Private ruling: Rental - deductions and repairs
Date of advice: 6 August 2025
Published: 13 October 2025
Ruling period: DD MM YY
Date scheme commenced: DD MM YY

Ruling: Q1: Are you entitled to a deduction for the cost of removing and replacing the damaged asbestos roof on your rental property? | A1: Yes Section 40-755 of the income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for expenditure, which can be identified and specifically allocated to an environmental protection activity (that is, remedying pollution from the site of the earning activity) and therefore satisfies the sole or dominant purpose test. These activities are the preventing, fighting or remedying of pollution (which includes contamination of the environment by harmful or such potentially dangerous substances as asbestos) in the circumstances specified in paragraph 40-755(2) (a) of the ITAA 1997. Also included are activities in treating, cleaning up, removing or storing of waste in the circumstances specified in paragraph 40-755(2)(b) of the ITAA 1997. The pollution or waste must be of, on or from a site on which the taxpayer carried on, carries on, or proposes to carry on an activity for the purpose of producing assessable income. Paragraphs 90 to 93 (example 9) of TR 2020/2 Income tax: deductions for expenditure on environmental protection activities , makes it clear that replacing the roof with material that is of similar but safer quality qualifies the cost to be deductible under 'environmental protection activities.' Example 9 - limit on deductions: replacing pollutant materials in buildings 89. James owns a residential rental property from which he derives rental income. He engaged an asbestos surveyor who informed him that the walls were asbestos sheeting, which is a pollutant material. 90. James engaged a building contractor to remove the asbestos sheeting and re-sheet the walls with replacement material that was safe but of a similar condition and quality. The total cost of the work was quoted as $30,000. 91. The scope of the environmental protection activities will include all deeds or actions which are necessary to remedy the asbestos pollution. This will involve the removal of the asbestos walls and their replacement with a safer similar material. 92. The replacement sheeting of similar quality is not a capital improvement under Division 43 since it is a minor or incidental degree of alteration or improvement. Therefore, the cost of replacing the asbestos sheeting is not excluded under section 40-760. 93. The entire $30,000 cost is deductible under section 40-755 since this is expenditure which can be identified and specifically allocated to an environmental protection activity (that is, remedying pollution from the site of James' earning activity) and therefore satisfies the sole or dominant purpose test. In your case, removing the damaged asbestos roof sheets from your rental property that is used to produce assessable income constitutes an eligible environmental protection activity as it remedies an environmental pollutant. The asbestos roof sheeting was removed with the sole or dominant purpose of preventing pollution of the site of your income earning activities. You replaced the asbestos roof sheets with zincalume BlueScope steel custom orb corrugated roofing - as it was the cheapest product available and is a safer but similar product to asbestos sheeting. Therefore, you are entitled to a deduction under section 40-755 of the ITAA 1997 for the expense incurred in removing the asbestos roof sheeting from your rental property and replacing it with a safer similar material.

Relevant facts and circumstances: On DD MM YY, you purchased a residential rental property located at XXXX. The property is owned as joint tenants. The property was first made available for rent on DD MM YY. The property is managed by a real estate agency. Market rate of rent is determined by the property manager You have not personally used the property over the last three years The property was available for rent for the entire income year for which you are requesting the private ruling. On DD MM YY, there was excessive rain, and the tenants reported that the roof was leaking. A building inspection was completed by XXXX on DD MM YY. The report noted a 'storm' event and described the roof to be in poor condition with extensive water damage. The report also recommended that the asbestos roof be replaced to rectify the storm damage and prevent further leakage. On DD MM YY, you received a tax invoice from a licensed roof builder regarding the replacement roof. The amount of $XX was paid on DD MM YY. You considered three roofing alternatives available - zincalume, galvanized, or colourbond sheeting. You replaced the roof with a zincalume corrugated roofing product, as it was the cheapest product available and is a safer but similar product to asbestos sheeting. You seek to claim an immediate deduction of $XX, which relates solely to the removal of the asbestos and its replacement by a safer but similar product.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 40-775