Private ruling: Rental deductions - Repair vs Capital
Date of advice: 10 October 2025
Published: 24 November 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: XX XXXX 20XX

Ruling: Q1: Are the expenses incurred to repair the roof on your rental property deductible under section 25-10 of the Income Tax Assessment Act 1997 ? | A1: No

Relevant facts and circumstances: On XX XXXX 20XX, you solely purchased the rental property located at the Property. The Property was tenanted at the time of purchase with a lease commencing XX XXXX 20XX. You assumed control of the lease and continued to rent the Property. The Property is a double storey with no roof access without scaffolding. You were not aware at time of purchase of the Property the need for repair of the roof. In XXXX 20XX, you were advised by your real estate agent (REA) that the tenants had reported an apparent leak around the skirting boards in the upstairs bathroom, and also indications of a water leak in the garage ceiling (blisters in the paint). You arranged for these repairs to be completed. On XX XXXX 20XX, you were contacted by your REA again, to advise that evidence of a leak was now showing in an interior hallway. At the time of the leak, you believed it had occurred after a series of summer storms that had caused a lot of property damage locally. On XX XXXX 20XX, you made a claim under your landlord's insurance. On XX XXXX 20XX, the insurer had an assessor attend the Property to assess the damage. Their report determined that the damage was not caused by the storm and not related to tenancy but related to deterioration in the condition of the roof over time. The insurer advised that they would not cover the maintenance issues to the roof but would cover the resultant damages to the Property. The insurance coverage included the internal surfaces impacted by water ingress, primarily some replacement of insulation, plasterboard and painting. These were repaired with the same materials. You approached various trades to find a suitable quote. In XXXX 20XX, you asked the company that had installed the residential rooftop solar in mid-20XX to conduct an inspection of the roof to determine whether there was any damage to the roof as a result of their installation. They provided written confirmation that they could not identify any damage caused by their works. On XX XXXX 20XX, you paid the insurance excess of $XX, which covered the resultant damages to the Property. Over the course of a few weeks, the roof was repaired. The whole roof was not repaired only a partial section. The repair involved replacing broken tiles replaced and repointing of some ridge capping The same materials were used for the repair of the roof. No modifications or improvements were added to the roof during the repair. From XX XXXX 20XX to XX XXXX 20XX, the internal insurance repair works were completed. On XX XXXX 20XX, your insurance claim was closed following the repair.

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

Reasons for decision: Summary: The repairs were initial repairs and the need for repair existed before you purchased the Property. It is immaterial whether at the time of acquisition you were aware of the condition of the property, including its need for repair. You are not entitled to an immediate deduction as a repair under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997). The expenses incurred can be claimed as capital works. | Detailed Reasoning - Detailed reasoning: Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the cost of repairs to premises, or a part of the premises, used solely for income-producing purposes. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs that are considered capital expenditure. Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10 of the ITTAA 1997. | Detailed Reasoning - Initial repair: Expenditure to remedy defects, damage or deterioration in existence at the date of acquisition of property (that is, an initial repair) are dealt with in this ruling. Paragraph 4 of TR 97/23 states the expression 'initial repair' refers to a repair by a taxpayer that remedies some defect in property or makes good damage to, or deterioration of, property being a defect, damage or deterioration, which existed when the property was acquired from another person (whether by purchase, lease or licence); and has not arisen from the operations of the taxpayer who incurs the repair expenditure. Paragraph 5 of TR 97/23 goes on to state that a repair is not an 'initial repair' simply because it is the first repair made after property is acquired. It is an 'initial repair' if repair is due when the property is acquired in the sense that the property has defects, damage or deterioration or is not in good order and suitable for use in the way intended. Paragraphs 59 to 61 in TR 97/23 goes on to state why initial repairs are of a capital nature and therefore not deductible. The paragraphs state: 59. Expenditure incurred on an initial repair after property is acquired, if the expenditure is incurred in remedying defects, damage or deterioration in existence at the date of acquisition, is capital expenditure and is not, therefore, deductible under section 25-10. This is so whether the property is purchased or obtained under lease or licence by the taxpayer. The cost of effecting an initial repair is still not deductible even if some income happens to be earned after acquisition but before the repair expenditure is incurred: but see paragraphs 63 to 66 of this Ruling in relation to dissecting or apportioning initial repair costs. 60. The main consideration in relation to initial repairs is the appearance, form, state and condition of the property and its functional efficiency when it is acquired. Expenditure that remedies some defect or damage to, or deterioration of, property is capital expenditure if the defect, damage or deterioration: (a) existed at the time of acquisition of the property; and (b) did not arise from the operations of the person who incurs the expenditure. 61. It is immaterial whether at the time of acquisition the taxpayer was aware of the condition of the property, including its need for repair. It is also immaterial whether the purchase price (or lease rentals) reflected the need for repairs. We consider that the English Court of Appeal decision in Odeon Associated Theatres Ltd v. Jones (Inspector of Taxes) [1972] 1 All ER 681 is not authority in Australia for a contrary view. An initial repair expense is not the type of repair expenditure ordinarily incurred as a working or operating expense in producing assessable income or in carrying on a business. This is because it lacks a connection with the conduct or operations of the taxpayer that produce the taxpayer's assessable income. It is essentially an additional cost of acquiring the property or an improvement in the quality of the property acquired. Initial repair expenditure relates to the establishment of the profit - yielding structure. It is capital expenditure and is not deductible under section 25-10. Application to your circumstances In your case, the need for repair of the roof was not a result of the tenant's occupation of the Property. The repairs were initial repairs and the need for repair existed before you purchased the Property. It is immaterial whether at the time of acquisition you were aware of the condition of the property, including its need for repair. You are not entitled to an immediate deduction as a repair under section 25-10 of the ITAA 1997. The initial repairs incurred can be added to the cost base of the Property when sold.