Private ruling: Deductions
Date of advice: 2 May 2025
Published: 7 July 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim a deduction for the costs incurred in relation to the retaining wall activities at the Property under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Section 25-10 of the ITAA 1997 allows a deduction for the cost of repairs to premises used for income producing purposes. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs where the expenditure is of a capital nature. Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the principles and the circumstances in which expenditure incurred for repairs is an allowable deduction. In accordance with the principles contained in TR 97/23 it is viewed that the activities undertaken in relation to the damaged part of the original retaining wall were to remedy the damage and return to the affected retaining wall to its former function and efficiency. Therefore, a deduction can be claimed under section 25-10 of the ITAA 1997 for the costs incurred in relation to the retaining wall activities at the Property.

Relevant facts and circumstances: You purchased a property (Property) which had a building located which contained ground and first floor levels. The Property has been used as follows: • The ground level was tenanted by Company A when it was purchased who have continued to rent it up to an including the ruling period; and • The first floor is used by you in relation to your business. No part of the Property is used for any private use. You manage the rental of the Property with the Property being rented at market value from when it was first rented. A retaining wall is located along the boundary on one side of the Property and the neighbour's property, being on the lower side of the sloping block, The original retaining wall was a core filled blockwork wall. Some years after the Property was purchased an extreme weather event occurred causing around two thirds of the retaining wall to collapse, with part of it collapsing onto your neighbour's driveway. A large part of the original retaining wall was beyond repair except for less than 20 metres of the retaining wall located at the rear of the Property that was in reasonable condition. You engaged the services of Company X to conduct an inspection of the affected retaining and to provide remedial advice by way of feasibility of repair or specification of details for a replacement retaining wall. You lodged an insurance claim in relation to the damage to the retaining wall. However, your insurance provided indicated that your insurance claim had been rejected. It was identified that the cost of replacing the core filled blockwork in accordance with the requirement of current Australian standards and current building best practises would be hundreds of thousands of dollars. As a cost-effective measure mass concrete blocks of 1.2 metre by 20 centimetres (cm) by 60 cm concrete blocks were used to return the affected part of the retaining wall to its original function. The retaining wall related activities commenced and were completed during the ruling period. Costs incurred in relation to the retaining wall activities at the Property Costs were incurred in relation to the activities undertaken to the affected retaining wall by the following parties: • Company X - Site inspection and structural design of conventional retaining wall system, including site plan and design certification. Key stage site inspection or site meeting during construction; and • Company Y - Excavation of sites, demolition, removal and tip fees of existing fallen concrete retaining wall. Repair fallen/damaged/broken sections of the retaining wall with like materials, purchase and supply of concrete bricks, drainage materials, aggregate and soil, hiring machine and excavating area and undertaking construction/repair of retaining wall.

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