Private ruling: Expenditure for repairs to premises
Date of advice: 30 July 2025
Published: 29 September 2025
Ruling period: Income tax year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Can you claim a deduction under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for the expenses listed in Table 2? | A1: Yes | Q2: Can you claim a deduction under section 25-10 of the ITAA 1997 for the expenses listed in Table 3? | A2: No

Relevant facts and circumstances: You purchased property (the Property). The Property has been rented since you acquired it and has been managed by a real estate agent. Your most recent tenant moved in during 20YY and abandoned the tenancy in MMM20YY. After the tenant abandoned the Property, you became aware of major damage to the Property. You lodged insurance claims with both Landlord Insurer (RACV) and the body corporate (under their policy with CHU) and received various amounts. Insurance payments that were received in the 20YY-YY income year will be included as assessable income in your income tax for the 20YY-YY year. You initially obtained a quote from Business A for building works. The quote detailed the 'Scope of Works'. The quote from Business A was very expensive, so you sought other means to get the damage fixed within a budget you could afford, including doing some of the work yourself. The Relevant Works The expenses you incurred are listed in Tables 2 and 3: Table 2: Works and expenses - Part 1 Item Description Amount Supplier Replace damaged front and rear entry doors; including doors, hardware, installation and key alike locks; remove old doors. $X Business G Purchase of new internal door handle sets. $X Business H Lifting and re-setting of concrete stumps subsided due to water inundation arising from unauthorised tenant plumbing works $X Business I Replace kitchen appliances and fittings: rangehood; sink and tap; light $X Business J Supply and install of new block out roller blinds to all windows in living room, kitchen and bedrooms. $X Business K Prepare and paint ceiling, walls and doors, shelves, cupboards and pantry, including patching work - all areas due to smoke and pen/crayon damage; (includes supply of materials and labour) $X Business L Works undertaken by owner to: Restore damaged clothesline - clothesline cord; Restore front and rear balustrades scratched and damaged by the tenants - paint and associated materials; Cleaning materials, tools and other components $X Business M Replace rusted gutters & downpipes $X Business N Repairs to mortar and tile damage to roof $X Business O Replace damaged east side fence & door to under floor access at rear of unit $X Business P Replace rear steps from unit to rear courtyard $X Business Q Table 3: Works and expenses - Part 2 Item Description Amount Supplier Replace water damaged floor in kitchen, bathroom and toilet room, realign plumbing $X Business B Plasterwork: Remove and replace part of damaged plaster wall between kitchen and living/dining room; including carpentry to install engineered beam. $X Business B Light Fittings: Replacement supply and installation of new lights as all lights in the property were removed by the tenant. $X Business B Toilet Room: Full restoration: replacing damaged toilet (including removal and disposal; installation of new); repair tenant damaged wall and plumbing; and replace damaged tiling to floor of room $X Business B Bathroom: Full restoration: demolition and disposal of waste; replace damaged bath/shower; waterproofing; tiling; plasterwork; supply and install new vanity; tapware; exhaust fan. Tenant had damaged all fitted items (laundry sink, vanity unit, tapware, tiling, bath, tapware); damaged wall and floor tiles had allowed water to penetrate old subfloor and waterproof membrane; which all subsequently needed to be replaced to meet building code requirements. $X Business B Flooring - removal damaged carpets in the bedroom, living room and hall, and linoleum in the kitchen; dispose of debris. Replace all areas with hybrid boards. $X Business C Kitchen: Delivery and installation of new cupboards, draws, shelves, benchtops, and owner purchased new appliances. Rubbish removal. $X Business D Replace kitchen appliances and fittings: dishwasher; oven and cooktop package $X Business E Replace west side fence and gate $X Business F Bathroom, toilet room and kitchen works Business B quote describes the works requested as follows: • Demolition of bathroom • Re position bath under window • Vanity where trough is • Install diverter mixer for shower bath under window • Build bath hob and install bath • Re sheet walls and patch where necessary • Tile under lay flooring • Water proof bathroom • Tile wet areas • Tile into window • Fit off shower head on single rail, mixer and spout • Fit of 900mm vanity with white ceramic top and cupboard doors • Fit off shower screen on swivel • Delete powerpoint above vanity and move to new