Private ruling: Rental property deductions when not income producing
Date of advice: 28 November 2018
Published: March 2019
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is a deduction allowable for the cost of repairs to your property incurred in an income year after the tenants moved out? | A1: No.


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

Reasons for decision: Summary: Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the cost of repairs to premises held or used for income producing purposes, to the extent that the expenditure is not capital in nature. In your case, your property was vacated a week before the end of the financial year. The deductibility of repairs to a property carried out after the cessation of income is specifically addressed in Taxation Ruling IT 180 Repairs to property carried out after cessation of income production . As highlighted in paragraph 2 of IT 180, the Commissioner states that if repairs are effected and paid for after the property had ceased to be rent producing, then the expenditure was not to premises held, occupied or used for the purposes of producing assessable income. IT 180 paragraph 4 states that the cost of repairs to a property after it stops being used to produce assessable income ma y be deductible providing: (a) the necessity for the repairs can be related to a period of time during which the premises have been used to produce assessable income of the taxpayer, and (b) the premises have been used in the production of such assessable income of the year of income in which the expenditure was incurred. Both the above conditions are required before a deduction is allowable. In your case, it is acknowledged that the necessity for the work relates to the period the property was leased and resulted from damage from the tenant. However, you have not received assessable rental income after 1 July 2015. As both conditions are not met, a deduction is not allowable for the work done to the property in the 2015-16 financial year.

Relevant facts: You are the owner of a rental property which was tenanted when tenants received an eviction notice on and were subsequently evicted a week before the end of the financial year. | There was significant damage to the property, such that it could not be rented out without repairs | The damage was malicious and significant, and over 2 months repair time was required. | It was neither possible nor feasible to complete any repairs in the current income year. | You lodged a claim form with the insurer before the end of the financial year, but it was some time before the repair work commenced. | About this time you made the decision to occupy the property, due to many factors, some of which were not within your control. | You intend to rent the property again in the future, at a date to be determined.