Edited version of private advice

Authorisation Number: 1051663630692

Date of advice: 04 May 2020

Ruling

Subject: Rental deductions

Question

Are the costs of repairs caused by concrete cancer in a building complex deductible to the client?

Answer

Yes. Expenses that 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:

1 July 2018 to 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

In 19XX purchased a property, for income producing purposes.

The property was constructed in the 19X0s and has multiple storeys and comprises of XX units, the building was fully renovated in 20XX.

In 20XX the tenant advised there was damage starting to appear to the property, evidence of water damage and cracks began to appear within the property.

In 20XX leaking from an upstairs room required the replacement of the ceiling and stack casing along the wall between two rooms.

In 20XX, a second leak from the upstairs required more repairs to the ceiling and casing. The tenant also advised of the crack in a kitchen bench top

In the months shortly after this the balcony doors and windows were replaced at the expense of the owner.

A property inspections specialist was engaged by the owner of the property shortly after the replacing of the balcony doors and windows to identify the cause of the cracks in the walls, ceilings, benchtops and the flooring.

Further to this a kitchen company was engaged to help identify the cracks. Observations made were that the flooring looked as if it taken in water, and such causing the cabinets to move and causing the crack in the bench.

The strata managers were notified, who then engaged their insurance company to investigate. Their assessors viewed the damage, to which they engaged an engineering company to carry out an inspection. During the inspection from the engineering company, one floor board was lifted as the inspection and it was concluded that the damage to the kitchen and flooring was caused my spoiling/ concrete cancer over a long period of time and not water related events. This building inspection company hired by the owner disputed this.

The strata insurance company advised in 20XX that as the cause of the damage was not a result of an event that they would not cover the damage.

Months after the engineer's conclusion, the property was attended again by the building inspection company and noticed that the sliding balcony door was difficult to open, they conducted further investigation and concluded that the bottom door frame had lifted.

Shortly after this, builders arrived at the property to remove the old kitchen and flooring. It was then discovered significant water damage under the laminate flooring. The building inspection company reported that the water penetration comes from the direction of the balcony and this was caused by the balcony door not being correctly installed. It was also concluded that it did not contain the correct water proofing, as the damage to the flooring has progressively gotten worse since the original inspection.

The strata have paid for the rectification of the concrete cancer in the concrete slab but not for the removal of items in the unit to perform the rectification or for the items that are damaged as a result of the damage.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-1

Income Tax Assessment Act 1997 Section 25-10