Private ruling: Rental deduction
Date of advice: 18 February 2026
Published: 20 April 2026
Ruling period: Year ended DD MM 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Can the repair to bathroom, floor and tiles be claimed as an immediate maintenance deduction for the financial year 20YY under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Can the repair to damaged ceiling, wall, floor and painting be claimed as an immediate maintenance deduction for the financial year 20YY under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes. You are entitled to a deduction for the work done in relation to the bathroom, frame, damaged ceiling wall, floor and painting as they are repairs. However, it is considered that the remaining items are capital in nature and therefore a repairs deduction is not allowable.

Relevant facts and circumstances: You purchased a property on DD MM 20YY. The property is in town A, Queensland (the property). The property has never been used as your primary residence. On DD MM 20YY you commenced leasing out the property. In the 20YY you first found shower leak in the property. You engaged plumbers to inspect the leaks. They advised that there was no evidence of a leak in the pipework. Bathroom In MM 20YY-builder confirmed that the wet seal had failed and that the bathroom had to be gutted and resealed. The walls needed to be removed and replaced. New wet seal needed to be applied to the wall. Fixtures and tiles were replaced. The internal wall frame rotted due to constant water/dampness. Builder also found that that the tiles in the hallway beside the bathroom had partially lifted due to water and needed to be removed and replaced The wall needed the framework, plaster replaced and repainted. Scope of Work Removal of bath, shower, shower screen and internal lining of bathroom (sheeting, tiles and cabinetry). Removal of skirting architraves, jambs and doors affected by water damage along with plasterboard in hallway. Hallway tiles affected by water damage to be removed. Frame was replaced with treated timber. A new bathtub has been installed in place of the old one. Bathroom cement sheeting replaced. Ceiling and appropriate walls was set in bathroom and bedroom hallway. Walls and floors were waterproofed and sealed. Bathroom and bedroom door were re-installed. Walls and floors were tiled. A new vanity was installed. Shower screen and mirror installed. Skirting installed in hallway and bedroom. Electrical and plumbing fixtures were installed. Walls, ceilings and doors were painted.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 8-1 | Income Tax Assessment Act 1997 subsection 25-10 | Income Tax Assessment Act 1997 Division 43 | Income Tax Assessment Act 1997 section 43-10 | Income Tax Assessment Act 1997 section 43-70 | Income Tax Assessment Act 1997 section 43-70(2)

Reasons for decision: Detailed Reasoning - Deduction for repairs: Section 25-10 of the Income Tax Assessment Act 1997 ( ITAA1997) allows deduction for expenditure on repairs to income producing premises. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs where the expenditure is capital in nature. The word 'repair' is not defined within the taxation legislation. Accordingly, it takes it ordinary meaning. In W Thomas & Co v Federal Commissioner of Taxation (1965) 115 CLR 58;(1965) 14 ATD 78; (1965) 9 AITR 710 (Thomas) it was held that a repair involves a restoration of thing to a condition it formerly had without changing its character. It is the restoration of efficiency in function rather than the exact repetition of form or material that is significant. In Taxation Ruling TR 97/23 deals with the issue of deduction for repairs. It provides that expenditure for repairs to property is of a capital nature where the extent of the work carried out represents a renewal or reconstruction of the entirety (Paragraph 36-42). An 'entirety' is defined as something 'separately identifiable as a principal item of capital equipment' or 'not necessarily the whole but substantially the whole of the [property] under discussion' in Lindsey v. Federal Commissioner of Taxation (1960) 106 CLR 377; (1960) 12 ATD 197; (1960) 8 AITR 99 (Lindsay) at 385. At present, the condition of your bathroom had deteriorated due to water damage and leaking. You therefore replaced most of the bathroom and bedroom using new material and fixtures. | Detailed Reasoning - Bathroom: As mentioned above, repair involves a restoration of property to a condition it was prior to maintenance work being carried out, without changing its character. Section 25-10 of the ITAA 1997 allows a deduction for the cost of repairs to premises used for income-producing purposes provided the expenditure is not of a capital nature. Taxation Ruling TR 97/23 explains the circumstances in which expenditure incurred for repairs is an allowable deduction. This ruling indicates that expenditure for repairs to property is of a capital nature where: • the work is an initial repair • the extent of the work carried out represents a renewal or reconstruction of the entirety, or • the works result in a greater efficiency of function in the property, therefore representing an improvement rather than a repair. The works carried out focused entirely on repairing the damage caused by the shower leak and restored the bathroom to its former function and efficiency and is a deductible repair. Therefore, a deduction is allowable under section 25-10 of the ITAA 1997 . | Detailed Reasoning - Frame and tiles: Your shower was damaged because of wet seal. You were required to fully remove the existing tiles and sheeting in the shower and replace with new tiles The recommendation was to gut the entire bathroom and reseal it for it to be functioning. You have replaced the tiles on the floor, re-tiled the walls in the bathroom and the hallway beside the bathroom. The frame has been replaced; it was replaced with treated timber. The whole frame had to be replaced as the existing frame was not suitable due to water damage. The replacement of the frame and tiles does not result in a greater efficiency of function of the bathroom and is therefore not an improvement and is not a renewal or construction of an entirety. The frames and tiles perform a function of the bathroom and replaced to restore the bathroom to its previous condition. Accordingly, the cost of replacing the frame and tiles in the bathroom and outside the bathroom are not capital in nature and are deductible under section 25-10 of the ITAA 1997. | Detailed Reasoning - Damaged ceiling, wall and floor: Internal walls and ceiling to the bathroom were damaged by the water leak as they share common walls and were required to be replaced. The walls, floor and ceiling were replaced, in doing so the walls and floors had the cement sheeting replaced, waterproofed and sealed. The walls, floors and ceiling are a subsidiary part of the building and are not an entirety and have been restored to its original function. Therefore, the costs incurred in replacing the wall, floor and ceiling are a repair and deductible under section 25-10 of the ITAA 1997. | Detailed Reasoning - Painting: Expenses incurred for painting of walls, ceiling and doors is a repair and is deductible under section 25-10 of the ITAA 1997. | Detailed Reasoning - Deduction as Capital works: Section 43-10 of the ITAA 1997 provides deduction for capital expenditure on capital works used to produce assessable income. Capital works include a building or an extension, alteration or improvement to and includes, bathroom, fixtures in the bathroom, tiles and walls. The replacement and refurbishment of your various bathroom items and bathroom itself constitutes renewal of an entirety, making your expenditure capital in nature. A deduction under the section 43-10 of the ITAA 1997 is based on the amount of construction expenditure. As per 43-70(1) of the ITAA 1997 as capital expenditure incurred in respect of the construction of the capital works. Paragraph 43-70(2)(e) of the ITAA 1997 excludes expenditure on plant from construction expenditure. This means when looking at an item whether it is plant or capital works the ATO applies the principle: In rental properties, bathrooms are generally considered part of the structural setting, not standalone items performing independent functions like plant. Bathrooms are fixed and integral to the building and part of the fabric of the premises. They do not perform an independent functional role separate from the building. As a part of the building, bathroom is essential to making a dwelling suitable to live in. Therefore, they form part of the building itself, and the replacements are not plant. TR 97/23 consistently confirms that built-in fixtures forming part of the building are not plant. Since the items are not plant, the expenditure is treated as construction expenditure, meaning: • They are capital works under 43-10 of the ITAA 1997, the deduction is normally 2.5% per year over 40 years.