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Edited version of private ruling

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Ruling

Subject: Repairs to swimming pool

Question 1

Are the repairs to a fibreglass swimming pool an allowable deduction under section 25-10 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

Year ended 30 June 2010

Relevant facts and circumstances

The property is a holiday rental property that earns most of its income during the summer months.

One of the features that makes the property desirable to holiday makers is the fibreglass swimming pool.

The fibreglass swimming pool is about 20 years old.

Due to the age of the pool, it is now suffering osmosis damage.

Osmosis damage is caused by the water in the pool penetrating the top layer of the fibreglass gel coating and causing it to flake, which then exposes the raw fibreglass to the water.

This will eventually result in water leaks and failure of the pool shell.

The pool will therefore need to be repaired by a fibreglass professional before the complete failure occurs.

The taxpayer has stated that the repair will not result in an improvement to the pool.

The taxpayer has attached a brochure about osmosis treatment.

In short, the repair involves the following steps:

After this, the pool can be refilled for use.

Osmosis has prematurely occurred in a lot of fibreglass pools that were constructed in the late 1980's and early 1990's, as they were not manufactured correctly.

The taxpayer purchased the property a few years ago.

The taxpayer advised that only a small percentage of the total pool area would require some sort of fibreglass repair. This area is mainly small spots that are spread all around the pool. The largest spot would be about the size of the palm of a hand.

The taxpayer has advised that he has never used the property for private use since it was purchased.

The taxpayer also advised that he has never allowed the property to be used rent free by any associates.

The taxpayer did not get a building report completed when he purchased the property.

The taxpayer could not recall whether there was any damage at all to the pool when he purchased the pool as he did not look at it that closely.

However, he did advise that the pool did not leak when the property was purchased, but it did start leaking recently as a result of the damage to the raw fibreglass.

The repairs to the raw fibreglass became necessary once the pool started to leak.

Summary

The work required to restore the fibreglass pool back to its original condition will be considered to be a repair which is an allowable deduction under section 25-10 of the ITAA 1997.

Detailed reasoning

Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for repairs for assets held for the purpose of assessable income of a taxpayer, unless the expenses are capital, or capital in nature.

In your case, the rental property has a swimming pool on site which is about 20 years old. The pool is being repaired to patch the parts of the fibreglass structure that has been damaged over the years. Once the patches are completed, the entire pool will be recoated with the gel coat. The gel coat is roughly equivalent to painting the item.

Taxation Ruling TR 97/23 deals with repairs to income producing property. The pool is part of the rental property that is owned by the taxpayer and is either rented out or available for rent for the full year. Therefore the pool would be considered to be part of the income producing property. The claim for the fibreglass work will therefore be considered to be a repair to part of an income producing property, subject to all of the required conditions within the legislation being satisfied.

The first issue is whether the pool is an entirety. The answer is that the pool will be considered to be an entirety due to the definition in paragraph 38 of TR 97/23, which in part defined an entirety as property that is separately identifiable as a principal item of capital equipment.

The next question is whether the work performed is considered to be to the entirety, or only part of the entirety. The test here is the nature, scale and dimensions of the work in proportion to the nature, scale and dimensions of the property involved (the larger the work in comparison with the scale and dimensions of the property, the more likely a reconstruction of the entirety is involved).

In this case only the damaged parts of the main fibreglass shell is being restored, with the remaining parts left untouched. Provided that only some of the fibreglass part of the shell itself is being repaired (as opposed to most of the fibreglass part of the shell being replaced with new fibreglass material), then the fibreglass work itself will be a repair as per paragraph 43 of TR 97/23. The taxpayer has stated that only a small proportion of the pool fibreglass part of the shell will need to be repaired. Because of this, it will be accepted as a repair.

The gel coat process is a coating of the entire pool surface, and so would be roughly equivalent to painting an entire house. Even though the entire pool is being painted, the gel coat will only restore the pool to its original condition. Therefore, the cost of the gel coat will be an allowable deduction as a repair, given that the fibreglass work itself has been accepted as a repair [see paragraph 92 of TR 97/23].

The next issue is the state of the pool when the property was purchased. There was no building report commissioned on the house, so there is no third party information available on the state of the pool at the time of purchase. The taxpayer does not recall taking a very close look at the pool at the time of purchase. He can confirm that the condition of the pool has deteriorated since purchase, as the pool did not leak when it was purchased, but it does leak now. This would mean that the major damage, (i.e. the damage to the raw fibreglass), has occurred after the time of purchase of the property.

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