Private ruling: Rental property deductions
Date of advice: 10 December 2018
Published: March 2019
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the repair expenses incurred to the property be an immediate deduction under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Section 25-10 of the ITAA 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. It is outlined in Taxation Ruling TR 97/23 that to repair property improves to some extent the condition it was in immediately before repair. A minor and incidental degree of improvement, addition or alteration may be done to property and still be a repair. However, if the work amounts to a substantial improvement, addition or alteration, it is not a repair and is not deductible under section 25-10 of the ITAA 1997. In your case there was no other option but to remove the whole bathroom and repair the ceiling due to negligence from previous work undertaken on the dwelling. The dwelling was classified as an OH& S issue by a licensed professional and deemed in an un-habitual state. The work was undertaken to return the dwelling to the previous original functioning state. The works carried out are considered to be a deductible repair. Therefore, a deduction is allowable under section 25-10 of the ITAA 1997.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You purchased a rental property (dwelling). The dwelling is one of two strata titled townhouses which a strata body was created by both parties as they share a common wall between both dwellings. The tenants made the real-estate aware there was a problem with the ceiling in the downstairs bedroom that was under the main bathroom. There was a major water leak from the bathroom above. You engaged in professional advice to diagnose the problem. They confirmed in their report the following: ● The main bathroom above the damaged ceiling whole floor had failed due to water proofing. ● The bathroom vanity had rotted also not in a repairable state. ● The main bedroom and laundry ceiling were water damaged. ● The damage was un-repairable and the damage was deemed an OH&S issue. To resolve the damage the bathroom required to be completely gutted. New flooring, waterproofing (to Australian standards) and replacement of all fittings in the bathroom had to be undertaken. This also included removing and repairing rotted bulk head, existing ceilings in bedroom and laundry that sustained the water damage. The amount for this work totalled $X. You have provided photos of the damage and as well as photos of the repaired ceiling. You attempted to claim through your building insurer but they denied the claim stating it was a home owners warranty issue and not insurable by them. The timing of the damage is outside of the statutory seven year warranty and the builder could not be held liable for their negligent work. You also could not make a claim against the product manufacturer as they were unknown. The tenants were removed from the property for a week while the dwelling was being repaired as it was in a non-habitual state.

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