Edited version of private advice

Authorisation Number: 1052191469073

Date of advice: 10 November 2023

Ruling

Subject: Rental property expenses

Question

Are you entitled to a deduction for repairs carried out on your former rental property once you moved back into the property to live in it?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You own a property.

The property was rented out for a number of years.

You moved into the property after it was not longer being rented and commenced living in it.

You carried out significant repairs to the property to bring the property back to its original condition after the years of tenant occupation after you moved in.

You believe example 19 of the Rental Properties Guide 2021 allows you to claim all of the below items as a repair.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-10

Reasons for decision

Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides for a deduction for expenses incurred for repairs to premises that are held or used solely for income producing purposes. However, a deduction for capital expenditure is not allowed under this section (subsection 25-10(3) of the ITAA 1997).

Taxation Ruling TR 97/23 explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10 of the ITAA 1997.

Where a tenant moves out of a rental property and repairs are required to be carried out prior to the property either being sold or re-tenanted are an allowable deduction as they have the relevant nexus to the income earning activity.

Example 19 of the rental properties Guide says:

Example 19: Repairs when the property is no longer rented out After the last tenants moved out in September 2020, the Hitchmans discovered that the stove did not work, kitchen tiles were cracked and the toilet window was broken. They also discovered a hole in a bedroom wall that had been covered with a poster. In October 2020 the Hitchmans paid for this damage to be repaired so they could sell the property. As the tenants were no longer in the property, the Hitchmans were not using the property to produce rental income. However, they could still claim a deduction for repairs to the property because the repairs related to the period when their tenants were living in the property and the repairs were completed before the end of the income year in which the property ceased to be used to produce income.

This example can be distinguished from your circumstances as the Hitchmans repaired the property in preparation for selling it.

You moved into the property and commenced living in it and then carried out the repairs to restore it back to its previous function and state.

You are not entitled to claim repairs for the above expenses as they do not have a connection to your income earning activity as the property ceased being a rental property when you moved into it and commenced living in it.

A number of the expenses are capital in nature such as the oven and cook top and are not an allowable deduction even if the income earning nexus could be established.

For future reference the Rental Properties Guide will assist you in determining what is capital and what is an immediate deduction if you commence earning income from rental properties in the future.