the full amount of $X in the income year ended 30 June 20XX. However, as the works have now been completed and the special levy funds have been expended, you are entitled to claim a deduction for the 'special levy' on receipt or payment of the quarterly notices.