Private ruling: Rental property expenses
Date of advice: 7 July 2022
Published: October 2022
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim a deduction for the depreciation of carpets as per section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) when the replacement of carpets occurred after the property had ceased to be used in the production of assessable income? | A1: No. In accordance with Taxation Ruling IT 180 Repairs to property carried out after cessation of income production (IT 180), the Commissioner accepts that (a) the necessity for the repairs can be related to a period of time during which the premises have been used to produce assessable income of the taxpayer, and (b) the premises have been used in the production of such assessable income of the year of income in which the expenditure in incurred. Carpet is considered a depreciating asset and replacement of the whole is a capital expense, rather than a repair. It is only repairs attributable to the period the premises were used to produce income that can be claimed after the cessation of income producing activities. Depreciation on the replacement carpet relates to its decline over time, and is attributable to the ongoing use of the carpet after the cessation of income earning activity. | Q2: Can you claim a deduction for the repair of the polished concrete floor as per section 25-10 of the ITAA 1997 when the repairs were carried out after the property had ceased to be used in the production of assessable income? | A2: Yes. In accordance with IT 180, the Commissioner accepts that (a) the necessity for the repairs can be related to a period of time during which the premises have been used to produce assessable income of the taxpayer, and (b) the premises have been used in the production of such assessable income of the year of income in which the expenditure in incurred. As the property was used for private purposes prior to being a rental property, you must reasonably apportion the expenses incurred accordingly.

Relevant facts and circumstances: Some time ago you purchased a property and lived in the property as your principal place of residence. You moved out of the property and it was then rented to tenants for a period. You declared this rental income on your income tax returns. During the 20XX income year the tenants vacated the property. You moved back into the property as your principal place of residence shortly afterwards. The property sustained damages by the tenants whilst it was used as an income producing asset to the polished concrete flooring and carpets. The carpet was replaced costing $XXXX. The polished concrete flooring was repaired costing $XXXX. These expenses were incurred and paid in the 20XX financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 25-10 | Income Tax Assessment Act 1997 section 40-25