Private ruling: Rental deductions - repair and capital works
Date of advice: 20 April 2026
Published: 6 July 2026
Ruling period: XX XXXX 20XX
Date scheme commenced: XX XXXXX 20XX

Ruling: Q1: Can you claim a deduction for repairs to the existing deck of your short-term rental property under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) | A1: No. | Q2: Can you claim a capital works deduction for the extension made to the deck in your short-term rental property under Division 43 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: The property is located at the Property. On XX XXXX 20XX, you obtained a structural report on the property, as part of pre-purchase diligence. On XX XXXXX 20XX, you purchased the property. The property owners are Owner A and Owner B. You own the property as tenants in common, with Owner A having an XX% and Owner B having XX%. The property was purchased to rent. You were required to install an internal staircase to get an occupation certificate from the council as the stairs were removed by the previous owner. The property is rented and managed by Owner B Airbnb. The property is rented at the Airbnb market rate. Determined by similar properties on Airbnb. In XXXXX 20XX you rented the property to your first guests, the delay in renting after purchase was due to the challenges of Covid-19. You have replaced the existing deck, posts, stairs, and balustrade due to extensive wear, deterioration and non-compliance, as the gaps in the old balustrade exceeded current safety standards and were unsafe for children staying in the property. You also completed an extension to the deck. The replacement deck was XXm 2 and the new extension provided an additional XXm 2 of decking. You obtained XXXXX quotes to replace the damaged decking and complete the extension. These quotes range from $XX,XXX - $XXX,XXX. Initially you selected the most cost-effective option, however that builder became unavailable for several years. You engaged the XXXXXX lowest quote to ensure the work could be completed during the off-season. You have advised that the original balustrade could not be replicated because its design is now illegal. A new balustrade was installed to remove existing safety and liability risk. The property is a brick structure in a coastal, high moisture environment. The decking replacements will assist ongoing durability. The portion of cost for repair to the existing balcony is $XX,XXX. You have completed a deck extension with a cost of $XX,XXX. In the 20XX-XX income year, the property was available for rent for XX weeks (XXX days). The property has not been left vacant for any period with no rent charged. You have used the property personally within the last XXXXX years to complete maintenance. Maintenance is primarily focused on ensuring the property is habitable, safe and compliant for rental use. These activities include: • Pool care: intensive management of leaf debris from surrounding trees, this is to prevent the pool from turning green and becoming a health hazard. • Routine internal upkeep: professional cleaning of carpets, floors and surfaces, cleaning of toilets, heating/cooling vents and fixtures. • Safety and compliance: regular testing of smoke alarms, pest control treatments and gutter cleaning. • General repairs: minor interior repairs, weeding/pruning, replacing lightbulbs, mould prevention and monitoring plumbing/electrical systems after periods of non-use. You typically stay in the property for X-X days per visit to ensure the property is in a good state for rentals, and for maintenance upkeep. You normally visit the property X-XX times per year. Visits mainly occur during the shoulder seasons such as spring and autumn, when the garden and exterior maintenance is most demanding. You occasionally stay in between bookings, if you are unable to get a cleaner and the house needs to be cleaned and ready for the next tenant You and your spouse pay for the repair expenses. You will not receive any insurance or other type of payment for repairing the items. The property is a short-term rental and rented from X days to X weeks, with the option to book further if required.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 25-10 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 Division 43 | Income Tax Assessment Act 1997 subsection 43-70(1)

Reasons for decision: Summary: Section 25-10 of the ITAA 1997 allows a deduction for the cost of repairs to premises, or part of the premises, used solely for income-producing purposes. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs that are considered capital expenditure. Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10. | Detailed Reasoning - Initial Repair: Expenditure to remedy defects, damage or deterioration in existence at the date of the acquisition of property (that is, an initial repair) are dealt with in this ruling. Paragraph 4 of TR 97/23 states the expression 'initial repair' refers to a repair by a taxpayer that remedies some defect in property or makes good damage to, or deterioration of, property being a defect, damage or deterioration which existed when the property was acquired from another person (whether by purchase, lease or licence); and has not arisen from the operations of the taxpayer who incurs the repair expenditure. Paragraph 5 of TR 97/23 goes on to state that a repair is not an 'initial repair 'simply because it is the first repair made after property is acquired. It is an 'initial repair' if the repair is due when the property is acquired in the sense that property has defects, damage or deterioration or is not in good order and suitable for use in the way intended. Paragraphs 59 to 61 in TR 97/23 goes on to state why initial repairs are of capital nature and therefore not deductible. The paragraphs state: 59. Expenditure incurred on an initial repair after property is acquired, if the expenditure is incurred in remedying defects, damage or deterioration in existence at the date of acquisition, is capital expenditure and is not, therefore, deductible under section 25-10. This is so whether the property is purchased or obtained under lease or licence by the taxpayer. The cost of effecting the repair is still not deductible even if some income happens to be earned after acquisition but before the repair expenditure is incurred: see paragraphs 63 to 66 of this Ruling in relation to dissecting or apportioning initial repairs costs. 