Private ruling: Rental deductions
Date of advice: 29 May 2020
Published: July 2020
Ruling period: Year Ended 30 June 20XX
Date scheme commenced: XX May 20XX

Ruling: Q1: Are renovations to fill in a pool and return the property to useable state deductable as rental deductions, under section 8-1 of the Income Tax Assessment Act 1997 ? | A1: Yes

Relevant facts and circumstances: You have a rental property. The property has been used as a rental property for more than XX years. You advised that the swimming pool was dated and in a rundown state, requiring continual maintenance and upkeep. The costs of this maintenance increased over the years for both the tenant and landlord. You further stated that it became difficult to offer the property on rent due to tenants not interested in maintaining a worn-out pool. You decided to fill in the swimming pool because of the on-going maintenance, and the suggestion the property would be more marketable as a rental without the swimming pool. You advised that the purpose for the filling in of the swimming pool was not add to the overall value of the property in the event of a sale, but would make the property more attractive to tenants, profitable as a rental and easier to rent. The costs of the work to fill in the pool and return the land to a useable state was $XXXX. The work carried out was filling the pool and landscaping that included, removing the fiberglass pool, backfilling, compacting and placing topsoil to lay the turf.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 25-10 subsection 1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) 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. Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the cost of repairs to premises used for income producing purposes. Section 25-10(1) states: You can deduct 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. In your circumstances, the removal of the pool and returning the land to an useable state for rental purposes will not add to the capital value of the property. The requests from tenants, the high maintenance costs, and the desire to maintain the marketability and rental returns on the property as rental property led you to undertake this action. The work undertaken did not go beyond the mere restoration of the area into a useable state once the pool was removed and was solely for the purposes of producing assessable income. Due to the age and ongoing maintenance of the fiberglass pool as well as its appearance detracted rather than enhanced the property's value as a rental property. The costs incurred as detailed in the invoice suggests that there was a bare minimum work carried out to fill the pool and landscape it that was necessary for the property to be easily marketable as rental property to tenants. Therefore, as the work carried out was solely for producing assessable income, a deduction under section 25-10 of the ITAA 1997 for the costs associated with the repair is allowable.