Louisa (an Australian resident taxpayer) signed a contract to purchase a house in Sydney as a rental property on 1 December 2015 for $950,000. At the time settlement of the property occurred, there were existing tenants living in the property (the "original tenants"). The original tenants continued to live in the property for a number of years after Louisa purchased it, paying rent of $800 per week. They moved out of the property on 1 July 2018.

Once the original tenants move out, Louisa pays $17,000 to recarpet the house. Louisa expects the new carpeting will last for 10 years. The re-carpeting is completed on 10 July 2018 and Louisa starts advertising for a new tenant on this date. Unfortunately, although she spends $1,500 in advertising expenses, Louisa is having trouble finding a new tenant. She decides that she will install an in-ground swimming pool. Not many houses in the area have swimming pools and she thinks this may encourage tenants. The cost of the pool was $24,000.

Louisa starts re-advertising the property again once the pool is completed, and is successful in finding new tenants, who move in on 15 September 2018 (at a rent of $900 per week) (the "new tenants"). On 1 January 2020, one of the new tenants falls down the front steps of the house. The tenant indicates he plans to sue Louisa. Although Louisa does not believe she is at fault (and believes the tenant was drunk after being at a New Year's Eve party), she sees a lawyer, who advises her to settle the dispute before it goes any further as this will be the most cost-effective outcome. Louisa incurs $8,000 in legal fees and pays $20,000 in "damages" to the tenant. The tenant signs an agreement saying he will not pursue any further action against Louisa. This is signed on 1 May 2020 the same date that the legal fees and "damages" are paid. The "new tenants" move out on 1 June 2020.

Advise Louisa on the tax consequences for each of the above transactions.