Private ruling: Deductibility of rental property expenses
Date of advice: 15 January 2026
Published: 9 March 2026
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim an immediate deduction under either section 8-1 or 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for the bathroom works (Items 15,16, 17 and 18 of the Table of Works)? | A1: No. | Q2: Can you claim an immediate deduction under either section 8-1 or 25-10 for the replacement of the timber fence between the house and boundary on right hand side with new black aluminium fence including an extra wide gate (Item 7 of the Table of Works)? | A2: No. | Q3: Can you claim an immediate deduction under section 25-10 for Items 1, 2, 3, 4, 5, 8, 10, 11, 12, 13, 14, and 20 of the Table of Works? | A3: Yes. | Q4: Can you claim a capital works deduction under Division 43 of the ITAA 1997 for the bathroom works (Items 15,16, 17 and 18 of the Table of Works)? | A4: Yes. | Q5: Can you claim a capital works deduction under Division 43 of the ITAA 1997 for the replacement of the timber fence between the house and boundary on right hand side with new black aluminium fence including an extra wide gate Item 7 of the Table of Works)? | A5: Yes. | Q6: Can you claim a capital works deduction under Division 43 for the installation of a concrete hob and a storm water (Items 6 and 9 of the Table of Works)? | A6: Yes. | Q7: Can you claim a decline in value deduction under section 40-25(1) for the block out roller blinds (Item 19 of the Table of Works)? | A7: Yes.

Relevant facts and circumstances: You own the property located at XXX (the property) The property was purchased or settled in early 20XX. The property is owned as joint tenants. The percentage ownership interests according to the title is XX% and XX%. The property was first made available for rent straight after settlement. However, the first lease started from XX XXX 20XX. The property was available for rent for the entire income year for which you are requesting the private ruling. The property has been managed by a real estate agency since the property was settled. Your relationship to the tenants is landlord. The property is leased for a market rate of rent. The rental charged is determined by the agent. The property has only been vacant for a few days or weeks during a change of tenants. You have never personally used the property over the last three years. There have been no times when the property has been occupied and no rent charged. The repairs listed in the supplied spreadsheet, were all invoices from XXX Property Services. All the expenses were paid by you. The circumstances leading to the repair, including when the defect was identified: • The tenants contacted the agent in early 20XX and requested to break the lease. They were not happy with the property condition. The downstairs of the dwelling was prone to flooding with heavy rains. The area flooded again and since then, there was a leak in the downstairs ceiling. The tenants broke the lease prior to lease expiry in XXX 20XX. • While the tenants were moving out during the Easter break in XXX 20XX, intruders broke into the dwelling and this was reported by the tenants. Doors and windows were damaged, as well as broken drawers, cabinets, doors, etc. The managing agent reported the break-in to the state police and you were notified accordingly. • The managing agent inspected the property, identifying more repairs required before the property could be rented again. • The managing agent preferred for you to deal with the repairs because they didn't have the resources to follow up on the works. Given you are interstate, the real estate agent connected you with XXX Property Services so they can manage all the repairs on your behalf. On XX XXX 20XX, the estate agent emailed to the builder the list of the works required at the property: • The stairs and back decks as you have quoted • The downstairs bathroom needs pulling apart and waterproofing and refurbishing as well as a new vanity • Painting the downstairs storeroom's cement floors • Blinds for downstairs • Fixing the box gutter permanently at the back of the carport • Fixing the roof leak • Doing a new fence for the right-side boundary • Cutting the cement at the front drain to the property, making the drain larger and run it to a put drain at the right of the front door, this includes plumbing the downpipe into drain. • Cement a lip/ramp at the front of the house to stop any water run off to hit that instead of going inside. On XX XXX 20XX, the builder replied to the estate agent with this detailed quote for the works required at the property along with other work the builder believed should be done as part of the job: • Remove existing stair stringers and supply and install new galvanized steel stair stringers including replacing concrete footing. Re-use the existing balustrade rail and wires. If this is not possible after installation of