Private ruling: Rental property deductions
Date of advice: 13 November 2025
Published: 5 January 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim the expenses you incurred for work carried out on your rental property during the period it was vacant? | A1: Yes. | Q2: Are you entitled to claim a deduction for repairs to your rental property under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: No.

Relevant facts and circumstances: In 20XX, you jointly purchased a property (the property). On XX/XX/20XX, you commenced leasing the property out. In XX 20XX, the tenants vacated the property. On XX/XX/20XX, the rental management agent notified you of a termite issue. On XX/XX/20XX, an inspection was conducted on the property. You were notified on the same day that the property had high termite activity located at the back of the house. In an email date from the real-estate agent, they included the recommendations from the pest control report as follows: Option 1 Chemical soil treatment - 2-3 weeks Option 2 Baiting stations in internal areas - 8-12 weeks. Recommended option 1 with this option. The report stated that there were active termites found in the listed areas, but not limited to these areas. In XX 20XX, you incurred the expense to treat the termite infestation. In XX 20XX, you were advised of further termite infestation located in garage by the rental management agent. On XX/XX/20XX, in an email to the pest inspector, you requested for the garage to be inspected urgently. Due to landlord requirements, you were advised that the property could not be leased out during the treatment of the termites and the discovery of asbestos. You were advised that the termite and asbestos had significantly affected the property's listed rooms and adjoining walls in their entirety. Termite treatment took several weeks. The builder who was originally engaged had emergency surgery therefore you needed to find a replacement. When the walls were removed, further termite infestations were found. The termites were again treated. Work went into the Christmas holiday period. Due to Christmas shutdown the work commenced again at the start of the new year. There were further delays as the fixtures of the property needed to be special ordered. In XX 20XX most of the work was completed and you advised the real estate agent to advertise for a tenant. The property was leased out again in XX 20XX after all the work was completed. You provided the following invoices: Pest Control Termite treatment. Rooms Detailed list supplied Miscellaneous items You repaired termite damaged doors and window frames yourself. Plumber Cleaned gutters and drains. Repaired down pipes.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8 - 1 | Income Tax Assessment Act 1997 section 25-10 | Income Tax Assessment Act 1997 section 40 -755 | Income Tax Assessment Act 1997 section 40 - 25 | Income Tax Assessment Act 1997 section 40 - 80 | Income Tax Assessment Act 1997 section 43 -10 | Income Tax Assessment Act 1997 section 43 -25 | Income Tax Assessment Act 1997 section 43 -30 | Income Tax Assessment Act 1997 section 43 -70 | Income Tax Assessment Act 1997 section 43 -75 | Income Tax Assessment Act 1997 section 43 -85 | Income Tax Assessment Act 1997 section 45 - 40

Reasons for decision: Summary: You can claim for expenses incurred during the period the property was undergoing work for asbestos removal, termite treatment and other repairs and maintenance while the property was vacant therefore not deriving rental income. The damage required repairs which made the property untenantable until completed. Your intention to lease the property out as you did prior to the repairs never changed. You leased the property out again once the repairs were completed. Consequently, you held the property for income producing purposes. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing your assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. However, there are also provisions in income tax laws which deal with specific deductions, including repairs and capital works (Section 25-10 and Division 43 of the ITAA 1997). You can claim expenditure such as interest on loans, local council, water and sewerage rates, electricity and gas, land taxes and emergency services levy you have incurred during renovations to a property you intend to rent out. However, you cannot claim deductions from the time your intention changes, for example if you decide to use the property for private purposes. The same principles apply as per TR 2004/4 Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities. | Detailed Reasoning - Conclusion: In your case, due to the extent of the damage by the termites and the discovery of asbestos, the property was not in a tenantable condition for leasing purposes. Your intention never changed from the property being used as a rental property. When the repairs and maintenance were completed, the property was advertised and