Edited version of private advice

Authorisation Number: 1052390976802

Date of advice: 08 May 2025

Ruling

Subject: Rental property - deductions

Question 1

Can the cost of kitchen and bathroom works be claimed under Division 40 or Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes.

Taxation Ruling TR 97/23 Income tax: deductions for repairs (TR 97/23) provides that expenditure for repairs to property is of a capital nature, where the extent of the work carried out represents a renewal or reconstruction of the entirety (paragraphs 36-42), or the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair' (paragraphs 44-58).

Decline in value (capital allowances)

Section 40-25 of the ITAA 1997 allows deductions for the decline in value of depreciating assets to the extent the asset's decline in value is attributable to its use, or it being installed ready for use, for a taxable purpose.

Subsection 40-30(1) provides that a depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over time it is used.

Depreciating assets are those items that can be described as plant, which do not form part of the premises. These items are usually:

•                     separately identifiable;

•                     not likely to be permanent and expected to be replaced within a relatively short period and not part of the structure.

Examples of assets that deductions for decline in value can be applied to include timber flooring, carpets, curtains, appliances like a washing machine or fridge and furniture.

Capital works

Division 43 of the ITAA 1997 provides a deduction for capital works. Capital works includes buildings and structural improvements, and also extensions, alterations or improvements to building and structural improvements where a residential property is used for income producing purposes pursuant to section 43-20 of the ITAA 1997.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You acquired the property located at XX XX XX on or about XXXX 20XX (the property).

The property has been used to produce rental income since XX XXXX 20XX.

The property is used 100% for the purpose of generating rental income.

The property is owned on a passive investment basis only.

You provided a copy of an invoice from a plumber dated XX XXXX 20XX which outlines the work undertaken and the materials used.

You provided before and after photos in relation to the above repairs

You also provided copies of invoices, quotes etc for the following work undertaken/goods purchased.

Relevant legislative provisions

Income tax Assessment Act 1997 Division 40

Income tax Assessment Act 1997 section 40-25

Income tax Assessment Act 1997 subsection 40-30(1)

Income tax Assessment Act 1997 Division 43

Income tax Assessment Act 1997 section 43-20