area of vanity • Install square mirror above vanity • Demolition of toilet • Patch hole in wall • Re-lay tile on floor and 1 skirt high • Supply toilet, plastic cistern • Re tile splash back in kitchen • Swapping 9 lights adding 2 downlights and installing track light in kitchen supplied by owner • Removal of wall between kitchen/dining • Re plaster wall and cornices • Load bearing wall at extra cost. Estimated cost $1500 The price quoted for the works in Business B quote included the works and new tiles up to $X per sqm and all new tapware, the new vanity and the new toilet. Business B tax invoice number INV-XX dated DDMMYYYY detailed a number of 'Extras' as follows, with the prices of the Extras to be confirm at the next progress payment: • Load bearing wall • Water damaged bathroom floor • Water damaged toilet floor • Water damaged kitchen floor • Cost of toilet • Re-run plumbing on toilet. Business B tax invoice number INV-XX dated DDMMYYYY provided the cost of the Extras. The bathroom was fully demolished, and the position of the bath and vanity were changed. The bath was originally in a north-south orientation. In discussions with the plumber about how to keep the works costs down, the plumber identified that if the bath were moved to an east-west orientation then a vanity with a sink, that could also be used as a laundry sink, could be inserted next to the existing tapware and power point for a washing machine. No plumbing had to be changed for the bath orientation to be changed. The new bath is the same size as the original bath. Good savings were made by not having to also purchase and install a new laundry trough, and through reduced plumbing costs. No photos were provided showing the damage to the bathroom and neither you nor the rental manager have photos showing the condition of the bathroom before the tenancy commenced. Pictures 1, 2 and 3 showed damage caused by the tenants in relation to the kitchen. Neither you nor the rental manager have photos showing the condition of the kitchen before the tenancy commenced. The kitchen restoration company stated that the cabinetry, bench and associated tiling could not be repaired. You replaced all these items in the same format and location Pictures 4 and 5 show the kitchen and lounge/dining room and the bathroom once the works were completed: Picture 6 shows damage caused by the tenants in relation to the Toilet room. Neither you nor the rental manager have photos showing the condition of the toilet room before the tenancy commenced. Concrete stumps The Business I invoice details the works carried out by them as follows: • 'Relevelling and Packing only of Existing home only where down level is visible according to site inspection DDMM20YY. When looking from the manhole there was leaking water from a pipe which need to be fixed to prevent further movement. Existing home already on concrete stumps' Flooring The old flooring was damaged, and parts had to be removed to assess and replace the water damaged sub-floor in the kitchen, bathroom-laundry and toilet room. You replaced the flooring throughout the unit. The bedroom, living room and hall originally had carpet flooring and the kitchen originally had linoleum flooring, which were replaced with: • yellow tongue sub-flooring, a type of particle board that is durable and moisture-resistant, and • Stone Plastic Composite (SPC) hybrid flooring, a type of durable and waterproof flooring. Neither you nor the rental manager have photos showing the condition of the carpets before the tenancy commenced. Other damage caused by the tenants Pictures 7 to 10 show other damage caused by the tenants: Neither you nor the rental manager have photos showing the condition of any other areas of the Property before the tenancy commenced. Works undertaken that were not required due to damage caused by the tenants While the works required due to tenant damage were carried out the Property was unable to be placed for rental or sale. As such, during this time, you took the opportunity to undertake the following work that was not required due to damage caused by the tenants: • Replaced eroded guttering and downpipes - completed on DDMM20YY • Replaced the damaged east side fence - completed on DDMM20YY • Repairs to the tile roof - completed on DDMM20YY • Replaced west side fence and gate - completed on DDMM20YY. Your decision to sell the Property During the time from the date the tenant abandoned the property to when the works commenced was a long process of meetings with insurers before things were finalised and you could move forward with the works. After this stressful experience, you were worn down and ultimately decided to sell the property. You first approached a real estate agent about selling the Property in MMYYYY. The works were completed in MMYYYY. Once the works were completed, you put the Property on the market for sale. The Property was sold in MMYYYY.

