Edited version of private advice

Authorisation Number: 1052164092206

Date of advice: 4 September 2023

Ruling

Subject: Rental deductions

Question

Are you entitled to a deduction for the specified expenses and interest expenses on the property loan that were incurred prior to the repairs to your rental property commencing?

Answer

Yes.

The Commissioner is satisfied that both the specified expenses for your rental property and the interest expenses that you incurred for the original property loan for your rental property are an allowable deduction under Section 8-1 of the Income Tax Assessment Act (ITAA 1997).

You are entitled to claim a deduction for the specified expenses and interest expenses that were incurred for your rental property prior to the repairs commencing for the time that you intended to rent the property following completion.

Furthermore, a deduction for these expenses is not disallowed under Section 26-102 of the ITAA 1997, with the rental property being taken to be available for use as it is capable of being occupied. Alternatively, if the rental property is taken to not be available for use, an exceptional circumstance has occurred with the longer than expected period of time for the repairs to occur.

This ruling applies for the following period:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You, being Person A and Person B co-own a rental property (the property).

You have owned the property since 20XX. The property was permanently leased from this time until XX/20XX when the tenant vacated.

The property was constructed in the 19XX era and contains asbestos both inside and outside.

On XX/XX/20XX, you contacted your bank to advise that you intended to undertake repairs to the property and enquired about a building loan. You also contacted a builder to enquire about repairing the property.

In XX/20XX, you contacted the builder again and were advised of delays in repairing the property.

In XX/20XX, following the tenant's departure, you pursued undertaking the repairs to the property to bring it to standard. This included removing the asbestos roofing and cladding. You intended to rent the property again once the repairs had been completed.

The original building loan was approved by your bank on X/XX/20XX. This loan later expired due to inaction.

You reapplied for the building loan on X/XX/20XX.

The repairs took a significant amount of time to arrange, and during 20XX, you were unable to locate a building contractor. You found that Covid-19 had impacted building supplies and building works and that many builders and electricians were not prepared to work with asbestos. You also faced some issues with the disconnection of the electricity supply which was an essential requirement to undertake the removal of the asbestos.

The property remained vacant whilst you were waiting for the repairs to commence.

You incurred the following specified expenses during the 20XX-XX income year:

•         council rates

•         water rates

•         property insurance

•         yard maintenance

You also incurred interest expenses on the original property loan.

Twelve months after the tenant vacated the property, you made the decision to remove the property from the rental market as the repairs had not yet commenced.

You considered renovating and residing in the property yourselves due to the uncertainty of when the repairs were going to commence.

Person A's work had transferred them from Location A to Location B and this was a contributing factor to the decision to move back to the area. Person A was notified about the relocation in the final week of XX/20XX and commenced working there on XX/XX/20XX.

You spent some time making an additional property that you owned your primary residence during the 20XX-XX income year.

On XX/XX/20XX, the property loan changed to a building loan.

The repairs to the property commenced in late XX/20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 26-102