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Edited version of private advice

Authorisation Number: 1051560318540

Date of advice: 02 September 2019

Ruling

Subject: Rental property deductions

Question

Are you entitled to your share of a deduction in relation to work carried out on a bathroom at your rental property?

Answer

Yes. Your expenses meet the requirements in Taxation Ruling TR 97/23 and are deductible. Further information about repairs can be found by searching 'QC 55249' on ato.gov.au

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You and your spouse own a rental property.

You and your spouse purchased a two-storey townhouse in 2015 (the property).

On XX XXXX 2015, a plumber resealed the basin, bath and inside the shower area in the upstairs bathroom due to signs of mould at the property.

The exhaust fans were also replaced at the property.

From XXXX 2016 the property was leased to the existing tenant.

The Australian waterproofing standard - Waterproofing of domestic wet areas (AS 3740-2010) was published in 2010. This standard did not exist and was not implemented when the townhouse was built in 1996.

Regular termite inspections have been conducted at the property given that one of the nearby properties had a case of termites in recent times.

The most recent water leaking at the property was behind the internal walls the problem commenced somewhere between XX XXXX 2017 and XX XXX 2018 as indicated by the termite inspection reports:

a.    The Termite Inspection Report dated XX XXXX 2017 said "No excess moisture detected".

b.    The Termite Inspection Report dated XX XXXX 2018 said "Moisture was detected in the bathroom".

In XXX 2018, a plumber was asked to investigate if the shower was leaking but they were unable to find any leaks. (You later discovered that the bath waste water pipe was leaking.)

On XX XXX 2018 your tenant reported that there was significant water damage to the ceiling of the lounge. The lounge room is below the upstairs bathroom.

On XX XXXX 2018 your Insurance were notified of the water damage. They advised you that the excess was $300. The insurance company assigned a building company to investigate.

On XX XXXX 2018 the Building Services representatives took photos. The Building Services commissioned a leak location specialist to locate the leak.

On X XXXX 2018, the leak location specialist discovered that the bath waste had a leak, the shower needed resealing and inadequate waterproofing was in place according to today's standard.

Your insurer assessed the damage and found that the escape of liquid was the result of water escaping from the bath, the shower walls and the absence of waterproofing. The insurance company were prepared to cover the cost of repainting the damaged ceiling but did not cover the maintenance issue because:

"The water proofing in the shower alcove needing to be replaced is not covered under the policy as this is a maintenance issue that needs to be addressed by you as the home owner."

A plumber advised you that it was not feasible to repair the leak under the bath by cutting a hole through the cement floor from the room below.

The plumber was not prepared to do superficial repairs and said that unless the repairs were done to the Australian waterproofing standard - Waterproofing of domestic wet areas (AS 3740-2010), they would not be able to guarantee their workmanship and that the water leaking issue would reoccur within a few months.

The plumber recommended minimal changes to the layout and functionality of the bathroom during the repairs to minimise the time and cost of the repair.

In XXXXX 2019, the following work was completed:

·   Asbestos testing;

·   Removal of bath, shower, vanity, floor tiles and wall tiles;

·   Installation of waterproofing;

·   Tiling of the floor and 3 walls;

·   Repair of the leaking wastewater pipe;

·   Installation of new vanity, sink, bath, tapware and toilet;

·   Replacement of glass frame for the shower;

·   Painting of the existing bathroom walls;

·   Steam cleaning the walls and carpets;

·   Repairs to the kitchen ceiling damaged due to the demolition; and

·   Replacement of the exhaust fan in the kitchen damaged due to the demolition.

The following work was covered by the insurance company and completed in XXXX 2019:

·   Painting of the lounge room ceiling;

·   Plugging of inspection holes made to the upstairs bedroom adjacent to the bathroom; and

·   Repainting of one wall of the bedroom with matching paint.

The bathroom had not been renovated since the original townhouse was built in 1996.

The bath, shower and vanity were damaged during the demolition in order to repair the leaks and the lack of waterproofing.

Relevant legislative provisions

Income tax Assessment Act 1997 Section 25-10.

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