leased by a new tenant in a reasonable time. For this reason, the property is considered to be held for income producing purposes. | Summary: The expenses that you incurred to repair your listed rooms in your rental property are not deductible under section 25-10 of the ITAA 1997. As they were replaced in their entirety and are considered more than minor and incidental, they are capital in nature. However, a deduction is allowable, for each of your ownership share, for the expenses under section 43-10 of the ITAA 1997 which provides a deduction for capital expenditure on capital works used for the purpose of producing assessable income. | Detailed Reasoning - Repairs: Section 25-10 allows a deduction for the cost of repairs to premises used for income producing purposes. Subsection 25-10(3) of the ITAA 1997 precludes a deduction for repairs where the expenditure is of a capital nature. The word 'repair' is not defined within the taxation legislation. Accordingly, it takes its ordinary meaning. In W Thomas & Co v. Federal Commissioner of Taxation (1965) 115 CLR 58; (1965) 14 ATD 78; (1965) 9 AITR 710 ( Thomas' Case ), it was held that a 'repair' involves a restoration of a thing to a condition it formerly had without changing its character. It is the restoration of efficiency in function rather than the exact repetition of form or material that is significant. TR 97/23 Income tax: deductions for repairs , at paragraph 15, explains that a repair for the most part is occasional and partial. A repair merely replaces a part of something that is already there and has become worn out or dilapidated. Work carried out can fairly be described as a 'repair' if done to make good damage or deterioration that has occurred by ordinary wear and tear, by accidental or deliberate damage or by the operation of natural causes (whether expected or unexpected) during the passage of time. TR 97/23 also explains that expenditure for repairs is of a capital nature where the extent of the work carried out represents a renewal or reconstruction of the entirety (paragraphs 36 to 42), or the works provide a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair' (paragraphs 44 to 58). An 'entirety' is defined as something 'separately identifiable as a principal item of capital equipment' ( Lindsay v. Federal Commissioner of Taxation (1960) 106 CLR 377; (1960) 12 ATD 197; (1960) 8 AITR 710). In Thomas' Case , the High Court, when considering deductions claimed for repairs to guttering, roof, walls and two floors of a building, took the view that the whole building was the entirety. In this case, Windeyer J said that the relevant question is not whether the roof or floor, looked at by itself, was repaired as distinct from being reconstructed or replaced. It is whether the roof or floor was a repair of the building. TR 97/23, at paragraph 55, explains the character of a repair does not necessarily change where an improvement is also carried out at the same time. If some part of a particular job can be identified, separated and considered in isolation as an improvement, then the rest of the work done may still be repairs. Work carried out on a rental property goes beyond being a 'repair' if it changes the character of the property or does more than restore its efficiency and function. Generally, if the degree of improvement involves renewal or replacement of more than a subsidiary part, or the degree of improvement is more than minor and incidental, the 'repair' expenses are of a capital nature and not deductible under section 25-10. | Detailed Reasoning - Capital works: Division 43 of the ITAA 1997 provides a deduction for capital works. Capital works includes buildings and structural improvements, and also extensions, alterations or improvements to buildings and structural improvements. A rental property is a building to which Division 43 applies. Section 43-10 of the ITAA 1997 requires that: • the capital works has an area in which capital works is carried out, the work is begun after 30 June 1997, and the expenditure incurred is for capital works that are owned or leased by the taxpayer (section 43-75 of the ITAA 1997) • there is an amount of construction expenditure incurred that is attributable to the capital works area (section 43-85 of the ITAA 1997), and • the construction area must be used in a deductible way at some time during the year of income for the purposes of producing assessable income. Expenditure on items that form part of the structure of a rental property, such as water pipes, bathroom fittings, and light fittings that are wired to the building are considered structural improvements within the definition of Division 43. These expenses are incurred for items that do not go beyond being part of the setting of an income producing operation. The items form a permanent part of the fabric of the building and are not considered plant within the definition of section 45-40 of the ITAA 1997. Subsection 