Private ruling: Deductions - repairs
Date of advice: 8 April 2025
Published: 16 June 2025
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Can you claim deductions under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for the cost of the following works relating to items 1, 2, 3, 4, 7, 8, 9, 10, 11, 13, 14, 15 and 16 of the Quote carried out at the Property in the year ended 30 June 20YY? | A1: Yes. Section 25-10 of the ITAA 1997 provides that expenditure incurred 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. Taxation Ruling TR 97/23 Income tax: deductions for repairs (TR 97/23) explains the principles and circumstances in which expenditure will qualify as a deductible repair. TR 97/23 explains that '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 and contemplates the continued existence of the property. Repairs are ordinarily undertaken with like for like materials or modern equivalents. Where a different or more valuable material is used it changes the state of the thing which is subject to damage and will not generally be a repair. If the work amounts to a substantial improvement (an upgrade), addition or alteration, it is not a repair and is not deductible under section 25-10 of the ITAA 1997. Costs incurred in order to effect repairs such as insurance and certificates form part of the cost of repairs. All of the cost of works relating to these invoice items are repairs and as such are deductible under section 25-10 of the ITAA 1997. | Q2: Can you claim deductions under section 25-10 of the ITAA 1997 for the cost of replacement of the electrical items with like for like components or modern equivalents including the cost of installation of the upgraded external LED lighting to replace the old spotlights? | A2: Yes, these are repairs in the sense contemplated by section 25-10 of the ITAA 1997 (refer to the meaning of repair in question 1). | Q3: Can you claim deductions under section 25-10 of the ITAA 1997 for the cost of replacement of the locks and keys with a new security coded system and multi zone remote access wireless security system? | A3: No. As the cost of these works relate to upgrades and are not repairs (refer to the meaning of repair in question 1). However, you can claim these costs these under Division 43 of the ITAA 1997 as capital works expenditure. Division 43 of the ITAA 1997 provides a deduction for construction expenditure on capital works (including buildings) in respect of residential accommodation used to produce assessable income. This includes structural improvements, extensions, alterations or improvements. The deduction can be claimed over 40 years from the date the construction is completed. The rate of deduction per income year is 2.5%. | Q4: Can you claim deductions under section 25-10 of the ITAA 1997 for the cost of works relating to items 17 and 18 of the Quote? | A4: No. As the cost of these works relate to upgrades they are not repairs (refer to the meaning of repair in question 1). However, you can claim these costs under Division 43 of the ITAA 1997 as capital works expenditure (refer to what is said about Division 43 in question 3). | Q5: Can you claim deductions under section 25-10 of the ITAA 1997 for the cost of the balcony remediation works? | A5: Yes. These works relate to the restoration of the balcony to its original condition using like for like materials and is a repair (refer to the meaning of repair as explained in question 1). | Q6: Can you claim deductions under section 25-10 of the ITAA 1997 for the cost of installation of the new wardrobes to the main bedroom? | A6: No. As the cost of these works relate to upgrades they are not repairs (refer to the meaning of repair in question 1). However, you can claim these costs under Division 43 of the ITAA 1997 as capital works expenditure (refer to what is said about Division 43 in question 3). | Q7: Can you claim deductions under section 25-10 of the ITAA 1997 for the floor tiling works? | A7: Yes, these are repairs in the sense contemplated by section 25-10 of the ITAA 1997 (refer to the meaning of repair in question 1). | Q8: Can you claim deductions under section 25-10 of the ITAA 1997 for the cost of the roof repairs? | A8: Yes. These works relate to the restoration of the roof to its original condition using like for like materials or modern equivalents and is a repair (refer the meaning of repair as explained in question 1). | Q9: Can you claim deductions under section 25-10 of the ITAA 1997 for the costs of removal and replacement of a reverse cycle air-conditioner? | A9: No. but, you can claim this under the depreciation provisions in Division 40 of the ITAA 1997. A reverse cycle air-conditioning unit is an item of depreciable plant. TR 97/23 explains that works are not a repair if: • the thing or structure is separately identifiable as a principal item of capital equipment; or • the thing or structure is a separate and distinct item of plant in itself from the thing or structure which it serves; or • the thing or structure is a 'unit of property' as that expression is used in the depreciation deduction provisions of income tax law. Section 40-25 of the ITAA 1997 states that you can deduct an amount for the decline in value of a depreciating asset you hold to the extent that you use it for a taxable purpose, however the amount you can deduct must be reduced by any use for a non-taxable purpose in accordance with subsection 40-25 of the ITAA 1997. The term 'depreciating asset' is defined in subsection 40-30(1) of the ITAA 1997 as an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. The deduction is spread over the item's useful life.

