Private ruling: Rental Deduction
Date of advice: 24 February 2026
Published: 20 April 2026
Ruling period: Year ended DD MM 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Can the cost of replacing frame and tin of your commercial shed be claimed as an immediate maintenance deduction for the 20YY income year 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. 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 fact that you choose a different material from that previously used is not itself decisive in determining whether the expenditure is a repair or a capital improvement for the purposes of section 25-10 of ITAA 1997. The primary test is one of functionality. If the work has the effect of restoring a previous function to the thing, then it does not matter that a different material is used. Even if the work enables the thing to perform its function better, or reduces the need for future repairs, that work may still constitute a deductible repair, although, especially in the latter case, the work is more likely to be seen as a capital improvement. If the work produces a new and different or additional function it is more likely to be a capital improvement. As Windeyer J put it in W Thomas & Co Pty Ltd v FCT (1965) 115 CLR 58; 9 AITR 710 at 72 (CLR), 719 (AITR): The words "repair" and "improvement" may for some purposes connote contrasting concepts; but obviously repairing a thing improves the condition it was in immediately before repair. It may sometimes be convenient for some purposes to contrast a "repair" with a "replacement" or a "renewal". But repairs to a whole are often made by the replacement of worn-out parts by new parts. Repair involves a restoration of a thing to a condition it formerly had without changing its character. But in the case of a thing considered from the point of view of its use as distinct from its appearance, it is restoration of efficiency in function rather than exact repetition of form or material that is significant. While a different material was used to replace the frame, the replacement of the frame and the shed wall represents a restoration of the shed wall to before the repair and does not change the character of the wall itself. Therefore, an immediate deduction can be claimed for the repair to the shed wall for the 20YY income year under section 25-10 of the ITAA1997.

Relevant facts and circumstances: Ownership and property use The property is in state A (the property). The property was purchased in MM 20YY. On DD MM 20YY a pest and building inspection was conducted. The property includes a cottage which is the taxpayer's main residence and a commercial shed. The property was used for a combination of private and sole trader business purposes from MM 20YY. The property was partially rented from MM 20YY. The commercial shed was available for rent for the entirety of 20YY income year. From MM 20YY the commercial shed was the only aspect of the house which was rented out. The house remained the main residence and was not leased out. Leased commercial shed You have provided a copy of a lease commencing DD MM 20YY as part of your application. The shed is located at the same property. The tenant is to pay a commercial base rent of $XXXX.XXX per month for the premises. Damaged wall The condition of the wall was structurally sound when initially purchased. The defects to the wall were discovered around MM 20YY. It was originally made of timber beams and corrugated iron. Deterioration of the timber frames were discovered when signage was moved away from the wall of the shed. The wooden frames were severely damaged by termites. The left-hand side of the shed wall, which was part of the shed structure was replaced. Repair work The wood frames was replaced with steel. Corrugated iron was replaced as there were too many holes from nails. Additionally, that there was damage due to the removal of old iron. There was no insurance claim made against the damage. The work was completed in MM 20YY. This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect, and you cannot rely on it. Find out more about when you can rely on your private ruling at ato.gov.au/relyonprivateruling.

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