If you own an apartment in a building complex, you may have a share responsibility to fix building defects. You may need to make:
- a contribution to a special body corporate levy (this is most common)
- changes as required by a state government building authority.
This is usually in respect of common property. Common property is generally all areas of the land and external structures of the main building.
If the apartment is a rental property, you can claim deductions for repairs, environmental protection activities and capital works on the same basis as if you:
- directly own the building
- were directly paying the expense.
You can claim a deduction for the expenses you incur when you contribute to the repair or maintenance of either:
- an apartment you use to earn rental income
- part of the building complex that you hold or use as part of earning rental income.
These expenses must meet the requirements for deduction as a repair or maintenance. That is, they must relate directly to wear and tear or damage as a result of renting out the property. Repairs generally involve a replacement or renewal of a worn out or broken part. Maintenance is work done to prevent deterioration, defects or damage. For example, repainting of the outside parts of the building where the paint is peeling is a repair as well as maintenance.
You can't claim a deduction for capital repairs or maintenance. For example, expenses which are capital or of a capital nature include:
- replacement of an entire structure or unit of property
- improvement in the function of the replacement item.
You can claim a deduction for costs you incur to replace or contribute to the replacement of combustible cladding to meet government requirements.
To be able to claim a deduction, you must replace the combustible cladding with fire resistant cladding. You treat the replacement of the cladding as capital works. This is because we treat the replacement of cladding as:
- an entire functional structure (being the outer covering of the building)
- an improvement in the function of the outer covering of the building.
This means the building is no longer a fire hazard and becomes fire resistant as an improved functional operation of the cladding.
You can claim a deduction for the amount you contribute over a period of either 25 or 40 years. That is, 4% or 2.5% of the cost of the improvement being allowed in each year. See, Table 1 – types of rental property construction that qualify for deduction.
The replacement of combustible cladding doesn't meet the requirements to be deductible as a repair or environmental protection activity.
You can claim a deduction for costs you incur to carry out environmental protection activities.
Environmental protection activities are those you carry out because your earning activities will result or likely result in the need for you to:
- prevent, fight or remedy pollution
- treat, clean up, remove or store waste.
You can't claim a deduction as environmental protection activities where you incur the costs to either:
- replace building products that don't conform to statutory legal requirements
- remove building products that don't conform to statutory legal requirements.
For more information on deductions and strata titles, see:
- TR 97/23 Income tax: deductions for repairs
- TR 2020/2 Income tax: deductions for expenditure on environmental protection activities
- TR 2015/3 paragraphs 40 and 41 of Income tax: matters relating to strata title bodies constituted under strata title legislation.