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Edited version of private advice
Authorisation Number: 1051787373925
Date of advice: 8 December 2020
Ruling
Subject: Rental property environmental protection activities
Question 1
Is the cost of the removal of asbestos from the Property deductible as per section 40-755(1) of the Income Tax Assessment Act 1997(ITAA 1997)?
Answer
Yes.
Question 2
Is the cost of remediation work on the Property associated with the removal of asbestos deductible as per section 40-755(1) of the ITAA 1997?
Answer
Yes.
Question 3
Are the repairs and possible replacement of all the XXXX identified in the building report as being defective deductible as repairs and maintenance under section 25-10 of the ITAA 1997?
Answer
No
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
XX XXXX 20XX
Relevant facts and circumstances
You purchased the Property on XX XXXX 20XX.
The property was purchased by Individual A and Individual B as tenants in common.
The Property was rented out when you purchased it and continued to be rented out into XXXX 20XX.
A property report conducted on XX XXXX 20XX states the Property has defects and asbestos.
You will replace the asbestos with a similar non-pollutant material, which is not superior in quality to the one being removed.
You will restore the affected areas to their efficiency of function, not improve the areas beyond their previous state.
Relevant legislative provisions
Section 25-10 of the Income Tax Assessment Act 1997
Section 40-755 of the Income Tax Assessment Act 1997
Section 40-760 of the Income Tax Assessment Act 1997
Reasons for Decision
Question 1
The Commissioner accepts that you incurred costs for the purpose of carrying on environmental protection activities as per Taxation Ruling TR 2020/2 Income tax: deductions for expenditure on environmental protection activities.
Question 2
The Commissioner accepts that you will replace a pollutant material with a non-pollutant material as per paragraphs 43 and 45 of TR 2020/2.
Question 3
The property report completed on XX XXXX 20XX shows the defects in the Property were existing prior to you acquiring the Property.
Paragraph 59 of Taxation Ruling TR 97/23 Income tax: deductions for repairs states expenditure incurred on an initial repair after the property is acquired is of capital expenditure, and therefore not deductible under section 25-10 of the ITAA 1997.
While not deductible under section 25-10 of the ITAA 1997, the costs of these repairs will form part of the cost base of the Property for capital gains purposes.