ATO Interpretative Decision
ATO ID 2003/930 (Withdrawn)
Income Tax
Deductions: rental property expenses - initial repairs - main residence which becomes a rental propertyFOI status: may be released
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This ATO ID is withdrawn as the interpretative issue is covered in Taxation Ruling TR 97/23.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer entitled to a deduction under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for the cost of initial repairs to a property that was their main residence before it was used as a rental property?
Decision
No. The taxpayer is not entitled to a deduction under section 25-10 of the ITAA 1997 for the cost of initial repairs to a property that was used as their main residence before it was used as a rental property, because the repairs are capital in nature.
Facts
The taxpayer purchased a residential property that was in a state of disrepair.
The taxpayer used the property as their main residence for some time before using it as a rental property.
After renting it out, the taxpayer incurred costs in carrying out repairs to the rental property to remedy the defects that already existed at the time the property was acquired.
Reasons for Decision
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 even though 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 are when a taxpayer incurs expenditure to remedy defects, damage or deterioration to their rental property that are 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.
However this would not include expenditure on repairs that were necessary when the taxpayer first acquired the property for private use. Such repairs, not being attributable to the taxpayer's private use of the property, would be initial repairs and capital in nature (paragraph 4 of TR 97/23).
As the property was in a state of disrepair at the time of acquisition and none of the defects arose during the use of the property by the taxpayer as a private residence or a rental property, the repairs carried out are initial repairs and capital in nature. The fact that the taxpayer used the property for private purposes after acquisition and before renting out does not change the character of the expenditure.
Accordingly, the taxpayer is not entitled to a deduction, under section 25-10 of the ITAA 1997, for the cost of the initial repairs to their property that was used as their main residence and then used for income producing purposes before the repairs were carried out.
Date of decision: 26 September 2003Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
section 25-10
Related Public Rulings (including Determinations)
Taxation Ruling TR 97/23
ATO ID 2003/925
ATO ID 2003/926
ATO ID 2003/927
ATO ID 2003/928
ATO ID 2003/929
Keywords
Initial repair expenses
Rental expenses
Rental property
Repairs & maintenance expenses
ISSN: 1445-2782
| Date: | Version: | |
| 26 September 2003 | Original statement | |
| You are here | 4 November 2005 | Archived |