Private ruling: Rental property
Published: July 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for reimbursing your tenant for additional water charges? | A1: Yes.

Relevant facts and circumstances: You own a rental property. The water account for the property is in the tenant's name. An outdoor water pipe leaked resulting in the tenant receiving a higher water bill than they otherwise would. The tenant paid the bill. You agreed to reimburse the tenant as compensation for the additional water charges.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income or a provision of the taxation legislation excludes it. Expenses that are 'incidental and relevant' to your income earning activities are considered to be sufficiently connected with the derivation of assessable income and therefore will be an allowable deduction. A landlord is expected to provide premises which are free from defects which would cause an additional liability to the tenant. In your situation, an outside water pipe on your rental property leaked causing your tenant to incur higher than normal water charges. You have reimbursed the tenant the amount of the additional water charges. It is considered that this reimbursement is a natural consequence of your income earning activities - you are reimbursing your tenant for the liability incurred as the premises was not free from defect. Accordingly, you are entitled to a deduction for reimbursing the tenant for the additional water charges.