Private ruling: Rental deductions
Date of advice: 4 July 2025
Published: 1 September 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim an immediate deduction for the works listed in Table 1 under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. In accordance with the principles contained in Taxation Ruling TR 97/23 Income tax: deductions for repairs , the works listed in Table 1 were undertaken to restore the function and effectiveness of the property. Therefore, you can claim an immediate deduction for the works undertaken as listed in Table 1 under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997). | Q2: Can you claim an immediate deduction for any of the cost of the items or works listed in Table 2 under section 25-10 of the ITAA 1997? | A2: Yes. In accordance with the principles contained in TR 97/23, to the extent that the items were used or works undertaken to restore the efficiency or function of the Property, you can claim an immediate deduction under section 25-10 of the ITAA 1997.

Relevant facts and circumstances: You own a rental property(the Property). You purchased the property on Date one. You didn't obtain a formal pre-purchase building inspection report. At the time of purchase, there was no evidence of water or damp damage. Neither was any water or damp damage disclosed in the section 32 statement or the contract of sale. The damage to the property occurred while it was being rented out. You resided at the property until around Date 2 at about which time you decided to make the property an investment property. In the years prior to your purchase of the property, extensive works were undertaken outside the property to mitigate any issues associated with flows from a nearby park. These works included the installation of large drains outside the whole of the building. The damage for which you are seeking a deduction occurred while the property was rented out. You began earning rental income from the Property from mid 20XX. You initially rented the property out privately through personal contacts at a commercial rate of rent. The property is now permanently listed on an online accommodation booking platform. Around Date 4, the walls began to blister. You were first made aware of the issue by the tenant residing in the Property at the time. You began testing the moisture levels to ascertain the extent of damage to the walls. In the same month, issues with damp were observed following a plumbing failure. Around Date 4, the Owners' Corporation report stated that a section of the drain that was surveyed appeared intact and operational. However, there were two areas in obvious need of repair. In that same month, plumbing outside the kitchen was replaced. The Owners' Corporation advised that the issue was due to a burst communal pipe outside the kitchen. Between late 20XX and 20XX, moisture levels continued to be tested to understand whether the damp damage was linked to the Owners' Corporation plumbing outside the kitchen. During this time, the moisture levels started dropping but were not eradicated. Around Date 5, a report was prepared by building surveyor Company A. The report contained the following findings: • very high live moisture readings were recorded throughout the floor and walls of the unit, despite the plumbing repairs being undertaken around Date 5, leaving ample time for any moisture issues associated with those works to have resolved • widespread rising damp issues persist throughout the entire unit and the plumbing repairs outside the front of the unit failed to rectify internal moisture ingress issues • a very high moisture reading was obtained in the floor slab of the living room. A photo taken shows the crazed appearance of what appears to be a waterproof coating application applied to the floor slab • extremely high moisture readings were obtained in the rear passageway and kitchen area confirming live water ingress through much of the unit. • high moisture readings in both the slab and walls around the kitchen joinery were confirmed. The only way to address this issue would be to strip out/ replace the kitchen joinery to access and treat the walls • all damaged hard plaster should be square cut and removed. Plaster replacement should have a waterproof additive to prevent moisture tracking Around Date 6, a report was prepared by Company B, specialists in damp issues. The report stated that rising damp was detected in the walls of the apartment. The report stated that this was due to the original damp proof course being under pressure from a major unidentified plumbing shortcoming. The report stated that the accumulation of ground salts in the areas of rising damp had caused the solid plaster to fret and fail. As a result, the failed plaster was permanently salt contaminated and should be replaced. You received a report from Company C who you engaged to identify any obvious or significant defects. Company C engaged Company D, Company B and Company E to provide advice to inform their report. Company E disagreed with the findings of Company A's report. Company E recommended that the walls and floors of the bathroom area needed to be treated with a waterproof barrier. Company E also advised that the bath waste point could be leaking water and that footings within the bathroom area needed to be replaced along with all waste plumbing. The property was available for rent from Date 3 to Date 7. On Date 7, the tenant left the property. At that time, the property was not in the condition to obtain a new tenant and remedial works were commenced to get the property back into a leasable state. The property was vacant from Date 7 to Date 8 while the remedial works were planned and carried out. The property was kept vacant as there was water damage and resultant mould contamination from plumbing failures. The works are now substantially complete and the property has again been tenanted since Date 8. No insurance proceeds were received in relation to the damage. Architectural work was undertaken to prepare plans required by the Owners' Corporation for approval prior to commencement of internal repairs. This work included plumbing replacement in the unit, but also extended to broader internal works beyond the plumbing. The original plumbing report is held by the Owners' Corporation. The kitchen and bathroom were stripped out. The plumbing pipework in the kitchen and bathroom was replaced and the remaining damaged pipework and plumbing were removed. The damp damaged plaster in the kitchen, bathroom, hallway and bedroom were cut out and all wires within the damp affected walls were cut. Wiring that was damaged was replaced. The kitchen and bathroom cabinets and toilet damaged in the demolition were replaced. The damp course was reinstated and the concrete floor affected through the damp course treatment was treated to ensure the protective barrier remains. A waterproof membrane was installed on the floors and showers of the bathroom and water membrane resistant coverings were installed throughout the bathroom. The steel bath waste pipe under the building was replaced with PVC. The works and items you are seeking a deduction for are listed below in Table 1 and Table 2. Table 1 • Preliminaries including insurance, plan printing, contract supply and drafting, council asset protection fee • Floor protection • Temporary plumbing disconnection required to remove kitchen and bathroom • Demolition/ strip out of the kitchen, bathroom, skirtings, architraves, render, carpet, underlay etc in order to access the damp-affected brickwork behind • Creating an open access to the land-locked WC • Testing of the cement sheet linings in the land-locked WC for asbestos • Removal of the hallway cupboard to access the damp-affected brickwork behind Table 2 • 2 x 6m skips • Architect (review and advice regarding damp damage and preparation of drawings for kitchen and bathroom replacement) • Fixing damaged electrical work impacted by plaster removal

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