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Is the taxpayer entitled to a deduction under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for the cost of repairs to a property that was their main residence before it was used as a rental property?

Yes. The taxpayer is entitled to a deduction under section 25-10 of the ITAA 1997 for the cost of repairs to a property that was used as their main residence before it was used as a rental property, because the repairs are not initial repairs or otherwise capital in nature.

The taxpayer purchased a residential property.

The taxpayer used the property as their main residence for some time before using it as a rental property.

A short time after renting it out, the taxpayer incurred costs in carrying out repairs to the rental property to remedy the defects that arose during the taxpayer's private use of the property.

The repairs were not otherwise capital in nature.

Section 25-10 of the ITAA 1997 allows a deduction for the cost of repairs to premises held or used for the purpose of producing assessable income. No deduction is allowable for capital expenditure under this section.

Taxation Ruling TR 97/23, at paragraph 76, states that in 'appropriate circumstances' the cost of repairs may be deductible although the taxpayer previously held or used the property for non-income producing purposes.

As outlined at paragraph 77 of TR 97/23, these appropriate circumstances would be when a taxpayer incurs expenditure to remedy defects, damage or deterioration to their rental property that is attributable in whole or in part to the previous private use of the property by the taxpayer, and the repairs are not capital in nature. Under such circumstances, the repairs are not considered to be initial repairs.

The repairs, which were not otherwise capital in nature, were carried out by the taxpayer while they were renting out the property in order to remedy defects that were attributable to the use of the property after acquisition for private purposes. Therefore, the repairs are not considered to be initial repairs.

Accordingly, the taxpayer is entitled to a deduction, under section 25-10 of the ITAA 1997, for the cost of the repairs to the property that was used as their main residence and then used as a rental property before the repairs were carried out.