Private ruling: Rental property repairs
Date of advice: 19 March 2021
Published: May 2021
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to deduct expenditure for repairs to prevent water ingress and related repairs in respect of your rental property? | A1: Yes.

Relevant facts and circumstances: You jointly own a rental property which is one of a number of joined apartments. The apartments were built over 40 years ago and you purchased your apartment over five years ago. The apartments are all at ground level with a second story. There is a concrete verandah which sits above the ground floor laundry. Following a building inspection, it was determined that rainwater had been seeping into the ceiling of the laundry through cracking, and some separation of the verandah from the building structure. You engaged a contractor to install a waterproofing compound to seal the joint between the verandah and the structure, and the cracking in the verandah itself. Some grinding of the concrete surface of the verandah was also required. Repairs relating to the internal water damage to the ceiling were also undertaken.

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

Reasons for decision: Summary: The Rental properties guide 2020 available on ato.gov.au states that expenditure for repairs to a rental property may be deductible if they relate directly to wear and tear or other damage that occurred as a result of you renting out the property. Repairs generally involve a replacement or renewal of a worn out or broken part, for example, replacing worn or damaged curtains, blinds or carpets between tenants. Maintenance generally involves keeping the property in a tenantable condition, for example repainting faded or damaged interior walls. However, expenses which are capital, or of a capital nature are not deductible as repairs or maintenance. The following are examples of expenses which are capital or of a capital nature: • replacement of an entire structure or unit 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. In your case, it is evident that the expenditure you incurred related to repairs to the property and was not capital in nature. Therefore, you are entitled to claim the expenditure as a deduction.