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

Reasons for decision: Summary: Detailed reasoning Section 25-10 provides that you can deduct expenditure you incur for repairs to premises (or part of premises) or a depreciating asset that you held or used solely for the purpose of producing assessable income, but you cannot deduct capital expenditure under the section. The ATO website provides guidance on 'Repairs and maintenance expenses ' (Australian Taxation Office (March 2025) www.ato.gov.au (accessed 10 July 2025)) (the Website Guidance), which can be accessed using quick search code QC103906. The Website Guidance, under the heading 'What you can claim', explains that some repairs are capital in nature and must be claimed over several years. This may include: • initial repairs for defects that existed at the date you acquired the property • improvements, which are capital works • replacement of entire units of property, including depreciating assets Taxation Ruling TR 97/23 Income tax: deductions for repairs (TR 97/23) explains circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10. In TR 97/23, as provided in the column in paragraph 2, the word 'property' is used as an abbreviation for any of the following: • premises (or part of premises), • plant, • machinery, • tools, or • articles. The term 'repairs' is not defined for income tax purposes so takes its ordinary meaning as explained in paragraph 13 of TR 97/23, as follows: 13. The word 'repairs' has its ordinary meaning. It ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property. Repairs may include some maintenance work but only if it is done in conjunction with work that is a repair (TR 97/23, paragraph 6). Repairs versus improvements Repair for the most part is occasional and partial. It involves restoring the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. Works can fairly be described as 'repairs' if they are done to make good damage or deterioration 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, paragraph 15). Repairing property will improve the property's condition to some extent. A minor and incidental degree of improvement may be done to property and the works will still be a repair. However, if the work amounts to a substantial improvement, it is not a 'repair' for the purpose of section 25-10 (TR 97/23, paragraph 16). The character of a repair does not necessarily change because it is carried out at the same time as an improvement. It is necessary to examine separately the individual parts of the project to determine whether any part, if considered in isolation, is a repair. If individual parts of a project can be separately characterised as repairs, and their cost can be separately and accurately quantified, their cost is deductible (TR 97/23, paragraph 55). The Website Guidance, under the heading 'Repairs versus improvements', provides that an improvement is anything that makes part of the property better, more valuable, more desirable or changes the character of the item that is being worked on. This is highlighted in two recent Administrative Appeals Tribunal (AAT) cases, NT1998/512 and Commissioner of Taxation [1999] AATA 363 ( NT1998/512 ) and Wulf v Federal Commissioner of Taxation [2022] AATA 3094 ( Wulf ). The matter in NT1998/512 concerned work that became necessary in a kitchen due to damage caused by tenants, including burn marks on laminated bench tops, missing handles on cupboard doors and chips and scratches to surfaces.In addition, a rat had chewed through a dishwasher hose, leading to flooding which had caused water damage to cupboards including swelling of doors and shelves. The expenditure before the Tribunal was for the installation of new cupboards and benchtops and the removal of the old cupboards. In NT1998/512 , Senior Member MD Allen said (at [10], [11], [13] & [14]): 10. ... the dilemma involved in creating a test to distinguish repairs from improvements was referred to by Denning LJ (as he then was) in Morcom and Others v Campbell-Johnson and Others [1955] 3 All ER 264 at 266... "It seems to me that the test, so far as one can give any test in these matters, is this: If the work which is done is the provision of something new for the benefit of the occupier, that is, properly speaking, an improvement; but if it is only the replacement of something already there, which has become dilapidated or worn out, then, albeit that it is a replacement by its modern equivalent, it comes within the category of repairs and not improvements." I note however, the submissions by Ms Rands, who appeared for the Respondent, that the remarks of Denning LJ should be approached with caution as the Court of Appeal was not dealing with a taxation statute but a case under a Rent Restriction Act. Notwithstanding this caveat there is in the above remarks, like most of what fell from that learned Law Lord, eminent good sense. 11. Senior Member Beddoe in Case 10/98 98 ATC 171 at 177 referred to Windeyer J's adoption in W Thomas & Co Pty Ltd supra of the remarks of Woodhouse J in Collector of Inland Revenue, Cook Islands v A.B. Donald Limited (1965) 9 A.I.T.R. 501 at 506. The relevant part of Woodhouse J's judgment for present purposes reads: "...I take the view that the restoration [of] defects in an asset cannot be classed as a revenue charge... unless the work is limited to those defects and does not become enlarged into such a reconstruction that a permanent improvement in quality has been effected." ... 