Private ruling: Rental property deductions
Date of advice: 15 December 2023
Published: 5 February 2024
Ruling period: Year ended XX XXXX 20YY | Year ended XX XXXX 20YY
Date scheme commenced: XX XXXX 20YY

Ruling: Q1: Can you claim deductions for the costs including rates, interest, water usage, strata fees, depreciation and capital works despite the property not being leased to a tenant due to necessary repairs being carried out? | A1: Yes. The Commissioner is satisfied that the expenditure for your rental property is an allowable deduction under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). The deduction for the holding cost expenses is not disallowed under Section 26-102 of the ITAA 1997, with the rental property being declared uninhabitable due to exceptional circumstances outside of your control.

Relevant facts and circumstances: You own a property which you acquired on XX XXXX 20YY. You have been renting the property to tenants. On XX XXXX 20YY, the apartment was flooded, after the carpet dried out, a plumber attended the property and was unable to identify the cause of the flooding. On XX XXXX 20YY, new tenants moved into the property. On XX XXXX 20YY, real estate agents advised you that the apartment had again been flooded due to heavy rain penetrating the apartment and coming from under the skirting boards. On XX XXXX 20YY, the owners' corporation organised for a plumber to attend the property, however the plumber was unable to identify the cause of water penetration. On XX XXXX 20YY, the apartment is declared uninhabitable by the real estate property manager as the hard timber floors and bedroom carpet were irreparably damaged by water. On XX XXXX 20YY, the tenants were formally advised to move out. The property has not been rented or available for rent ever since this time. On XX XXXX 20YY, an extraordinary general meeting was held by the owners' corporation to discuss issues with water ingress. On XX XXXX 20YY, an email was received from the owners' corporation to advise inspection of the units will include your apartment to identify the cause of water ingress. On XX XXXX 20YY, the investigations into the water ingress discovered that the water gushed through the bedroom window, due to inadequate sealing by the original builder. On XX XXXX 20YY, an insurance assessor visited the property, and a lawyer drafted a letter to the original builder of the complex requesting repairs. The windows sealing is classified as common property subject to maintenance by the owners' corporation, therefore the owners corporation is responsible for repairs to the window, floorboards, and carpet. Deductions are being sought for the costs including rates, interest, water usage, strata fees, depreciation and capital works despite the property not being leased to a tenant due to necessary repairs being carried out.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 26-102