60. The main consideration in relation to initial repairs is the appearance, form, state and condition of the property and its functional efficiency when it is acquired. Expenditure that remedies some defect or damage to or deterioration of property is a capital expenditure if the defect, damage or deterioration: (a) existed at the time of the property; and (b) did not arise from the operation of the person who incurs the expenditure. 61. It is immaterial whether at the time of acquisition that taxpayer was aware of the condition of the property, including its need for repair. It is also immaterial whether the purchase price (or lease rentals) reflected the need for repairs. We consider that the English Court of Appeal decision in Odeon Associated Theatres Ltd v. Jones (Inspector of Taxes) [1972]1 All ER 681 is not authority in Australia for contrary view. An initial repair expense is not the type of repair expenditure ordinarily incurred as a working or operating expense in producing assessable income or in carrying on a business. This is because it lacks a connection with the conduct or operations of the taxpayer that produce the taxpayer's assessable income. It is essentially an additional cost of acquiring the property or an improvement in the quality of the property acquired. Initial repair expenditure relates to the establishment of the profit - yielding structure. It is capital expenditure and is not deductible under section 25-10. | Detailed Reasoning - Application to your circumstances: The replacement of the existing deck, posts, stairs and balustrade are not an allowable deduction under section 25-10. In accordance with the Building Report completed prior to purchase on the XX XXXXX 20XX, the damage to the decking was pre-existing. The expense relating to the repair of the existing deck, posts, stairs and balustrade is a capital amount and not an allowable immediate deduction. This amount can form part of the cost base when the property is sold. | Detailed Reasoning - Capital Works: Taxation Ruling TR 97/25 - Income Tax: property development: deduction for capital expenditure on construction of income producing capital works, including buildings and structural improvements - discusses the deductibility of capital expenditure. Where a capital work is used in the production of your assessable income, Division 43 of the ITAA 1997 allows you to claim a progressive deduction for the cost of the capital work and provides for a deduction for certain types of construction expenditure. Construction expenditure is defined in subsection 43-70(1) of the ITAA 1997 as capital expenditure incurred in respect of the construction of capital works. Construction expenditure includes: • preliminary expenses such as architect fees, engineering fees, foundation excavation expenses and cost of building permits • cost of structural features that are an integral part of the income producing buildings or income producing structural improvement, such as atriums and lift wells • a portion of indirect costs. An item is more likely to be considered a capital work where it: • forms part of the fabric of the building • does not perform a function which is independent from the general function of the building • has the purpose of making the building or structure complete The following factors need to be considered together when determining whether an item is part of the premises or setting: • whether the item appears visually to retain a separate identity • the degree of permanence with which it is attached to the premises • the incompleteness of the structure without it • the extent to which it was intended to be permanent or • whether it was likely to be replaced within a relatively short period. Examples • Wall and floor tiles are generally fixed to the premises, not freestanding, intended to remain in place for a substantial period of time. They will generally form part of the premises. Expenditure on these items falls under capital works. • Insulation batts, although generally not fixed, are intended to remain in place indefinitely, do not have a separate visual identity and add to the completeness of the structure. They are also part of the premises. In the case of residential rental properties, the capital expenditure deduction is: • generally, spread over a period of 25 or 40 years • limited to 100% of the construction expenditure • not allowable until the construction is completed • may only be claimed for the period during the year a property is rented or available for rent Where the capital work is undertaken on residential rental properties after 15 September 1987, the cost of the capital work will be spread over a period of 40 years at a flat rate of 2.5% per year. | Detailed Reasoning - Application to your circumstances: The extension of the deck, with the addition of a pergola, footings, structural posts and railings are considered to be capital works and are not an allowable immediate deduction under section 25-10. Consequently, a 2.5% per year capital works deduction is allowed under Division 43 of the ITAA 1997 over a 40-year period commencing on the date the work was completed on the rental property.