Edited version of private advice

Authorisation Number: 1052095008963

Date of advice: 20 March 2023

Ruling

Subject: Rental deductions - repairs

Question 1

Are you entitled to an immediate deduction under s 25-10 of the Income Tax Assessment Act 1997 for expenses related to replacement of bathroom tiling at an investment property?

Answer

Yes. The replacement of bathroom tiling is not considered to be a renewal or reconstruction of an entirety, it is not an initial repair, or an improvement and the expense relates to an income producing asset. Therefore, your expenses are deductible under section 25-10 of the ITAA 1997. Further information about repairs can be found by searching QC 23635 at ato.gov.au.

Question 2

Are you entitled to an immediate deduction under s 25-10 of the ITAA 1997 for expenses related to repairs of a bath frame at an investment property?

Answer

Yes. The repairs to the bath frame are not considered to be a renewal or reconstruction of an entirety, it is not an initial repair, or an improvement and the expense relates to an income producing asset. Therefore, your expenses are deductible under section 25-10 of the ITAA 1997. Further information about repairs can be found by searching QC 23635 at ato.gov.au.

Question 3

Are you entitled to an immediate deduction under s 25-10 of the ITAA 1997 for expenses related to replacement of a toilet at an investment property?

Answer

No. The expenses related to replacement of a toilet were undertaken to correct defective installation, rather than to remedy any damage or deterioration. Moreover, the defect was present at the time you purchased the property meaning that if the replacement was considered a repair, it would be an initial repair, which is capital in nature. Therefore, your expenses to replace the toilet do not constitute a repair but are capital expenditure and not deductible under section 25-10 of the ITAA 1997. Further information about repairs can be found by searching QC 23635 at ato.gov.au.

Question 4

Are you entitled to an immediate deduction under s 25-10 of the ITAA 1997for expenses related to replacement of water damaged carpet?

Answer

Yes. The expenses related to replacement of water damaged carpet are not considered to be a renewal or reconstruction of an entirety, it is not an initial repair, or an improvement and the expense relates to an income producing asset. Therefore, your expenses are deductible under section 25-10 of the ITAA 1997.Further information about repairs can be found by searching QC 23635 at ato.gov.au.

This ruling applies for the following period:

Period ending XX June 20YY

The scheme commenced on:

XX August 20YY

Relevant facts and circumstances

You own an investment apartment (the property).

You own the property wholly in your own name.

The property was first made available for rent immediately after purchase and has been available for rent constantly since that date.

The property is managed by an unrelated agent and has always been leased to unrelated tenants, at market rate.

The property has never been left vacant during your ownership of it, except briefly between tenancies.

You have never used the property personally, nor has there been any time where the property was occupied without rent being charged.

The tenant reported in 20XX that the wall tiles in a bathroom at the property had become loose and had begun to leak water, which also caused water damage to the carpet in the adjacent room.

You engaged plumbers to investigate the issue over several months and engaged a contractor to coat the bathroom with a sealant. These measures did not solve the problem.

Around 12 months later, the same issues were discovered in the property's combined second bathroom and laundry, including severe water leakage into the neighbouring unit.

Further investigations by a state-registered contractor revealed:

•         The tiles in both bathrooms were weakly adhered to the walls, holding on with only the grout, and without waterproofing.

•         Water had seeped behind the wall tiles and into the bath frame, causing leakage into adjacent rooms and the neighbouring unit, and the wooden bath frame to rot from moisture.

•         Some pipes in the main bathroom were damaged and needed replacement.

•         The toilet in the main bathroom was misaligned with the waste pipe, such that an excessive amount of silicone had been used to connect the toilet's output with the waste pipe, causing poor flushing, and needed replacement.

The contractor recommended that the bathrooms not be used, due to the risk of injury from falling tiles.

You engaged the contractor to undertake extensive repair work in both bathrooms, involving:

•         The removal of all wall and floor tiles and cleaning surfaces.

•         Carpentry works to replace bath frame.

•         Installation of waterproofing and replacement of tiles.

•         Replacement of the toilet to align with the waste pipe.

•         Incidental plumbing and electrical works.

The existing vanity units, mirrors, bath, shower screen and other fixtures remained in place.

You have not received, and will not receive, any insurance benefit for any of the works undertaken and paid for the works using borrowed funds.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-10