13. In this matter the Applicant, following the refurbishment of the kitchen, was able to obtain a higher rent than previous for the said premises. In addition the replacement of the kitchen cupboards was undertaken as part of a refurbishment of the whole kitchen. Whereas I can understand the good sense in replacing the existing dilapidated cupboards with new ones, the test is...where the work has gone beyond a mere remedying of defects. 14. In this matter I am not satisfied that the work undertaken did not enlarge itself into an improvement ..." [Emphasis added] In Wulf , the matter also involved works carried out on a rental property that was damaged by tenants. In Wulf , the damage, caused over a number of tenancies, included water damage from deliberately blocked pipes that flooded the bathroom, ensuite, kitchen and adjacent toilet and laundry; and later tenants (after some repair work was undertaken) broke the shower head off the wall in the ensuite, flooding the ensuite, and a water pipe broke, flooding the bathroom and adjoining toilet and laundry. The contract carpenter who carried out the works gave evidence (at [11] and [12]) that, in his opinion, the only way to fix the bathrooms properly was to remove the fittings, wall sheets and ceiling to get access behind and underneath them and gave evidence regarding extensive damage, including structural damage. In concluding the matter in Wulf , at [44] and [46], Senior Member K James (James SM) said: 44. ... significant damage had occurred to the stud walls and floor of the kitchen, bathroom, ensuite, laundry and toilet as a consequence of water ingress. In order to examine this damage, it was necessary to remove the wall coverings which included much, if not all, of the wall tiles in the bathroom and ensuite and to a lesser extent in the toilet and laundry. This work was necessary, is a repair and not in the nature of capital; ... 46. ... the work done ... in the toilet and laundry, was mainly done in reinstating the walls to a condition they were in before the work dealt with ... above... was conducted. The walls and floors of a toilet and laundry are nothing special. The Tribunal notes that the toilet pan and the laundry trough was not replaced. This work had little impact on the market or rental value of the house or have any enduring impact on future repair or maintenance expenses. 47. Any improvement to the property resulting from this work is 'marginal', and is not to a sufficient degree of improvement to justify characterising the expenditure as capital and therefore excluding it from deductibility under section 25-10.' However, regarding rebuilding the bathroom, ensuite and kitchen, James SM said (at [49] to [58]): 49. The bathroom was completely rebuilt, and on the evidence with a new smaller bath, vanity, including a new basin and a shower with new fittings including a new shower screen. By necessity there were new tiles on the walls and floor. From the tendered photographs the Tribunal accepts that this rebuilding was done on a sensible budget, but with the outcome that the bathroom had been refurbished and modernised. 50. The walls were also stripped of their tiles and fittings, removed and water-proofed up to at least 200mm above the floor. Mr Elliott's evidence on affidavit and in person was that his work significantly extended the effective life of the bathroom (and ensuite). [50] 51. The work in the ensuite is similar... 52. After the walls were repaired the kitchen was completely refitted with new kitchen cabinetry including a new sink and plumbing fittings. This included new overhead cupboards, which on the evidence replaced the existing ones that were not water damaged. Mr Elliott's evidence was that new flooring behind the cupboards, new sections of wall, and new kitchen cupboards were installed, although there was no new plumbing put in. The Applicant has agreed that the new oven and dishwasher supplied with these appliances in the kitchen were not part of the repair claim and subject to depreciation treatment... 56. The total expenditure on the property at the time the work was done on the kitchen, bathroom and ensuite was in the order of $77,351.15. The expenditure in dispute in those three rooms is in the order of $53,225.89. The Tribunal accepts that it is difficult to determine what, if any, immediate increased rent was caused by the disputed work. That said, the test formulated by Justice Kitto in WSC [Federal Commissioner of Taxation v Western Suburbs Cinemas Ltd (1952) 86 CLR 102 ( WSC )] focuses on future benefits.... A properly waterproofed modernised kitchen, bathroom and ensuite, even when done on a prudent budget, can be expected to produce revenue savings over time and extend the useful life of the asset. Mr Elliott's evidence was to that effect. 57. They can also be expected to provide enduring benefits of improved rental appeal over time and to improve the market (capital) value of the property. The fact that the work was necessary is not the major consideration. What the authorities focus on is whether, on the facts, the work/expenditure is of a nature that the property (capital) has been enhanced. That is, are there significant benefits that will be enjoyed going forward. 