Private ruling: rental property deductions
Published: September 2011

Ruling: Q1: Are you entitled to deductions for work carried out to your rental property to remedy subsidence and water damage? | A1: 



Reasons for decision: Summary: 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. However, 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 provides guidelines on the deductibility of repairs. Generally a repair involves a restoration of a thing to a condition and efficiency it formerly had without changing its character. Works can be fairly described as repairs if they are done to make good damage or deterioration of property that has occurred by ordinary wear and tear, by accidental or deliberate damage, or by the operation of natural causes during the passage of time. TR 97/23 explains (at paragraph 16) that to repair property improves to some extent the condition it was in immediately before the 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 of the ITAA 1997. All of the expenses incurred simply restore the property to the condition it was in formerly without changing its character. Thus, the work undertaken is considered to be a repair and the expenditure is deductible under section 25-10 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | You own a rental property which has been rented since acquisition over X years ago. | A broken pipe under the driveway during a heavy wet season caused structural movement in the driveway and some movement to a dividing wall at the front of the property. | In late 20XX you had a structural engineer survey the damage and develop repair drawings. | You then hired a licensed builder to complete the work based on the engineer's specifications. This involved removing an amount of concrete across the front of the garage, replacing all damaged plumbing, reinforcing, backfilling and replacing the concrete which had been removed. | A broken membrane under a section of the house allowed water to leak into areas of the house, causing significant staining. | In early 20XX you engaged a licensed builder to remove the damaged area and replace a damaged section. | You also had the various areas repainted, as they had been water damaged. | You have not received any insurance payments, as the damage occurred over time, and was not attributable to a specific major event. | The report from your builder states that all the work carried out simply returned the property to its original state, and that no property enhancements were made.