Edited version of private advice

Authorisation Number: 1052185402804

Date of advice: 26 October 2023

Ruling

Subject: Rental property expenses

Question

Are the expenses incurred against your rental property considered repairs and maintenance under section 25-10 of the Income Tax Assessment Act 1997, and immediately deductible proportional to your ownership interest in the property?

Answer

Yes. To the extent that they are not covered by any insurance proceeds received

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You purchased a rental property some almost 20 years ago, located in Australia.

Each of the applicants have 50% ownership interest in the property.

The property is a unit in a mixed-use complex.

The property is held on a Strata Title.

The property has always been rented until it was deemed unfit for habitation due to mould.

The existing tenants were vacated because of a significant mould outbreak which was detected in the property, affecting the bedroom, bathroom and living area. The following works were undertaken:

•                     Electrical switch and power point repair and replacement

•                     Mould removal from damaged walls and aircon

•                     Mould affected gyprock replacement, plasterer and paint

•                     Supply and install carpet with fire retardant underlay

•                     Bedroom wardrobe replacement

•                     Bathroom water proofing membrane tiles replacement

The property was either tenanted or available for rent during the financial year that the works were completed.

The property was insured under a landlord, however, due to technicalities not all the damages were covered under this policy. Proceeds received were received for loss of rent and for escape of liquid. The property has remained a rental property following the completion of the repairs.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 25-10

Reasons for decision

Deductions for repairs and maintenance

Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the cost of repairs to premises used for income producing purposes. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs where the expenditure is of a capital nature.

Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the principles and the circumstances in which expenditure incurred for repairs is an allowable deduction.

The term 'repair' means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired and contemplates the continued existence of the property. Repair for the most part is occasional and partial. It involves restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated.

Repair costs are deductible where they are incurred during the period the property is held for income producing purposes and are attributable either to damage that occurs during your income producing use of the property or to defects that emerge suddenly during that time.

If you are preventing or fixing deterioration of an item that occurred while renting out your property, this is likely to be maintenance. For example, getting faded interior walls repainted or having a deck re-oiled. This should be claimed at the Repair and Maintenance area on the rental schedule of your tax return.

In your case, the property was rented during the period you incurred the expenses. We are satisfied that the expenses listed are repairs and maintenance items involved in remedying a significant mould outbreak, to restore the efficiency and function of the property to its former state and form and are therefore allowable deductions under section 25-10 of the ITAA 1997, to the extent that they are not covered by any insurance proceeds received.