Relevant facts and circumstances: Background and History 1. On 11 April 20YY you jointly purchased the Property. 2. The Property has been rented or available to rent for the entire period of its ownership. 3. The Property was originally constructed in 18XX and is a substantial, dual storey terrace home. The Property is constructed with solid masonry walls and a timber floor. 4. The Property has bedrooms, living, dining, kitchen, bathroom, laundry, courtyard and off-street parking. 5. The Property is recognised as being of significant heritage importance. 6. You have stated at the time of acquisition both the Property and balcony were structurally sound and in good condition. Repair History - Original Scope of Works 7. In March 20YY Company A was engaged by the managing agents of the Property to perform a structural evaluation and provide a report on suspected damage and structural weaknesses of the Property. 8. In March 20YY, a report from Company A to the Property manager was provided with observations along with photographic evidence. General Items to be repaired • cracking and movement of walls at the main entrance. • the downpipe at the front of the Property discharges to the ground and is split open. • some deterioration to the coating on the masonry walls was noted. • the gutter on the balcony is bowing, full of debris and is leaking. The timber fascia board on the right hand side is very rotten. • leaning of two walls. • mortar fretting. • water damaged plasterboard and loose tiles were noted in the shower area. • moisture ingress, and water leakage apparent in the ceiling on first level. • cracking can be seen inside around the archway in the hallway, upstairs in the living area and in the wall of one of the bedrooms. • level variations across floor of the house. This takes into account the higher floor finishes of tiles from the kitchen to the bathroom. Balcony • at the time of the inspection, it was noted that the timber balcony appeared to be structurally compromised. There were issues with leaning of support posts and the deck sloping away from the building. The measurement is determined to be greater than the slope it would have been constructed with. • there are significant signs of deterioration either side of the balcony. The timber fascia board on the front is very rotten. The timber posts at either end abutting the handrail are also rotten, as well as other elements of the structure. The full extent of the damage is not able to be seen without destructive testing. The main beams below the balcony deck could be severely deteriorated, and the balcony is at risk of collapse. • the edge of the balcony has dropped, and the timber structure is compromised. The gutter is not working correctly as it is blocked. The downpipe from the upper level discharges to the atmosphere. • there are clear signs that the balcony is utilised regularly by tenants. A large number of persons on the balcony may lead to collapse. As such it is determined that the balcony is unsafe, and should not be used until repairs can be completed. 9. The report from Company A provided the following recommended action plan: • remove the timber decking on balcony, remove gutter and fascia board and investigate the balcony structure further. Replacement structure requires designing. • all gutters, downpipes and stormwater disposal systems (including those below ground) should be checked by a qualified plumber. Ensure no leaks. Stormwater should not be discharged near building footings or walls. • floor boards are to be removed in the hallway below the arch to check the floor structure and stumps below. Geotechnical testing is to be conducted here to identify the foundation material. Stumps can be stabilised on new pad footings, or other footing methods, depending on soil types and bearing capacity. • shower area requires replacement and waterproofing. • neighbours should be made aware of cracking and wall leaning as noted. • assess the roof and scope for repairs to ensure the building is watertight. 10. You engaged Company B to review the report by Company A, recommend action plans and make further recommendations on required repairs. 