Private ruling: Rental deductions
Published: January 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for repairs undertaken to your rental property within a short period of it being leased out? | A1: Yes.


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 allows a deduction for the cost of repairs to premises used for income producing purposes, to the extent that the expenditure is not capital in 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 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 states: 76. …expenditure for repairs can qualify as a deduction even though the property has previously been held, etc., by the taxpayer for non-income purposes. This situation is different from an initial repair done to newly purchased or newly leased property, where the repair expenditure is capital expenditure. 77. A deduction is allowable under section 25-10 if, when the repair expenditure is incurred in a year of income, the property is held, etc., by a taxpayer for income purposes: § even though the property has previously been held, etc., by the taxpayer for non-income purposes; and § even though some or all of the defects, damage or deterioration arise from, or are attributable to, the taxpayer's holding, etc., of the property before its holding, etc., for income purposes; and § provided that the repair expenditure is not capital expenditure. In your case the work carried out on your property is not considered an initial repair, as you have owned the property for several years. The work undertaken was carried out a short time after the property was used for income producing purposes. This expenditure qualifies as a deduction as they were incurred during the period the property was used for income producing activities. As stated in paragraph 77 of TR 97/23, you are therefore entitled to a deduction for repairs. Additional information You advised the work undertaken were repairs and not capital, for example, not improvements. We have provided this private ruling based on this information and we have not examined whether the work undertaken was in fact repairs or not. The Commissioner may choose to examine this issue at a later date.

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. | Relevant facts: You own a property which you purchased several years ago. | This house was your main residence until you relocated to another city. | You have now rented out this property. | Within a short period after the lease commencing you arranged for repairs to be undertaken.