Edited version of private advice

Authorisation Number: 1052358607662

Date of advice: 6 February 2025

Ruling

Subject: Rental property deductions

Question 1

Is the drainage expense incurred by you deductible under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes.

Question 2

Is the expense you incurred for repairing a leaking pressure valve deductible under section 25-10 of the ITAA 1997?

Answer 2

Yes.

This private ruling applies for the following periods:

Income year ended 30 June YYYY

Income year ended 30 June YYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances:

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You own residential premises and have held it as a rental property investment, solely to generate your assessable income.

The property is a dwelling built on a slope. The ground floor has a garage, which is excavated into the slope of the block, with the back wall of the garage backing on to earth.

Since YYYY, you have experienced black mould and other damage to the back wall of the garage (the wall). The mould and damage to the wall is caused by water run-off coming down the slope during heavy rain, and that water penetrating the wall.

In YYYY, you engaged Company A to clean the wall and apply anti-mould inhibitor and other tasks, who also recommended that the wall plaster be removed.

In YYYY, you also engaged Company B to conduct leak detection activities. Company B stated that all the water damage to the wall and skirting boards was from ground water.

In YYYY, you engaged Company C to carry out initial works to rectify the drainage problem. Company C itemised the works.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-10

Reasons for decision

Question 1 and 2

Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for expenditure incurred for repairs for the purpose of producing assessable income. Expenditure will not be deductible where it is capital in nature.

Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the Commissioner's view on circumstances in which expenditure incurred by a taxpayer is an allowable deduction under section 25-10 of the ITAA 1997.

TR 97/23, paragraph 13, provides the ordinary meaning of the word 'repairs' - the remedying or making good of defects in, damage to, or deterioration of, property.

Work done to prevent or anticipate defects, damage or deterioration is not in itself a 'repair' unless it is done in conjunction with remedying or making good defects in, damage to, or deterioration of, the property (TR 97/23, paragraph 14).

However, work done partly to remedy or make good defects, damage or deterioration does not cease to be a repair if it is also done partly - even largely - to prevent or anticipate defects, damage or deterioration (in a mechanical or physical sense) (TR 97/23, paragraph 19).

Paragraph 20 of TR 97/23 provides the following is an example of 'repairs': 'for example, painting plant or business premises to rectify existing deterioration and to prevent further deterioration.'

You incurred expenses for drainage work and for repairing a leaking pressure valve. The drainage work was undertaken as a stage in works to repair the damaged garage wall. The drainage work was required to prevent further damage to the wall after it is repaired. As such, it is considered that the drainage work was undertaken in conjunction with remedying and making good damage, or repairing, the garage wall.

Replacing the leaking pressure value is also considered to be a repair.

As such, both the drainage expense and the expense you incurred for repairing the leaking pressure valve are deductible under section 25-10 of the ITAA 1997.