the new stairs then it would be an additional cost. • Remove rusted brackets to posts under the upper deck and supply and fit new galvanized steel plates and paint in black paint to match existing posts. Install support to one section of balustrade on upper deck. • Remove existing dilapidated steps off lower deck and replace with new galvanized steel stringers and treated pine step treads. • Remove and replace rotten fascia panel on front of awning roof over front door and paint to match existing colour as close as possible. • Remove existing metal downpipe to left hand side of front door, replace with PVC and redirect to spreader on lower roof over front entry. • Modify downpipe to left hand side of carport so that water discharges directly into grated drain. • Install stormwater pit to right hand side of front door and connect to existing stormwater lines. • Repair 2 damaged downpipes to rear and side of house. • Carry out camera inspection of stormwater line and pit to verify if there is any damage or blockages. If any found, then removal/repair would be additional cost. • Install concrete hob to left corner and front of house at driveway to direct water away from house. • Replace various rotten timbers to external of house and paint to match existing colour. • Clean and paint concrete floor to storeroom area. • Supply and install new block out roller blinds to ground floor. • Replace existing badly water damaged vanity in main bathroom with new gloss white vanity with single bowl integrated top. • Demolish existing timber fence between house and boundary on right hand side with new black aluminium fence to match fence at front of property including extra wide gate. Total quotation for the above scope of works was provided. The following is the scope of works and quotation for the renovation of the bathroom on the ground floor: • Demolition and disposal of existing bathroom including removal of all tiles, entry door and wall vanity and raised floor in shower alcove. • Cut and remove existing concrete slab in shower to allow for installation of compliant drainage to shower recess as current drainage does not comply. • Modify drainage for vanity to create compliant drainage. • Reinstate concrete after drainage works. • Install new in-wall mixer tap. • Reinstate wall linings and construct new wall with appropriately sized door for entry to bathroom. • Installation of small hob to shower recess for waterproofing. • Waterproofing of shower recess and perimeter wall/floor junctions to Australian Standards. • Bedding of floor to shower recess to falls. • Supply and fix floor tiles. • Supply and fix wall tiles to 2m high and 1m wide in shower recess and install skirting tiles to rest of bathroom and splash back to vanity. • Grouting and silicon of tiles. • Supply and fit new slim line vanity unit with integrated basin. • Supply and fit new, mirror, towel rail and fit shower curtain. Total quotation for the above was provided. The following is the quote to reconstruct the deck on the ground floor, as it is not structurally adequate and the decking is very dilapidated. This work can be completed in conjunction with the other works: • Remove and dispose of existing dilapidated decking boards. • Reconstruct timber framing to deck to make structurally sound. • Supply and fix new composite decking boards using Ezy Decking. • Supply and fix new composite fascia board to outside face of deck using Ezy Decking in colour to match deck. Total quotation for the above was provided. The table below is a list of the work completed by XXX Property Services, with original condition and material used including if part or all repairs done. Table 1: Table of works Table of works 1 Maintaining plumbing, removing existing metal downpipes replace with PVC downpipes. This is to replace two of existing downpipes and adding one new one. 2 Replace various rotten timbers to external of house and paint to match existing colour. 3 Remove and replace rotten fascia panel on front of awning roof over front door and paint to match existing colour. 4 Remove existing outdoor staircase stringers as it is not safe. Supply and install new stair stringers only. Reused existing balustrade rail and wires. 5 Replace concrete footings under outdoor staircase. 6 Install concrete hob at front of house to direct water away from house. 7 Replace damaged fence. 8 Replace existing badly water damaged vanity in main bathroom, same style. 9 Install storm water pit to right hand side of front door to divert water coming into the house. This is new to the house; extra storm water pit is to improve water flow. 10 Carry out camera inspection of stormwater line and pit to verify there is no damage or blockage. 11 Reconstruct existing timber frame with same material. This is the bottom deck, it is an existing deck for the house, however it was badly damaged, they have to reconstruct. 