Edited version of private advice

Authorisation Number: 1052252304671

Date of advice: 17 May 2024

Ruling

Subject: Rental property - repairs

Question

Will the expenditure incurred to repair part of the retaining wall, the drain and grate between the driveway and the house, part of the stormwater drainage system including the soil displacement under the house and the bracing rod be deductible as a repair as per section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Section 25-10 of the ITAA 1997 provides that you can deduct expenditure in the income year you incurred the expense, for repairs to premises that you held solely for the purpose of producing assessable income.

The works carried out focused entirely on repairing the damage caused by significant ground movement due to damaged stormwater systems, restoring the condition of the structures as a whole to their former function and mitigating further risk of slope instability.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

In February 20XX, you purchased an investment property (the Property).

In February 20XX, a pre-purchase standard property inspection report was received with the following conclusions:

• The incidence of Conditions Conducive to Structural Damage in this property in comparison to the average condition of similar buildings of approximately the same age that have been reasonably well maintained was considered:Low
• The incidence of Minor Defects in this property in comparison to the average condition of similar buildings of approximately the same age that have been reasonably well maintained was considered: Low
• In conclusion, following the inspection of surface work in the readily accessible areas of the property, the overall condition of the building relative to the average condition of similar buildings of approximately the same age that have been reasonably well maintained was considered: Average to above average condition.

In March 20XX, settlement of the Property occurred, and the Property was immediately rented out.

The Property has been fully tenanted since being purchased.

In November 20XX, the property was re-let, and a Code Property Entry Condition Report was prepared with no report of major damage.

In February 20XX, you hired a structural engineer who provided a structural inspection report identifying:

• there appears to have been a noticeable amount of differential movement between the driveway slab and the adjacent blockwork retaining wall (photos provided)
• this movement appears to have resulted in noticeable damage to the driveway slab and blockwork retaining wall where it connects to the main residence (photos provided)
• the settlement of the driveway slab has resulted in a visible gap in the grated drain between the driveway and the garage slabs (photo provided)
• a gap has formed between the blockwork retaining wall adjacent to the driveway and the one supporting the main residence. This has left a reinforcing bar exposed (photo provided)
• a stormwater downpipe has been pulled apart by apparent ground movement (photos provided)
• there appears to have been significant soil migration / washout relative to multiple house footings (photos provided)
• there are multiple internal cladding joints that have separated due to possible movement in the house structure (photos provided)
• one of the subfloor bracing rods has been deformed due to possible movement in the house foundations and/or framing (photo provided)
• one of the non-structural deck fascia boards appears to have suffered from dry rot or termite damage (photo provided).

The report from the structural engineer suggested that remedial works / preventative measures be considered in the interest of maintaining the structural integrity of the property long-term.

In March 20XX, a carpenter provided a quote for material and labour.

The carpenter and subcontractors provided invoices for the following work:

Bricklaying

• retaining wall under house.
• to dig and remove trees, rocks, and dirt.
• To dig footing.
• Install Z cages steel and starter bars.
• Poor footing using concrete pump.
• Supply and lay Besser blocks.
• Install steel at 100mm centres.
• Core fill b blockwork using concrete pump.
• Cut out damaged block work and replace approx. 1m x 1m (driveway).

Concrete

• Install of rock bolts, from retaining wall down driveway into main driveway (as requested).
• Fix garage main grate for water to remain inside and escape to new fitted drain by plumber.
• Shotcrete under main house (garage) roughly 9m x3m (as requested to side of piers).
• Shotcrete under house (side of road) from new retaining wall to doorway into shed.
• Acid wash and seal.

Plumber

• Delete old 90mm plumbing lines under the house that feed the grate and down pipes.
• Run new 100mm mains from channel and grate through under the house to collect remaining stormwater pipes.
• Run stormwater line back underground at the side of the house where the back door of the shed is.
• Run line underground to location of 600mm pit.
• Section of the line will be hand excavated the remaining with a machine.
• Underground line to collect channel and grate at base of concrete approx. 16m.
• Channel and grate to be concreted into place.
• Install new 600 PIT at top side of grass driveway with heavy duty lid.
• 600 pit to be concreted into place.
• Use of machine to dig pit in.
• Run new underground stormwater pipe down the side of the house collecting two downpipes.
• 100mm stormwater line run in 600mm pit.
• Use of machine to dig line.
• Run approx. 16m of channel and grate at base of top retaining wall to catch overspill from retaining wall.
• Channel and grate will run into a 300mm pit.
• Install 300mm pit at end of return line for retaining wall.
• Pit to collect channel and grate an aggy line behind retaining wall.
• Pit to run back into stormwater line that collects the two downpipes along the side of the house.
• Supply and install new sump pump into pit to push water back to street.
• Run 32mm pressure pipe to street from pump.

Carpentry

• Removal of fence bottom of driveway to fix damaged wall.
• Using same material, install of fence with new bolts after wall is fixed.
• Fixing of under house bracing rod.
• Cones, tape etc, needed to make safe removed fence bottom of driveway.
• Looking after trades while work is carried out.

Concreting was done in 2 areas under the house where damage existed - not the whole under of the house. This was required:

•         to refill the ground where the dirt had washed away (as per report by Dolan Consulting - significant soil migration relative to footings); and

•         to mitigate further damage to soil and footings to the house from run off.

This concreting has not made these areas any more useable than they were before and has not improved the look of underneath the house.

The work done by the plumber included changing the pathway of some of the drainage piping from one side of the house to the other to assist water flow in heavy weather and the construction of 2 drainage pits to collect run off to maximise the prevention of similar issues developing in the future.

In November 20XX, the structural engineer provided a report after the work was done and found the remedial recommendations outlined in the original structural inspection report had generally been actioned appropriately to repair existing damage caused by previous ground moment and mitigate further risk of slope instability.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-10

Income Tax Assessment Act 1997 Division 43