Private ruling: Rental property repairs
Date of advice: 6 November 2020
Published: January 2021
Ruling period: Income year ended 30 June 20XX | Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are expenses incurred in rectifying and remediating damage to your investment property deductible as repairs? | A1: Yes. Expenses have been apportioned on a reasonable basis between repairs, maintenance and capital expenditure for work conducted at the property after damage was detected. You have provided a comprehensive schedule of cost expenditure for the work. The portion of expenses allocated as immediately deductible, meets the requirements set out in Taxation Ruling TR 97/23. Further information about repairs can be found by searching 'QC 23635' on ato.gov.au

Relevant facts and circumstances: You purchased the investment property (the Property). The Property was made available to rent from the date of acquisition and has subsequently been tenanted or available for rent ongoing. In February 20XX, more than six years after acquisition, the Property was vacated by tenants. The end of lease inspection found evidence that the shower was leaking. Further inspection identified extensive mould infestation, and damp issues in the sub floor of the front section of the dwelling. The area affected included the bathroom, two bedrooms and hallway. Demolition work was undertaken in the affected area of the Property to remove flooring, fixtures and some wall coverings. This allowed access to re-seal the bathroom and remediate the mould infestation throughout the subfloor. Expenses incurred to complete this work have been allocated for immediate deduction. After the completion of the mould remediation work, the hallway flooring was re-laid with polished floorboards returning them to their original condition. Expenses incurred for this work have been allocated for immediate deduction. The floorboards in the two bedrooms were replaced with carpet over chipboard flooring. As this was not a like for like for replacement, you have regarded the cost of this work as capital expenditure. Replacement of the floor, wall lining and plastering in the bathroom was completed, with incurred expenses allocated as repairs for immediate deduction. Improvement work carried out in the bathroom including a minor reconfiguration, sealing, tiling and new fixture installation have been allocated as capital expenditure. You installed a new ventilation system to reduce the risk of future mould issues. You considered this system an improvement and allocated the cost as capital expenditure. Due to the extensive nature of the work related to the mould infestation, you conducted significant improvements to the kitchen and lounge areas concurrently with the mould remediation work. You have regarded the cost of this work as capital expenditure. The Property was painted internally at the conclusion of the other work, with the expenses allocated for immediate deduction. You engaged the services of the letting agent to manage the work at the Property. Some of the incurred expenditure for this service was allocated for immediate deduction reflecting the percentage of the total work that was considered as repair and maintenance. The remaining cost of project management costs were capitalised. You have provided a detailed cost schedule of repair, maintenance and improvement expenses incurred in the relevant income years.

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