Edited version of private advice

Authorisation Number: 1052370049993

Date of advice: 06 March 2025

Ruling

Subject: Deductions - rental property expenses

Question 1:

Can you claim a deduction for costs of the two visits by Company X to the Property under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) to the extent that the invoiced amounts relate to the inspection of the pipes and clearing of a blocked sewer?

Answer 1:

Yes.

Section 25-10 of the 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.

In accordance with the principles contained in TR 97/23 it is viewed that the activities undertaken by Company X during their visits to the Property were partially in relation to drain and sewer pipes related activities, being plumbing maintenance.

Therefore, a deduction can be claimed under section 25-10 of the ITAA 1997 to the extent that the invoiced amounts from Company X relate to activities undertaken in relation to the drain and sewer pipes of the Property.

Question 2:

Can you claim a deduction for any costs incurred in relation to the drain and sewer pipes related activities undertaken by Company Z under section 25-10 of the ITAA 1997?

Answer 2:

Yes.

In accordance with the principles contained in TR 97/23 the activities undertaken in relation to the activities involving the drain and sewer pipes at the Property were to restore the function and effectiveness of the Pipes.

Therefore, a deduction can be claimed for the costs incurred for Company Z to undertake the activities in relation to the drain and sewer pipes under section 25-10 of the ITAA 1997.

Question 3:

Can you claim a deduction for the costs incurred in relation to the paving activities undertaken by Company Y under section 25-10 of the ITAA 1997?

Answer 3:

Yes.

In accordance with the principles contained in TR 97/23, the paving related activities were undertaken as a result of, and as part of, the activities undertaken in relation to the Pipes related activities.

Therefore, a deduction can be claimed in relation to the paving related activities undertaken by Company Y under section 25-10 of the ITAA 1997.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You purchased a property (the Property) a significant period ago.

You had not obtained a property/building inspection prior to purchasing the Property.

The Property is located on a corner block, with the front of the Property facing Street A and a side of the Property facing Street B.

The Property was made available for rent after settlement had occurred and has continued to be rented since then.

You engaged the services of a property manager to manage the Property (the Property Manager).

Plumber's visits

The services of Company X were engaged by the Property Manager to attend an emergency blockage at the Property which included clearing a blocked sewer with tree roots appearing to be causing the blockage. You were invoiced for their visit.

You became aware of the issues with the sewer and drain pipes following the visit by Company X's to the Property when they had undertaken a CCTV inspection of the pipes and had identified multiple locations where tree roots had penetrated the joints in the pipes in addition to several locations where the pipes appeared to be in poor condition.

Company X attended the Property again with their tax invoice indicating that the following activities had been undertaken during their visit:

•                     Supply and install new kitchen sink mixer.

•                     Supply and install new bath hot and cold tapware.

•                     Clear back toilet waste (no charge).

•                     Clear kitchen, overflow relief gully (ORG). Tree roots found.

•                     These points are in poor condition and may require more work at any time.

You paid for the invoiced amounts as outlined above during the ruling period.

Sewer and drain pipe activities

Company X recommended Company Z to undertake the activities in relation to the Pipes due to the scope of the work required, whose services you engaged.

The affected pipes are located at the rear of the Property with the main line (the Main Line) running almost the length of the rear of the house from Street B at the side of the Property.

There is a fork in the Main Line with the forked pipeline (the Bathroom Side Branch) going to the edge of the house when it forks again, with one side going to toilet and the other side going to the bathroom.

After the fork the Main Line continued under the length of the rumpus room foundation to the edge of the house when it forked, with the forked pipeline going to the kitchen (the Kitchen Side Branch), and the Main line then continuing to the laundry and ending at a toilet.

You were advised that allsections of the clay sewerage pipes that could be viewed using the CCTV camera were in poor condition, being cracked and no longer level, with root ingress in multiple locations through the length of the viewed area. The area viewed using the CCTV camera was from the outlet of the laundry to the connection to the Council owned sewer main on X Street, being most of the Main Line.

The Kitchen Side Branch was able to be accessed with the CCTV camera, but not the Bathroom Side Branch.

Once the connection point between the Bathroom Side Branch and the Main line had been exposed the CCTV camera was used to assess the condition of the Bathroom Side Branch pipe. It was identified that this portion of the clay pipes were also in poor condition. While there had not been any issues in relation to those pipes at that point, it was decided to extent the works to include the Bathroom Side Branch as it was likely that issue would start occurring with them within a short period of time as the pipe was badly cracked in several locations.

To prevent any damage to the rumpus room slab a new pipeline was installed, with part of the Main Line put in a different location. The new Main Line ran from the Street B side of the Property along the rear of the house, with a fork prior to the rumpus room which went to the toilet and bathroom. After the fork the Main Line then continued in a straight line on the outside of the rumpus room before turning at a 90-degree angle and continuing to the edge of the house where it forked, with one pipeline going to the kitchen, and the other pipeline going to the laundry and toilet.

All portions of the of the Main Line and the Kitchen Side Branch were replaced with new PVC pipe.

The Bathroom Side Branch pipe was only accessible for a short length as it passes underneath the patio retaining wall before it reached the bathroom. The only option was to put an internal epoxy lining within the existing clay pipe resulting in the construction of a new epoxy pipe within the existing pipe. Relining was undertaken to the existing main Bathroom Side Branch pipe which extends to the toilet, and the existing Side Branch to the ORG. The existing pipe from the ORG to the bathroom basin and bathtub/shower could not be lined with the clay pipe remaining in original condition.

Company X issued a quote in relation to the Pipes related activities, issuing a tax invoice in relation to the work completed at the Property during the ruling period, indicating that the variation works in relation to the epoxy lining of some of the pipes would be charged separately.

Company X issued a tax invoice in relation to the variation works for the epoxy relining activities.

Portions of the original pipes under the bathroom and retaining wall were not repaired due to inaccessibility without significant demolition and those pipes were excluded from the Pipe related activities.

The tenants continued to live at the Property while the activities in relation to the sewerage drains ipes were undertaken.

You paid for the activities undertaken by Company X during the ruling period.

You did not make, nor will you make, an insurance claim in relation to the sewerage pipe activities.

Paving activities

As a result of the Pipe related activities several areas of pavers located in the backyard of the Property.

Company Y provided a quote in relation to works to two sections of pavers in the backyard of the Property which included the following activities:

•                     Existing sand base to be removed and dumped.

•                     Existing pavers to be cleaned.

•                     Supply new base under pavers.

•                     Labour to lay pavers.

•                     Sweep sand into pavers after the job is done; and

•                     Clean site.

The paving activities were undertaken, and were paid, during the ruling period.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-10

Income Tax Assessment Act 1997 subsection 25-10(3)