12 Supply and install decking boards and fascia board to match current. Top deck is existing as well. 13 Remove and dispose of existing dilapidated decking boards. 14 Remove existing dilapidated steps off lower deck and replaced with steel stringers, treated pine steps treads as before. 15 Replace existing water damaged vanity downstairs bathroom same size. 16 New mirror and towel rails. This is to replace existing downstairs bathroom mirror and towel rails. 17 Rectify plumbing issues for downstairs bathroom, including renovation (quoted). 18 Repair termite damaged walls including new frames, tiles and grouting, repaint. It is an existing downstairs bathroom. 19 Supply and install block out roller blinds. 20 Other miner items Replace lock and deadlock to front door keyed the same as existing. Supply and fit new lock to screen off laundry keyed the same as existing

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 25-10(3) | Income Tax Assessment Act 1997 subsection 40-25 | Income Tax Assessment Act 1997 Division 43 | Income Tax Assessment Act 1997 section 43-20 | Income Tax Assessment Act 1997 subsection 43-25(1)

Reasons for decision: Summary: You cannot claim an immediate deduction under either section 8-1 or 25-10 of the Income Tax Assessment 1997 (ITAA 1997) for the downstairs bathroom works. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income. There are exceptions where the costs are of a capital, private or domestic nature. Section 25-10 of the ITAA 1997 allows a deduction for expenditure incurred for repairs to premises or part of premises held solely for the purposes of producing assessable income. Subsection 25-10(3) of the ITAA 1997 denies a deduction for repairs where the expenditure is of a capital nature. Taxation Ruling TR 97/23 Income tax: deductions for repairs discusses the circumstances in which expenditure incurred for repairs may or may not be an allowable deduction under section 25-10. Paragraphs 15 and 16 of TR 97/23 provide: 15. Repair for the most part is occasional and partial. It involves restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. Works can fairly be described as 'repairs' if they are done to make good damage or deterioration that has occurred by ordinary wear and tear, by accidental or deliberate damage or by the operation of natural causes (whether expected or unexpected) during the passage of time. 16. To repair property improves to some extent the condition it was in immediately before repair. A minor and incidental degree of improvement, addition or alteration may be done to property and still be a repair. If the work amounts to a substantial improvement, addition or alteration, it is not a repair and is not deductible under section 25-10. | Detailed Reasoning - Entirety: TR 97/23 explains what is meant by entirety. The term 'entirety' is used by the courts in repair cases to refer to something 'separately identifiable as a principal item of capital equipment'( Lindsay v FC of T [1960] 106 CLR 377 at 385; (1960) 12 ATD 197 at 201 (Lindsay case). In the Lindsay case, the High Court considered whether the replacement of a slipway was a repair or replacement of an entirety. The court held that the slipway was the relevant entirety on the ground and that it was not a subsidiary part of anything else but was separately identifiable as a principal item of capital expenditure. Property is more likely to be an entirety, as distinct from a subsidiary part, if: • the property is separately identifiable as a principal item of capital equipment; or • the thing or structure is an integral part, but only a part, of entire premises and is capable of providing a useful function without regard to any other part of the premises; or • the thing or structure is a separate and distinct item of plant in itself from the thing or structure which it serves; or • the thing or structure is a 'unit of property' as that expression is used in the depreciation deduction provisions of the income tax law. In Case W77 89 ATC 698; (1989) 20 ATR 3888 the owner of a rental property was denied a deduction for remodelling a bathroom, amongst other expenditure, where a repair was required due to the age, deterioration and general wear and tear. It was held that the work done in remodelling the bathroom was extensive and could be described as a complete renovation designed to improve the unit rather than simply to restore it. Paragraph 114 of TR 97/23 confirms that renewal, replacement or reconstruction of the entirety (i.e., the whole or substantially the whole) of a thing or structure is an improvement rather than a deductible repair. | Detailed Reasoning - Application to your circumstances: In your case, you demolished the original downstairs bathroom and replaced it with a completely new bathroom. The works carried out were extensive and constitute an improvement because they involved a renewal, replacement or reconstruction of an entirety. Therefore, the expenditure