Private ruling: Repairs
Date of advice: 7 July 2015
Published: July 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Is a deduction allowable for the cost of repairs to your property incurred in an income year after the tenants moved out? | A1: No.


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

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 held or used for income producing purposes, to the extent that the expenditure is not capital in nature. In your case, your tenant moved out part way through the relevant financial year. The deductibility of repairs to a property carried out after the cessation of income is specifically addressed in Taxation Ruling IT 180 Repairs to property carried out after cessation of income production . As highlighted in paragraph 2 of IT 180, the Commissioner states that if repairs are effected and paid for after the property had ceased to be rent producing, then the expenditure was not to premises held, occupied or used for the purposes of producing assessable income. IT 180 paragraph 4 states that the cost of repairs to a property after it stops being used to produce assessable income may be deductible providing: (a) the necessity for the repairs can be related to a period of time during which the premises have been used to produce assessable income of the taxpayer, and (b) the premises have been used in the production of such assessable income of the year of income in which the expenditure was incurred. Both the above conditions are required before a deduction is allowable. In your case, it is acknowledged that the necessity for the work relates to the period the property was leased and resulted from damage from the tenant. However, you have not received assessable rental income after 1 July 2014. As both conditions are not met, a deduction is not allowable for the repairs to the property in the 2014-15 and 2015-16 financial years.

Relevant facts: You owned a property which was rented out until part way through the relevant financial year. | The property was damaged significantly by the tenant. | As a result of the damage you decided to terminate the lease and were left with a house that became unsuitable for re-leasing as it needed major repairs. | The fact that the property could not be rented out meant that you were left with no option but to occupy the house and begin repairing the damage. | The tenant provided some compensation, however the cost to rectify the damage is far in excess of this. | You and the builder started to repair the property. The builder had unforseen health issues and has delayed the progress of the repairs. | It was impossible to have all the repairs completed by 30 June 2014. | You have incurred repair costs in the 2014-15 financial year. There are still further repairs to be carried out in the 2015-16 financial year.