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Edited version of private ruling
Authorisation Number: 1011546653680
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Ruling
Subject: Rental property repairs
Question
Are you entitled to a deduction for your share of the cost of replacing the roof on your rental property?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2009
The scheme commenced on
1 July 2008
Relevant facts
You purchased a property many years ago as your place of residence.
A few years ago you commenced renting out the property. The roof was in sound order at that time.
During the recent income year the tenants reported the roof to be leaking.
After an inspection, the roof underwent sealing repairs. The repair tradesman advised that the roof was in poor condition and recommended replacement.
The roof continued to leak after the resealing work.
The iron roof was replaced during the recent income year with a zincalume roof. No alterations were made to the structure of the roof.
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA of 1997) Section 25-10
Reasons for decision
Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the cost of repairs to premises used for income-producing purposes. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs where the expenditure is of a capital nature.
The word 'repair' is not defined within the taxation legislation. Taxation Ruling TR 97/23 states that the word 'repair' ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property.
In W Thomas & Co v. FC of T (1965) 115 CLR 58, it was held that a 'repair' involves a restoration of a thing to a condition it formerly had without changing its character. It is the restoration of efficiency in function rather than the exact repetition of form or material that is significant.
TR 97/23 indicates that expenditure for repairs to property is of a capital nature where the extent of the work carried out represents a renewal or reconstruction of the entirety. Paragraph 40 of TR 97/23 specifically states that a roof is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety'. The replacement of the roof is therefore not capital.
In your case, you have used the property for income producing purposes for a number of years. You will use zincalume to replace the iron roof. The use of zincalume to replace the existing roof is considered to be a repair rather than an improvement as the change in material will not materially alter the character or functionality of the property.
As your property is used for income producing purposes and the replacement of the roof is not an initial repair, is not the replacement of an entirety and is not an improvement, a deduction is allowable under section 25-10 of the ITAA 1997.
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