is capital in nature and is not a deductible repair under section 8-1 or 25-10. | Detailed Reasoning - Question 2: Table of Works - Item 7. | Summary: You cannot claim an immediate deduction under section 25-10 for the replacement of the timber fence between the house and boundary on the right-hand side of the property. | Detailed Reasoning - Detailed reasoning: As stated in Question 1, TR 97/23 explains the circumstances in which deductions for repairs are allowable. Paragraph 21 provides, a repair for the purposes of section 25-10 is a question of fact and degree in each case having regard to the appearance, form, state, and condition of the particular property at the time the expenditure is incurred and to the nature and extent of the work done to the property. The ruling also provides that repairs mean the remedying or making good of defects in, damage to, or deterioration of, property. The replacement of part of an entire fence will constitute a repair as it is a replacement of a subsidiary part of a whole. However, in your case, you demolished the existing timber fence between the house and boundary on the right-hand side of the property and replaced with a new black aluminium fence including an extra wide gate. This is an improvement and involved the use of a more durable material (aluminium) which is not like-for-like with the timber original, and the inclusion of an extra wide gate. | Detailed Reasoning - Application to your circumstances: The replacement of the timber fence with the aluminium fence and the inclusion of an extra wide gate improved the function of a part of the whole fence (the entirety). The materials used were of a new and more durable type unlike those of the original timber fence. The work undertaken did not merely restore the efficiency of function of the boundary fence. Therefore, you cannot claim an immediate deduction under section 25-10 for the timber fence between the house and boundary on the right-hand side of the property. | Detailed Reasoning - Question 3: Table of Works - Items 1, 2, 3, 4, 5, 8, 10, 11, 12, 13, 14 and 20. | Summary: You can claim an immediate deduction for these items under section 25-10 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 25-10 allows a deduction for expenditure incurred for repairs to premises or part of premises held solely for the purposes of producing assessable income. Repairs involve restoring a defective, damaged or deteriorated item to a working condition. Repairs generally involve a replacement or renewal of a worn out or broken part. Works can fairly be described as 'repairs' if they are done to make good damage or deterioration from: • ordinary wear and tear • accidental or deliberate damage • the operation of natural causes (whether expected or unexpected). | Detailed Reasoning - Application to your circumstances: These items involved restoring defective, damaged or deteriorated items to a working condition. The damage resulted from a combination of ordinary wear and tear and the operation of natural causes, especially rain and flooding. The work included, but was not limited to, repairing defective plumbing, replacing various rotten timbers and replacing a water damaged vanity. In each instance, the work involved the use of the same or similar materials (replacing like with like) to make good damage or deterioration and restore the affected items to working condition. They did not involve the replacement of an entirety or making improvements. Therefore, these expenditures are deductible repairs under section 25-10. | Detailed Reasoning - Question 4: Table of Works - Items 15,16, 17 and 18. | Summary: You can claim a capital works deduction under Division 43 of the ITAA 1997 for the downstairs bathroom works. | Detailed Reasoning - Detailed reasoning: Capital works expenses include: • building and construction costs • alterations to a building • major renovations to a room • substantial renovations to a property • adding a fence • building extensions such as garages and patios • adding structural improvements such as a driveway or retaining wall. Paragraphs 36 to 42 of TR 97/23explain that expenditure incurred to renew or reconstruct an entirety is of a capital nature. Further, paragraphs 44 to 58 explain works that result in a greater efficiency of function in the property represent an 'improvement' rather than a 'repair'. Division 43 provides a deduction for capital works attributable to a construction expenditure area. This is the area you own or lease and used during the income year for the purposes of producing assessable income. Section 43-20 of the ITAA 1997 allows a deduction for capital works being a building, or an extension, alteration or improvement to a building. Subsection 43-25(1) of the ITAA 1997 provides the rate of deduction for capital works depending on when they commenced. | Detailed Reasoning - Application to your circumstances: As explained in