Edited version of private advice

Authorisation Number: 1051954813096

Date of advice: 25 February 2022

Ruling

Subject: Rental deductions

Question

Are you entitled to claim a deduction for the cost of underpinning for your investment property?

Answer

Yes.Your expenses meet the requirements of a repair in Taxation Ruling TR 97/23 and are deductible. Further information about repairs can be found by searching QC 23635 at ato.gov.au. The underpinning is not considered to be a renewal or reconstruction of an entirety, it is not an initial repair, or an improvement and the expense is in respect to an income producing asset. Therefore, your expenses are deductible under section 25-10 of the Income Tax Assessment Act 1997.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You purchased an investment property more than X years ago. You own the property as joint tenants.

The property was rented for about X years. The property is currently vacant and will be rented out again after the remedial work has been completed.

The previous tenants moved out of the property as the nature of the repairs meant it was not safe for the tenants to remain in the property.

You were first notified of some cracking around before intending to sell the property. Your tenant also advised you of an issue.

You requested the builder of the property to do an inspection. The builder claimed they were not liable to rectify the issues with the building as it was constructed to the correct specifications.

You filed a case with a regulatory body against your builder.

You engaged Engineer A to conduct an engineering investigation for the slab and footings.

Engineer A provided an engineer investigation report with the following remarks:

Findings

•         Cracks in a number of areas of the building and other structures

•         Reveal gaps in some windows.

•         Distinctive tilt of the floor

•         Door swings unaided

•         Tenant advised some cracks have been filled and painted.

Cause of damage

•         The foundation soils of the area have an extreme capacity to shrink when dry and swell when moist. Drying and wetting of the foundation soils at different rates in different areas cause movements of the slab and damage to the building

•         It is apparent that the house slab as designed and constructed has not performed adequately to prevent excessive level variations and severe tilting of the house.

Recommendations

•         Unless action taken, cracks and gaps will continue to occur due to ongoing excessive movements. The building is also out-of-level. The building will require work to stabilize and support and correct excessive level variations. This will include the entire perimeter for support and lifting and interior underpins to prevent possible "dishing" as the perimeter is lifted.

•         Stabilising building movement: Regardless of other action, it is recommended that efforts are made to maintain stable ground conditions. All gutters, downpipes and drains should be checked for blockages or leaks and repaired where required and site drainage and pavements should fall away from and around the building and water should not be allowed to pond next to the building.

The regulatory body conducted a meeting with your builder. The regulatory body also conducted an inspection of the plumbing with a plumber and an inspection of the slab and footings with Engineer B.

The regulatory body provided you with an outcome letter advising they had identified some movement or settlement occurred to your property.

The regulatory body advised your builder was not responsible to rectify the issues with the slab and footing system as they had complied with building standards and codes at the time of construction.

You were not entitled to insurance assistance under the state's warranty scheme the warranty period for your property had elapsed.

You submitted a claim online with your insurance provider.

The insurer advised your policy did not insure against certain damage; however, they do insure against some caused by damaged plumbing to a certain depth.

The insurance claim was settled over the phone. You received an insurance payout to rectify the plumbing damage.

You engaged a professional to rectify the other damage. The professional carried out the required work.

A tax invoice was provided by the professional and part payment was made in a one financial year and the balance is to be paid the following financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-10