Surely something has to be faulty, damaged or worn out for the replacement to constitute a repair?
For example, simply replacing an item with something of a similar spec won't constitute a repair if it's purely for reasons of taste or fashion.
Does anybody remember avocado bathroom suites from the 80's?
Not sure what the basis for your assertion there is - I think the only requirement would be that the asset has been used, and therefore its condition is in some way inferior / deficient relative to to its original state. Any expense incurred in restoring things to their original state (i.e. similar spec allowing for advances in standard materials) is therefore deductible.
So if you have a bathroom in a house that has been occupied for any meaningful period, there is indisputably going to be an element of wear. If the owner renovates at that point, regardless of whether it was objectively necessary (or simply because they had a nice tenant whose only gripe was about the avocado bathroom), as long as the result of the expenditure is a bathroom of similar functional use, then that expenditure is what it is, like for like replacement.
To quote from the KPMG article linked by Deadlyduck above:
Simply put, the work could be a repair and not an improvement if, after the work is carried out, the asset can only do the same job as before. In addition, the work is considered an improvement and therefore disallowable as capital expenditure if, as a result of the work, more can be done with the asset, or the asset can be used to do something that it could not do before.
In the case of a bathroom, unless you've done something pretty drastic and expensive, it's hard to see how replacing tiles, bath, shower, sink etc could give rise to improvement in function.
It's very important to bear in mind that the system is self-assessment and Revenue have a longstanding commitment in their Customer Charter to the presumption of honesty. This means that while they may ask you to provide a reasonable level of explanation, or evidence, in relation to your affairs, they cannot and do not start from a default position of assuming you are lying and a tax cheat. And before anyone is tempted to gush about what a great bunch of guys and dolls they must be, this is not because they are all soft and cuddly but because of the principles of natural justice and fairness that they will be held to by external reviewers, the ombudsman, or the Courts, if they treat people otherwise.
I think your relative was simply lucky that their enhancement expenditure wasn't challenged, particularly if you look at one of the examples in the relevant Tax & Duty manual, which I'm pasting in at the bottom. In the same way that nobody here knows why the CGT return was chosen to be examined, nobody knows that they necessarily thought too much about the enhancement expenditure at all. I could say with a high degree of confidence though, that Revenue's best, brightest and most experienced aren't spending their days looking at and/or getting bent out of shape over relatively small and mundane things. I'd say it was most likely a case of a person being given an instruction to check X number of returns, for computational errors and to see that the figures could be verified, so once the receipts were there and they related to the property, the necessary box was ticked. Alternatively, it may have been identified that the enhancement expenditure looks a bit iffy on this, but in the absence of any other issues, it wasn't worth getting into, on a materiality basis.
A person buys a cottage (not his main residence) and spends €10,000 in making good dilapidations. Later he has the cottage rewired for €2,000 and has it completely redecorated for €4,000. He also adds a garage at a cost of €12,000. When he comes to sell the property the following are not allowed in the computation of his chargeable gains—
€
Rewiring 2,000
Redecoration 4,000
Total not allowable 6,000
This is because if the cottage were a fixed asset of a trade the expenditure would have been revenue expenditure and not capital expenditure.
The other expenditure would be of a capital nature and therefore allowable, namely—
€
Making good dilapidations 10,000
New garage 12,000
Total allowable 22,000
These items are not in the course of the enjoyment of the property but as fixed expenditure incurred to obtain an asset or enhance the value of an asset.