Question 1, the work completed was a demolition and rebuild of a new downstairs bathroom and not a repair. Therefore, the downstairs bathroom works are classified as an improvement. You can claim a capital works deduction for the downstairs bathroom works under Division 43. | Detailed Reasoning - Question 5: Table of Works - Item 7. | Summary: You can claim a capital works deduction under Division 43 for the replacement of the timber fence between the house and boundary on the right-hand side of the property for the new black aluminium fence including an extra wide gate. | Detailed Reasoning - Detailed reasoning: As stated in Question 4, capital works expenses can include substantial renovations to a property and adding structural improvements. And paragraphs 44 to 58 of TR 97/23 explain works that result in a greater efficiency of function in the property represent an 'improvement' rather than a 'repair'. Division 43 provides a deduction for capital works attributable to a construction expenditure area. This is the area you own or lease and used during the income year for the purposes of producing assessable income. Section 43-20 allows a deduction for capital works being a building, or an extension, alteration or improvement to a building. Subsection 43-25(1) provides the rate of deduction for capital works depending on when they commenced. | Detailed Reasoning - Application to your circumstances: The fence was originally timber and you have replaced this with a metal (aluminium) fence and a larger gate. This is an improvement. The aluminium is more durable than the original timber and the larger gate provides improved functionality. Also, the materials used are not a like for like. You can claim a capital works deduction for the replacement of the timber fence between the house and boundary on right hand side with new black aluminium fence including an extra wide gate under Division 43. | Detailed Reasoning - Question 6: Table of Works - Items 6 and 9. | Summary: You can claim a capital works deduction under Division 43 for the installation of a concrete hob and a storm water pit. | Detailed Reasoning - Detailed reasoning: You have stated that the concrete hob and a storm water pit are both new to the house and are intended to prevent water going into the house and improve water flow around the house. As stated in Question 4, capital works expenses include adding structural improvements. Division 43 provides a deduction for capital works attributable to a construction expenditure area. This is the area you own or lease and used during the income year for the purposes of producing assessable income. Section 43-20 allows a deduction for capital works being a building, or an extension, alteration or improvement to a building. Subsection 43-25(1) provides the rate of deduction for capital works depending on when they commenced. | Detailed Reasoning - Application to your circumstances: The installation of a concrete hob and a storm water pit are classified as improvements and, as such, are capital in nature. You can claim a capital works deduction for these items under Division 43. | Detailed Reasoning - Question 7: Table of Works - Item 19 | Summary: You can claim a decline in value deduction under section 40-25 for the block out roller blinds. | Detailed Reasoning - Detailed reasoning: Under section 40-25, you can deduct an amount equal to the decline in value for an income year of a depreciating asset that you held for any time during the year. You have installed block out roller blinds in your property. They are depreciating assets | Detailed Reasoning - Application to your circumstances: Generally, you can claim deductions for expenses you incur in gaining or producing your income (for example, in renting a property). Some expenditure you incur, such as the cost of acquiring capital assets, is generally not deductible. However, you may be able to claim a deduction for the decline in value of the cost of capital assets you use in gaining assessable income. You have installed block out roller blinds in your rental property. They are capital assets installed in your rental property for the purpose of producing assessable income. Therefore, you can claim a decline in value deduction for the blinds under section 40-25. For more information go to www.ato.gov.au and enter quick code QC17601 into search, which will take you to the webpage entitled: Depreciation and capital allowances tool. This tool is available to work out the depreciation of capital allowance and capital works for both individual and business taxpayers. You can use this tool to calculate the depreciation amounts for a rental property. | Detailed Reasoning - Apportionment: The property is owned as tenants in common. The percentage ownership interests according to the title is XX% and XX%. Therefore, you will need to apportion your deductions in accordance with your respective ownership interests.