Private ruling: Rental property deductions
Date of advice: 1 August 2019
Published: October 2019
Ruling period: Income year ending 30 June 2019
Date scheme commenced: 1 July 2018.

Ruling: Q1: Are you entitled to claim a deduction under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for your portion of the costs associated with the activities undertaken to the Common Property within Lot X? | A1: Yes. The activities are not considered to be an improvement as they were simply done to restore the relevant area of Lot X. It would not be considered an entirety as the area alone is not capable of providing a useful function separate from Lot X. Based on the information provided your expenses meet the requirements in Taxation Ruling TR 97/23 and are deductible Further information about repairs can be found by searching 'QC 23635' on ato.gov.au.

Relevant facts and circumstances: You, are the trustee of the Trust. You, in your role as trustee, entered a contract to purchase a strata title unit, being Lot A, which has been rented out. Lot A is located within a strata property (the Property) which has XX separate units. Lot A comprises of less than 5 % of the total Property. After a period of time, damage to the common property floor was detected due to dampness within another unit, being Lot X, which was used by a business. A report (the Report) was prepared by Company A which outlined that an investigation of the flooring at Lot X had been undertaken and they had offered the following recommendations on how to rectify the damp issue in Lot X. A legal firm sent letters to the unit owners of the Property which set out their advice and recommendations on the various issues of the strata company outlining that the Strata Company is obliged to repair the common property and should implement recommendations made in the Report. The Strata Company would need to obtain authority from the owners for the project including the funding which could come from either contributions levied on the owners or a loan obtained by the strata company. After a number of years of debate and arguments amongst the owners as to who would bear the responsibility and blame the matter was heard by the State Administration Tribunal. The owners ended up agreeing that the only course of action was for the entire concrete floor to be removed with a plastic membrane being put down on top of a sand pit and a concrete slab of a specified thickness to be laid. A quote was sourced for the amount of $XX,XXX (Goods and Services Tax (GST) exclusive) to replace the concrete floor and undertake the demolition works, and supply and install new concrete. The activities were completed in a number of months with expenses totalling $XXX,XXX being incurred. You pay levies to the Strata Company that are applied by them for various purposes. In the 2018-19 income year a portion of these levies were directed by the Strata Company to undertake the activities in Lot X as outlined above with your portion being $X,XXX.

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