Private ruling: Deduction - rental property expenses
Date of advice: 16 September 2025
Published: 17 November 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: DD MM YYYY

Ruling: Q1: Can you claim the cost to repair the collapsed ceiling of your rental property as a deduction for repairs under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1977)? | A1: No. | Q2: Can I claim the interest paid on the investment property loan, while the property was being repaired and not tenanted? | A2: Yes.

Relevant facts and circumstances: On DD MM YY, you purchased an investment property located at XX XX (the property). The property was advertised for rental applications after settlement and is professionally managed through a real estate agent. On DD MM YY, the property was leased on and the tenants moved in. On DD MM YY, the ceiling collapsed internally affecting parts of the property. From DD MM YY to DD MM YY, the tenants were moved into temporary accommodation. You have building and tenant/landlord insurance. You lodged an Insurance claim, and several quotes were attained for repair works. The Insurance claim took until DD MM YY with several inspections and reports carried out to finalise the claim. On DD MM YY, you hired a company to remove the collapsed ceiling debris and to investigate the cause of the collapse. On DD MM YY, the company provided you a letter, they could not find any obvious reason for the ceiling to totally fail and collapse in the areas of the home. On DD MM YY, your insurance company hired another company XX XX to attend the property to inspect and report the damages resulting from a ceiling collapse. In their conclusion they state, "it is our professional opinion that the probable cause of the collapsed plasterboard ceiling is due to a defect in the ceiling installation". On DD MM YY, a third company was hired by your insurance to attend the property so they could investigate and report their findings. On DD MM YY, the third company XX XX provided a structural engineering investigation report. The report was conducted at the instruction of XX, XX was requested to attend the property and perform a visual, non-invasive investigation of the building to report on the cause of the collapse to the plaster ceiling in the affected areas. They inspected the property, took photos and reported their findings. Their findings : • no potential contributing factor or event has been identified as the possible cause of damage • widespread failure of the plaster ceiling fixings throughout the house • widespread deflection of the plaster ceiling throughout the house • deflection and cracking of the plaster ceiling in the dining area • a wind analysis was undertaken to determine if the cause was by a storm event. The investigation of the plaster ceiling confirmed evidence of widespread failure of fixing points, inadequate and or non-compliant installation of the plasterboards, no evidence the cause was by a storm event. On DD MM YY, a final report was made by XX XX they advised the ceiling failure has been attributed to inadequate installation of the plasterboards and insufficient support framing. They also stated an engineering assessment was completed regarding the ceiling failure at the property. The report confirms that the damage was not caused by storm activity or wind pressure, as recent weather events were within the building's compliant design limits. Your insurance claim was denied, the reason your policy does not cover any inherent defects or faults. You proceeded to have the affected area repaired to make the property liveable again. The repair work was carried out by contractor XXX. Total cost for all the repair and maintenance arising from the ceiling collapsed was $XX. On DD MM YY, the property was liveable again and re-tenanted for same $XX per week rent.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 25-10 | Income Tax Assessment Act 1997 subsection 110-25(5)

Reasons for decision: Detailed Reasoning - Question 1: Can you claim the cost to repair the collapsed ceiling of your rental property as a deduction for repairs under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1977)? | Summary: The cost incurred to repair a collapsed ceiling on your investment property can be characterised as an expenditure to remedy defects in existence at the date of acquisition of the property which makes them an initial repair. Therefore, they are not deductible under section 8-1 or 25-10 of the ITAA 1997 and are considered to be capital in nature. | Detailed Reasoning - Question 2: Can you claim the interest paid on the investment property loan, while the property was being repaired and not tenanted? | Summary: You can claim the interest paid on the investment loan while the property was not tenanted due to repairs being carried out to rectify the property to a liveable standard. | Detailed Reasoning - Detailed reasoning: Rental expenses - to repair the collapsed ceiling . Section 25-10 of the ITAA 1997 allows a deduction for expenditure you incur for repairs to premises (or part of premises) or a depreciating asset that you held or used solely for the purpose of producing assessable income except you cannot deduct capital expenditure under this section. | Detailed Reasoning - Application to your circumstances: The expenses are capital in nature as they relate to defects that existence at the date of acquisition of the property. 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. The following are examples of expenses which are capital or of a capital nature: • replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator) • improvements, renovations, extensions and alterations, and • initial repairs , for example, in remedying defects, damage or deterioration that existed at the date you acquired the property The insurance reports you provided by XX and XX, suggest the fault was pre-existing and most likely present prior to purchase, therefore considered to be an initial repair. Repairing damage that existed when the property was bought whether it was known at the time of purchase or not is considered initial repair. | Detailed Reasoning - Initial repairs: Taxation Ruling TR 97/23 Income tax: deductions for repairs, discusses initial repairs and paragraph 59 explains that an initial repair is not deductible under section 25-10. 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 an initial repair is still not deductible even if some income happens to be earned after acquisition but before the repair expenditure is incurred. Paragraph 60 explains that 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 capital expenditure if the defect, damage or deterioration: (a) existed at the time of acquisition of the property; and (b) did not arise from the operations of the person who incurs the expenditure. In your case the defect existed at the time of acquisition of the property. Paragraph 61 specifically considers the fact of whether a taxpayer was not aware of the need for repairs at the time of purchase. It is immaterial whether at the time of acquisition the 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. These costs would constitute as an initial repair and can be included in your cost base as per section 110-25 of the ITAA 1997, to the extent that these expenses are not covered by any insurance proceeds received. | Detailed Reasoning - Application to your circumstances: Given that the purpose of the loan relates to the purchase of your rental property, which is an income producing asset, you can claim a deduction for the ongoing interest expenses under section 8-1 of the Income Tax Assessment Act 1997 . Further information about the deductibility requirements for loaned funds can be found in the Taxation Rulings TR 2004/4 Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities , accessible via the ATO's legal database on ato.gov.au.

Reasons for decision: These reasons for decision accompany the Notice of private ruling for XX XX. | This is to explain how we reached our decision. This is not part of the private ruling.