58. On the evidence, the expenditure must have improved the condition of the property from what it was before it was first let out, and/or from before the water damage first occurred. [Emphasis added] Use of different materials If expenditure is incurred in replacing or renewing property with a material of a different type from the original, the work done may either repair the property, or be an improvement to it. The use of different materials is not in itself determinative of the issue (TR 97/23, paragraph 48). Whether the use of a more modern material to replace the original material qualifies as a repair is a question determined on the facts of each case. It is restoration of a thing's efficiency of function (without changing its character) rather than exact repetition of form or material that is significant (TR 97/23, paragraph 48). The greater the work enhances the efficient functioning of the property, the more likely it is that the work constitutes an improvement (TR 97/23, paragraph 50). The recent case law in NT1998/512 and Wulf support the Commissioner's view that what is a 'repair' for the purposes of section 25-10, and what is an 'improvement', is a question of fact and degree. In each case, the appearance, form, state and condition of the particular property at the time the expenditure is incurred and to the nature and extent of the work done to the property must be considered (TR 97/23, paragraph 21). If work done to property goes beyond what is a 'repair' in terms of section 25-10, any expenditure for the work is not deductible (TR 97/23, paragraph 21). The expenses in Table 2 You incurred expenses in respect of your rental property (the Property) during the 20YY-YY income year. You ceased holding the property solely for the purpose of producing assessable income in MMYYYY. The expenses in Table 2 were incurred to repair damage which arose when you held and used the Property solely for income producing purposes. Although some expenses were also for other cleaning and maintenance, this was conducted in conjunction with the repair works. Consequently, the expenses in Table 2 are immediately deductible under section 25-10. Detailed reasoning Section 25-10 provides that you can deduct expenditure you incur for repairs to premises (or part of premises) or a depreciating asset that you held or used solely for the purpose of producing assessable income. However, you cannot deduct capital expenditure under this section. The legal discussion in paragraphs 1 to 19 of question 1 (the legal discussion) also applies for this question. The expenses in Table 3 In relation to the Business B expense and the Business D expense for works in the kitchen, bathroom and toilet room. Applying the legal discussion, it is considered that the works carried out involved both 'repairs' and 'improvements'. In the words of James SM in Wulf (at [56]) "[a] properly waterproofed modernised kitchen, bathroom and ensuite, even when done on a prudent budget, can be expected to produce revenue savings over time and extend the useful life of the asset". The kitchen and bathroom works went beyond the mere remedying of defects (see NT1998/512 at [13]); and provided a significant improvement in quality (see NT1998/512 at [11]) and future benefit in the form of substantially improved market value (see Wulf at [57]), which you realised when you sold the Property. As such, the works to the kitchen and bathroom are capital in nature. Although the costs in relation to the toilet room are considered to have been incurred for 'repairs', the costs for those repairs are not separately itemised. As these costs cannot be accurately quantified, they are not separately deductible as 'repairs'. The Business B and Business D expenses are not deductible under section 25-10. The Business E expenses for the new dishwasher, oven and cooktop were for depreciable property that replaced the original appliances in their entirety. As the entire units were replaced, as discussed in paragraph 3 of question 1, the expenses are not deductible under section 25-10. In relation to the Business C expense for the floor coverings in the bedrooms, living room, hall and kitchen. The new materials used for the floor coverings significantly enhanced the efficiency of function of the floor coverings. The works were an 'improvement' as the works went further than merely restoring the functional efficiency of the floor coverings (see TR 97/23, paragraphs 48 to 50). Replacing the floor coverings was of a capital nature, so the associated expense is not deductible under section 25-10. In relation to the Business F expense to replace the west side fence and gate, it is considered that at the time the expense was incurred you were not holding the Property for the purpose of producing assessable income or that the work constituted a repair. As such, the expense is not deductible under section 25-10. As such, the expenses listed in Table 3 are not deductible under section 25-10.

Reasons for decision: NOTE: All legislative references in these reasons for decision are to the Income Tax Assessment Act 1997 unless otherwise specified.