Private ruling: Rental deductions
Date of advice: 23 April 2026
Published: 13 July 2026
Ruling period: XX XXXXX 20XX
Date scheme commenced: XX XXXXX 20XX

Ruling: Q1: Can you claim council development fees as a capital allowable expense to claim depreciation at 2.5%? | A1: No. | Q2: Can you claim asbestos removal costs when your X is demolished as a deductible expense? | A2: Yes.

Relevant facts and circumstances: In XXXXX 20XX, you purchased an investment the Property. In XXXXX 20XX, you decided to build a X behind the current tenanted house. There was an existing X with asbestos exposure, this had to be demolished, and the land cleared to build the X. You combined the asbestos removal and demolition of the X at the same time, instead of doing as separate activities. You engaged different trades people for the demolition of the X and construction of the X. The total cost of the demolition was $XXXX.XX, with an approximate cost of $XXXX.XX for asbestos removal. You have provided a copy of the invoice from Company A, confirming the costs. This will form part of your private ruling application. Town A Council in City A charged $XX,XXX.XX dual occupancy development fees. The fee is over and above the building permit fee and architect fees paid for the purpose of the X construction. The total cost of constructing the X is $XXX,XXX.XX including council development fees. The construction of the X is completed. You intend to earn assessable income from the property as a long-term rental. You own the property as joint tenants with your spouse. On XX XXXXX 20XX, the property was tenanted. The property was immediately available for rent when construction was completed and rented for XX days in the 20XX-XX income year from XX XXXXX to XX XXXXX 20XX. The property is managed by Realty A and rented to unrelated parties. The property is rented as a long-term rental at market rates. The rental charge is determined based on open homes and feedback from the Property Manager. The property was vacant for X days after construction was completed and the Occupancy Certificate received; open homes were conducted to find the right tenant. You have never personally used the property. The property has never been occupied without rent being charged.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 40-755 | Income tax Assessment Act 1997 Division 43

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent in which they are incurred in the gaining or producing of your assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. However, there are also provisions in income tax laws which deal with specific deductions, including repairs and capital works. | Detailed Reasoning - Capital expenses: Capital Expenses are expenses that provide long-term benefits to your property. These costs typically improve the property's value or extend its useful life. Capital Expenses are expenses you incur when purchasing, acquiring, selling or disposing of your rental property. You may be able to include capital expenses when calculating the cost base of your property. This can help you reduce the amount of Capital Gains Tax (CGT) you pay when you sell your property. Capital expenses can include: • Conveyancing costs paid to a conveyancer or solicitor • Title search fees (incurred during the conveyancing process) • Valuation fees (when it is a private valuation conducted by your solicitor) • Stamp duty on the transfer of the property • Initial repairs | Detailed Reasoning - Cost Base: Section 110-25 of the ITAA 1997 provides that the cost base of a CGT asset consists of five elements: • Element 1. Acquisition costs (the money you paid for the property) • Element 2. Incidental costs relating to the acquisition and subsequent disposal of the asset • Element 3. Non-capital costs of ownership which are not deductible • Element 4. Capital expenditure to increase the value of the asset and, • Element 5. Capital expenditure to establish, preserve or defend title to the asset or a right over the asset. Inclusion under section 110-25(4) applies only to the extent the amounts are not deductible and cannot be deducted. The cost base of a CGT asset is generally what it cost you to buy the asset plus other costs you incur to hold or dispose of it. While these expenses cannot be claimed under the capital allowances or capital works provisions, they may be included in the cost base of the property for capital gains tax purposes. | Detailed Reasoning - Application to your circumstances: Council development fees are not an allowable expense. Building a X on a rental property involves council development fees that are generally considered capital costs. These costs along with construction expenses, are not immediately deductible but are added to the property's cost base for CGT purposes. Council development fee costs would be added as part of the fourth element of the cost base. The fourth element includes costs for the purpose of increasing or preserving the asset's value that relate to the CGT event. Therefore, the Commissioner cannot allow an immediate or capital deduction for this expense, however, the expense can be added to the cost base of the property when it is sold. | Detailed Reasoning - Deductions - Asbestos removal: Subsection 40-755(1) of the ITAA 1997 advises that you can deduct expenditure in an income year for the sole or dominant purpose of carrying on environmental protection activities, such as the removal of a pollutant like asbestos. | Detailed Reasoning - Application to your circumstances: Expenses that directly relate to asbestos remediation and the removal of asbestos are an allowable deduction under section 40-755. Therefore, you are entitled to an immediate deduction for the removal of the asbestos.