43-25(1) of the ITAA 1997 provides that the rate of deduction for capital works which began after 26 February 1992 for a residential rental property is 2.5%. However, a deduction cannot be made prior to the completion of the capital works (section 43-30 of the ITAA 1997). | Detailed Reasoning - Environmental protection activities: Under section 40-755 of the ITAA 1997 you can deduct expenditure you incur in an income year for the sole or dominant purpose of carrying on environmental protection activities. These activities include those relating to the removal of hazardous or toxic materials. | Detailed Reasoning - Conclusion: As explained above, the work completed on the listed rooms constitutes the renewal of an entirety as they form part of the structure of a rental property, making your expenditure capital in nature. A deduction under section 43-10 is based on the amount of construction expenditure. This is defined in subsection 43-70(1) of the ITAA 1997 as capital expenditure incurred in respect of the construction of the capital works. Paragraph 43-70(2)(e) of the ITAA 1997 excludes expenditure on plant from construction expenditure. The role and function of the item's replacements in relation to the income producing activities (i.e. renting your property) do not go beyond being part of the setting of an income producing operation when they are installed in a residential rental property. As a result, the replacement items are not plant. Therefore, expenditure on the listed rooms are expenditure for which a deduction is available under section 43-10. | Detailed Reasoning - Removal of Asbestos: The asbestos remediation is deductible as an environmental protection activity under section 40-755 of the ITAA 1997. Expenses that relate directly to the removal of the asbestos are an allowable deduction under section 40-755. | Summary: The expenses that you incurred for the doors, window frames and other repairs and maintenance like cleaning gutters are to restore the efficiency or function of the item, without changing its character. In your case, they are an allowable deduction under section 25-10. You will need to apportion the expenses between depreciating assets, personal use and items relating to the improvements on the listed rooms. | Detailed Reasoning - Detailed reasoning: Section 40-25 states that you can deduct an amount for the decline in value of a depreciating asset you hold to the extent that you use it for a taxable purpose. The term 'depreciating asset' is defined in subsection 40-30(1) of the ITAA 1997 as an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Under subsection 40-80(2) of the ITAA 1997, an immediate deduction for certain non-business depreciating assets costing $300 or less can be claimed providing the asset cost less than $300; it is used mainly for the purpose of producing assessable income; it is not part of a set of assets that cost more than $300; and it is not one of a number of identical or substantially identical assets which together cost more than $300. TR 97/23 explains the circumstances in which expenses incurred by a taxpayer for repairs are allowable as a deduction under section 25-10 of the ITAA 1997. What is a 'repair' for the purposes of section 25-10 is a question of fact or degree in each particular case. TR 97/23 explains at paragraph 7 that at section 8-10 of the ITAA 1997 provides a rule against double deductions. If expenditure on repairs is potentially deductible under both sections 25-10 and 8-1, section 8-10 provides that you can deduct only under the provision that is most appropriate. Which provision is the most appropriate is an objective question. In our view, if both sections 25-10 and 8-1 allow you to deduct the same amount, section 25-10, being the provision that deals specifically with repair expenditure, is the most appropriate provision. TR 97/23, at paragraph 55, explains the character of a repair does not necessarily change where an improvement is also carried out at the same time. If some part of a particular job can be identified, separated and considered in isolation as an improvement, then the rest of the work done may still be repairs. | Detailed Reasoning - Conclusion: You incurred expenses to replace doors and window frames which were affected by the termite infestation. You completed this work yourself. You also incurred expenses for other repairs and maintenance while the property was vacant. You can claim an immediate deduction as detailed above for these expenses as repairs under section 25 -10. Depreciating assets over $300 can be claimed under section 40-25. Depreciating assets $300 or less can be claimed under 40-80(2). Note: If any expenses claimed as a deduction have been covered by insurance claims, these claims would no longer be allowable deductions to the extent that they have been 'reimbursed'. You may need to do an amendment and an adjustment balance in your return if this occurs after lodgement.