11. In September 20YY, Company B provided a quote to the Property manager detailing the works undertaken. This quote was split into two sections and itemised. • items 1-16 totalling $XXXX • items 17 and 18 totalling $XXXX 12. The itemised quote is as follows: • item 1 - repair fascia/front beam to front balcony, including all first floor level floor boards, various post support issues, ensure fall is to the required standard. • item 2 - repair and/or adjust all windows including re-roping weight balancing to original specification and restoring damaged timber. • item 3 - repair damaged walls and ceilings, plaster, prime, seal, undercoat and two top coats to all painted areas internally and externally. • item 4 - remove carpet, sand and resurface existing timber floors with a low sheen natural heavy duty trafficable surface. • item 5 - electrical items to be separately quoted including reverse cycle air-conditioning issues. • item 6 - replace current keys with new security coded system. • item 7 - roofing plumber to replace all damaged and or misaligned downpipes and guttering. Clean all gutters and other catchment areas. • item 8 - insert suitable compounds into walls requiring rising damp amelioration. • item 9 - inspection and rectification to any immediate issues re shower tiling, total replacement is unnecessary and wasteful at the present time. • item 10 - inspect roof and ensure watertightness. • item 11 - rectify any immediate safety issues re sloping walls and floors. Include an allowance for engineer's report. • item 12 - provide and install a multi zone remote access wireless system, motion monitors to all downstairs accessible rooms and hallways, personal fobs included. • item 13 - include required contract, certificates and insurance, removal of all detritus and clean internally and externally to a high standard. • item 14 - repair loose ground floor balustrade post to stairwell. • item 15 - replace cracked kitchen floor tiles with tiles supplied by owner. • item 16 - recaulk kitchen. • item 17 - transform room next to main bedroom into ensuite. Provision of amenities and all other requirements. Include new private and direct door from main bedroom. • item 18 - provide additional amenities to new ensuite with direct access from hallway using existing door to the room. 13. You have advised that this quote was paid at various stages during the works undertaken within the 20YY income tax year. Additional works required and undertaken 14. In December 20YY, during the course of the works above, Company B identified further works were required to the balcony replacement first identified by Company A but found to be worse than expected when Company B commenced the restoration of the balcony. You incurred a cost for this invoice which was paid in December 20YY. The works undertaken were as follows: • careful removal, storage and refitting of existing cast iron and other embellishments to balcony. • removal and disposal of all timber structure to existing balcony. • supply of ceiling lining to replace Masonite cladding, various railing timber, galvanised supports for structural beams, flooring, hardware. • hire of support scaffolding. • sanding of new flooring. • surface coating treatment of new floor. • provide and install new period correct timber trim to ceiling. • labourers (carpenters, electrician and plumbers as required). • install upgraded and visibly suitable external LED lighting to new ceiling. • fitting previously supplied main support fascia beam and painting of balcony. 15. You have advised the replacement style and materials used were entirely consistent with the original balcony structure from 1869-70, as is required by the heritage overlay codes imposed. 16. In February 20YY, additional works were quoted and undertaken by Company B: • installation of new wardrobes to the main bedroom. • floor tiling - remove existing tiles to areas at rear of the Property. - remove and refit toilets and other impediments. - remove and adjust skirting as required. - relevel floor and screed, membrane as required. - supply and install non-slip tiles, grout, caulk and clean. • roof repairs - repair rear roof. - create new raised section and flashing. • air conditioner - remove and dispose of dangerously positioned non-functioning air-conditioning unit on roof. - secure new functioning air-conditioner positioned precariously on parapet wall. 17. You have advised the floor tiles were of the same style and quality as the tiles that were replaced. 18. You have advised that all the deterioration and damage to the property (including to the balcony) occurred during your period of ownership.

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 40 | Income Tax Assessment Act 1997 Division 43