1011588273760 | Legal database

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Edited version of private ruling

Authorisation Number: 1011588273760

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Ruling

Subject: Rental property deductions

1. Can you claim a deduction for replacing the electrical wiring and mains power line of your rental property?

Yes.

2. Can you claim a capital works deduction for installation of smoke alarms, electrical safety switches and new power point to your rental property?

Yes.

This ruling applies for the following period:

Year ending 30 June 2010

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You purchased a rental property and have rented it ever since.

The property became vacant after a long term tenancy. You then found that due to legislation you had to have smoke alarms and residual current devices installed.

The power authority deemed that the way that the mains power line which was attached to the house posed a safety risk and needed to be replaced.

The licensed electrician who you contracted for the electrical work informed you that the electrical wiring in the house was unsuitable for modification.

In addition to replacing the wiring throughout the house, you had one additional power point installed.

Relevant legislative provisions

Income Tax Assessment Act 1997 25-10.

Reasons for decision

Question 1

Electrical rewiring

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, to the extent that the expenditure is not capital in nature.

Taxation Ruling TR 97/23 provides guidelines on the deductibility of repairs. Generally, a 'repair' involves a restoration of a thing to a condition it formerly had without changing its character. Works can be fairly described as 'repairs' if they are done to make good a defect in, damage to or deterioration of property that has occurred by ordinary wear and tear, by accidental or deliberate damage, or by the operation of natural causes during the passage of time.

The replacement of the electrical wiring is not considered to be an entirety, as it is incapable of providing a useful function without regard to any other part of the premises and is not a separate and distinct item of plant in itself apart from the thing or structure which it serves. Also, replacing the aged wiring is not considered an improvement as the work done merely returns it to the condition it was in before the need for the work arose. Additionally, the wiring to the mains power was done to remedy a defect in the way it was attached to the house. Therefore, the replacement of the electrical wiring and mains power attachment is fully deductible.

Question 2

Capital works deduction

Although improvements and alterations do not qualify for immediate deduction under section 25-10 or section 8-1 of the ITAA 1997, section 43-10 of the ITAA 1997 provides a deduction for certain expenditure on the construction of capital works. Capital works include a building, or an extension, alteration or improvement to a building. The deduction is at the rate of 2.5% of the capital expenditure over a period of 40 years and is available only while the property is being rented or available for rent.

The smoke alarms, electrical safety switches and new power point are considered to form part of the fabric of the building and qualify for a capital works deduction.

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