Private ruling: Deduction for rental property expenses
Date of advice: 17 March 2026
Published: 18 May 2026
Ruling period: Income year ended 30 June 20YY | Income year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for your proportion of the special levy that relates to major remedial worksand capital improvements undertaken to common property associated with your rental property? | A1: No. | Q2: Are you entitled to a deduction under section 25-10 of the ITAA 1997 for your proportion of the special levy that relates to the major remedial works undertaken to common property associated with your rental property? | A2: Yes. | Q3: Are you entitled to claim a capital works deduction under Division 43 of the ITAA 1997 for your proportion of the special levy that relates to capital improvements to common property associated with your rental property? | A3: Yes.

Relevant facts and circumstances: Since 20YY, you have owned a residential investment unit in a strata-titled complex. The building was constructed in 20YY. Your unit has been continuously rented out for residential living since you purchased it. The complex required major remedial works. Capital improvements were also carried out as part of the same works. In the 20YY/YY and 20YY/YY income years, the Owners Corporation undertook major remedial works to address waterproofing failures, membrane defects, and associated facade deterioration. These issues developed during your period of ownership and were confirmed by engineering inspections undertaken by engineers in 20YY-20YY. The scope of work includes replacement of failed waterproofing membranes, concrete hob remediation, installation of cavity flashing, stormwater drainage augmentation, and repairs to sliding doors and window frames affected by water ingress. The Owners Corporation will fund the project via a special levy, collected over two financial years, with contributions calculated by unit entitlement. The total project cost was estimated between $X million and $X million depending on the appointed contractor. On DD MM 20YY, the Owners Corporation General Meeting resolved the following: • to appoint the builder for the major building works and to expand the scope to include additional balconies; • to entered into and execute a loan contract with X Pty Limited to fund the Owners Corporation's obligations to fund the major building works; • pursuant to a state's strata legislation the Owners Corporation raise a special levy of $X to meet the monthly repayments of the loan for the term of the loan entered into. The levy will be divided amongst all owners according to Units of Entitlements and will become due and payable on DD MM 20YY, DD MM 20YY, DD MM 20YY, DD MM 20YY. Owners' corporations in a state are required to establish an administrative fund and a capital works fund as per a state law. The state law states that the owner's corporation must determine the amounts to be levied as a contribution to the administrative fund and the capital works fund to raise the amounts estimated as needing to be credited to those funds. The state law states that if the owners corporation is subsequently faced with other expenses it cannot at once meet from either fund, it must levy on each owner of a lot in the strata scheme a contribution to the administrative fund or capital works fund, determined at a general meeting of the owners corporation, in order to meet the expenses. An engineer's report dated DD MM 20YY details the works required. A tender analysis dated DD MM 20YY has a breakdown of the costs of the works. Prior to this report, you were not aware of the works required. You did not use the loan facility to pay for your contribution to the special levy. You paid the special levy out of your own funds in four instalments in the 20YY and 20YY income years: During the works, your unit remained available for tenancy. The major remedial works undertaken • Site setup and access (site establishment preliminaries, scaffolding and materials handling). • Mechanical and equipment relocation (relocation of AC units with brackets). • Waterproofing works (balcony waterproofing, waterproofing, hob angles installation and concrete hob remediation). • Flashing and cavity works (cavity flashing restoration and interim flashing installation) • Doors and windows (sliding door removal and re-installation, supply/installation of new sliding doors if required and render sealer repairs to window frames). • Painting and render repairs (painting of previously painted masonry, patch repairs and expansion joint/crack repairs). • Concrete repairs. The capital works undertaken • Stormwater drainage works (scupper drains, side overflows, floor wastes, overflow openings on blade walls and capping installation). • Balustrades (standoff balustrades where minimum 1 metre height cannot be achieved).

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 25-10 | Income Tax Assessment Act 1997 Division 43

Reasons for decision: Summary: Your proportion of the special levy paid to fund major remedial works and capital improvements is not allowable as an ordinary deduction under section 8-1 of the ITAA 1997. However, you are entitled to claim a deduction for repairs under section 25-10 for your proportion of the special levy paid to fund the major remedial works. Further, you are entitled to claim a capital works deduction under Division 43 for your share of the special levy paid to fund capital improvements. | Detailed Reasoning - Deductions: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature. You may be able to claim a deduction for body corporate fees and charges you incur for your rental property under Section 8-1 of the ITAA 1997 and Taxation Ruling TR 2015/ 3 Income tax: matters relating to strata title bodies constituted under strata title legislation (TR 2015/3). Body corporate fees and charges may be incurred to cover the cost of day-to-day administration and maintenance or they may be applied to a special purpose fund. Payments you make to body corporate administration funds and general purpose sinking funds are considered to be payments for the provision of services by the body corporate and you can claim a deduction for these levies at the time you incur them. However, if the body corporate requires you to make payments to a special purpose fund to pay for particular capital expenditure, these levies are not deductible. Similarly, if the body corporate levies a special contribution for major capital expenses to be paid out of the general purpose sinking fund, you will not be entitled to a deduction for this special contribution amount. | Detailed Reasoning - Repairs: Section 25-10 of the ITAA 1997 states expenditure incurred by you for repairs to any premises, or part of premises, held or used by you solely for the purpose of producing assessable income is an allowable deduction. However, a deduction is not allowable if the expenditure is of a capital nature, for example, an initial repair. Taxation Ruling TR 97/23 Income tax: deductions for repairs (TR 92/23) provides the Commissioner's view on repairs that are allowable under section 25-10 of the ITAA 1997 and indicates 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, or • the work results in a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair', or • the work is an initial repair. | Detailed Reasoning - Capital works: Under Division 43 of the ITAA 1997 you can deduct certain capital expenditure on buildings used to produce assessable income. Section 43-10 of the ITAA 1997 operates to allow a deduction for an amount of capital works used in a deductible way during the income year. The rate of deduction for capital works begun after 26 February 1992 which are used to produce rental income, even if that was not the original intention, is 2.5% over 40 years. (section 43-25 of the ITAA 1997). | Detailed Reasoning - Application to your circumstances.: In your case, the special levy was used by the body corporate to fund major remedial works and capital improvements undertaken to common property associated with your rental property. Consequently, your portion of the special levy used for these is not deductible as a general deduction under section 8-1 of the ITAA 1997. The major remedial works are considered to be repairs because, though extensive, they did not involve the renewal or reconstruction of an entirety. Further, they were not an improvement as they did not result in greater efficiency of function to the property. Instead, they restored the property to its former condition using like-for-like materials. The works were not initial repairs because the damage developed during your period of ownership. Consequently, your proportion of the special levy used to fund the major remedial works undertaken to common property associated with your rental property is deductible as repairs under section 25-10 of the ITAA 1997. Under Division 43 of the ITAA 1997 you are entitled to claim a capital works deduction for the cost of capital improvements once the work is completed and the cost has been charged to as a special purpose levy. The capital works undertaken to the property (the stormwater drainage and balustrades) were designed and intended as improvements to the property. Consequently, your proportion of the special levy used to fund the improvements undertaken to common property associated with your rental property is deductible as capital expenditure under Div 43 of the ITAA 1997.

Question 3: Are you entitled to claim a capital works deduction under Division 43 of the ITAA 1997 for the proportion of the special levy that relates to capital improvements to common property associated with your rental property?