Private ruling: Deductions - rental property
Date of advice: 6 November 2025
Published: 22 December 2025
Ruling period: Year ending 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: DD MM YYYY

Ruling: Q1: Are you entitled to claim the full amount of the special levies you paid for waterproofing and repair works to the building's balconies and common areas as a deduction expense? | A1: Yes.

Relevant facts and circumstances: On DD MM YYYY, you and your spouse purchased a property for $XXX. You and your spouse both hold a 50% share interest in the property. The property was originally constructed in 20YY and is a strata-titled property, governed by a body corporate. When you purchased the property, you obtained a structural report which was dated DD MM YYYY. The conclusion of the report was in their professional opinion most of the defects as discussed in the report are not severe or serious structural damages and they can be easily repaired, therefore the structural integrity of the subject walls or the building in general has not been affected or undermined. You have provided a letter from X dated DD MM YYYY. The letter provides a scope of works at that time which the builder has agreed to repair. At the time you purchase of the property, there were no defects present. The property was made available to rent in 20YY and you have a landlord/tenant relationship. The property is managed by a real estate agent and is rented at the market rate. The property has been available for rent through the entire income year of the private ruling. Defects in the property became apparent in or around the 20YY/20YY year when tiles started coming off and mezzanine started to flood. On DD MM YYYY, an Annual General Meeting was held, you have provided the minutes of the meeting which discussed the defects found on the mezzanine and courtyard, tenders for remedial works, loan contract and proposal of the special levy. On DD MM YYYY, an Extraordinary General Meeting was held and you have provided the minutes of the meeting which shows the owners agreed to fund the remedial building rectification works as per quote, with no strata loan, and levied in two instalments. On DD MM YYYY and DD MM YYYY, the body corporate levied two special contributions of $XXX each (total $XXX) against you and the other unit owners. You have already paid in full the two levies. The levies were raised to fund waterproofing, and repair works to the building's balconies and common areas due to significant water leaks. You have provided the Quote from the building company totalling $XXX for the body corporate. You have provided a Tax invoice from your body corporation for levies due on DD MM YYYY for $XXX. On DD MM YYYY, remediation works started, they have not yet been completed and the special levy funds have not been expended. The works carried out involved removal of existing tiles, membranes, and screeds, installation of new waterproofing membranes, drainage works, and re-tiling of the affected areas. The special levy amounts that relate to the works will be used between MM 20YY to MM 20YY.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 25-10 | Income Tax Assessment Act 1997 Division 43 | Income tax Assessment Act 1997 section 43-20

Reasons for decision: Detailed Reasoning - Deductions for repairs: Section 25-10 of the Income Tax Assessment Act (ITAA 1997) allows a deduction for the cost of repairs to premises used for income producing purposes. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs where the expenditure is of a capital nature. The following are examples of expenses which are capital or of a capital nature: • replacement of an entire structure or apartment of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator) • improvements, renovations, extensions and alterations, and • initial repairs, for example, in remedying defects, damage or deterioration that existed at the date you acquired the property. Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the circumstances in which deductions for repairs are allowable under section 25-10 of the ITAA 1997. TR 97/23 states that in its context in section 25-10 of the ITAA 1997, 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 and contemplates the continued existence of the property. Repair for the most part is occasional and partial. It involves restoration of 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. Repair costs are deductible where they are incurred during the period the property is held for income producing purposes and are attributable either to damage that occurs during your income producing use of the property or to defects that emerge suddenly during that time. | Detailed Reasoning - Application to your circumstances: In your case, you acquired the property on the DD MM YYYY at the time you obtained a structural report dated DD MM YYYY which concluded there were no severe or serious structural damage to the building. You also obtained a letter dated DD MM YYYY from the X highlighting the scope of works at that time the builder agreed to repair. In 20YY/20YY year, defects became apparent when tiles started coming off the courtyard area and the mezzanine started to flood. As noted in the facts, the property was XX years old when you purchased apartment, and you had already held the property for XX years before the defects become apparent in the 20YY/YY financial year. Therefore, we do not consider the repairs to be initial repairs or capital improvements because the repairs completed were to restore the efficiency of the function of the property to its former appearance. You were issued two tax invoices for special levies of $XXX in relation to the mezzanine and courtyard rectification works. Once these works have been fully completed and the invoices have been paid out of the special levy fund, you will be able to claim a deduction under section 25-10 of the ITAA 1997.