Edited version of private advice

Authorisation Number: 1052326213741

Date of advice: 1 November 2024

Ruling

Subject: Rental repair deductions

Question 1

Can you claim an immediate deduction for works carried out on your rental property at Address XXX (the property) under 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 you incur for repairs to premises that you held solely for the purpose of producing assessable income to the extent of your legal ownership in the property.

The repairs to the property meet the Commissioner's requirements for deductibility under section 25-10 of the ITAA 1997, therefore you can claim a deduction for these items in the year the expense was incurred. For more information see Taxation Ruling TR 97/23 Income tax: deductions for repairs.

Question 2

Can you claim an immediate deduction for works carried out at the neighbouring property under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Section 25-10 of the ITAA 1997 provides that you can deduct expenditure you incur for repairs to premises that you held solely for the purpose of producing assessable income to the extent of your legal ownership in the property.

As the property next door to your rental property is not legally owned by you and is not connected with earning your assessable income, the deduction for those expenses as per Invoice No XXXX for $XXX is not deductible.

The repairs to the neighbouring property do not meet the Commissioners requirements for deductibility under section 25-10 of the ITAA 1997.

This ruling applies for the following period:

Period ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The property is owned jointly 50/50 by XXXXXX and XXXXXXX.

The property has been a rental property since XX/month/20XX.

The neighbouring property had leaking gutters which affected the property.

The property was rented out the whole period the works were completed.

An insurance claim made to the insurance company was denied.

The repairs started when the previous tenants left on XX/month/20XX.

You rented out the property before and after the repairs were done.

New tenants started paying rent from XX/month/20XX but were unable to move in until XX/month/20XX due to work being completed, as it was unliveable at that time.

The materials used were the same as previously contained in the building, no upgrades were made only repair to damage.

Documentation was provided for the quote and the amount paid for initial repairs of $XXX.

The invoice supplied showed that the extra repairs to the property were for $XXX.

The invoice from the Builders for the plumbing repairs to the neighbouring property was for $XXX.

The owners of the neighbouring property refused to pay for the works completed on their property to ensure that this damage did not occur again to your property.

The owners of the neighbouring property refused to pay for repairs to their own house but instead allowed you to pay for the expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-10

Income Tax Assessment Act 1997 section 40-25

Reasons for decision

Issue

Rental property repairs

Question 1

Can you claim an immediate deduction for works carried out on your rental property (the property) under 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 you incur for repairs to premises that you held solely for the purpose of producing assessable income to the extent of your legal ownership in the property.

The repairs to the property meet the Commissioner's requirements for deductibility under section 25-10 of the ITAA 1997, therefore you can claim a deduction for these items in the year the expense was incurred. For more information see TR 97/23.

Question 2

Can you claim an immediate deduction for works carried out at the neighbouring property under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

The rental repairs carried out on the neighbouring property are not deductible under section 25-10 of the ITAA 1997.

Section 8-1 of the ITAA 1997 provides that losses or outgoings are deductible to the extent that they are incurred in gaining or production of assessable income, except where the outgoings are of a capital, private or domestic nature.

TR 97/23 states:

Expenditure incurred by a taxpayer on repairs to property that the taxpayer does not own

67. A taxpayer is entitled to a deduction under section 25-10 for expenditure for repairs to property he or she holds, etc., for income purposes, even though the taxpayer does not own the property. The test is whether the taxpayer held or used the property as required, not that the taxpayer owned the property.

69. No deduction under section 25-10 is allowable to a real estate agent who incurs repair expenditure on a rental property on the agent's list. This is because a real estate agent does not hold, occupy, or use a rental property for the purpose of producing assessable income or in carrying on business for that purpose. It is the owner or lessor of a rental property who holds or uses it for income purposes.

Application to your circumstances

The expense incurred for the neighbouring property would be seen as a private expense. This is because there is no connection to your earning assessable income at the property next door to your rental property.

The expenses incurred for the repairs to your neighbours' guttering are not deductible under Section 25-10 of the ITAA 1997 as they are considered a private expense and therefore not deductible.