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Edited version of private ruling

Authorisation Number: 1011590105033

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Ruling

Subject: Rental property deductions

1. Are you entitled to claim an immediate deduction for the costs incurred for electrical repairs made to the property in the year the work was completed?

Yes.

2. Are you entitled to claim a deduction for strata levies, council rates and water charges incurred on your property during periods where it is used as a rental property?

Yes.

3. Are you entitled to an immediate deduction for the cost of light fittings purchased for your rental property at the date of purchase?

No.

4. Are you entitled to an immediate deduction for the cost of light fittings once they are installed ready for use in your rental property?

Yes.

This ruling applies for the following period

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

1 July 2010

Relevant facts

You have been using your residence as a rental property.

In late June, electricians were called to your rental property, on the first occasion as an emergency call out, and on the second occasion to repair your hot water service. These accounts were not paid until July.

You were required to pay strata management levies for administration and sinking fund in relation to the property.

You are required to pay regular instalments for council rates and water charges in relation to your rental property.

In late June, you purchased two new light fittings for your rental property totalling less than $300. You do not intend to have the fittings installed ready for use in your rental property until later in the year.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) only allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Electrical repairs

Section 25-10 of the ITAA 97 allows a deduction for the cost of repairs to premises used for income producing purposes.

Expenditure for repairs you make to a rental property are deductible providing the repairs relate directly to wear and tear or other damage that occurred as a result of your renting out the property. Repairs generally involve a replacement or renewal of a worn out or broken part - for example, replacing some guttering damaged in a storm or part of a fence that was damaged by a falling tree branch.

Examples of repairs for which you can claim deductions are:

In your case, your tenants called an after-hours electrician when the hot water service stopped working in June. You subsequently had the heating element in the hot water service replaced. The costs you incurred for these electrical repairs are deductible as they directly relate to a period when your property was producing assessable income.

Timing of deduction

Taxation Ruling TR 97/7 discusses the meaning of incurred and the timing of deductions and generally states that you incur an outgoing at the time you owe a present money debt that you cannot escape even though no money has actually been paid out.

In your case, the tax invoices for the electrical services received are dated June. It is at this time that you owed a present money debt that you could not escape, therefore, it is at this time that these expenses were 'incurred' for taxation purposes even though they were not paid until the following month.

Strata levies, council rates and water charges

Expenses for which you are entitled to an immediate deduction in the income year they are incurred include:

Payments you make to body corporate administration funds and general purpose sinking funds are considered to be payments for the provision of services by the body corporate and you can claim a deduction for these levies at the time you incur them.

In your case, you incur on going costs for strata levies, council rates and water charges in relation to your rental property. These expenses are considered to be incurred in producing your rental income from the property and are, therefore, deductible in the year they are incurred.

Light fittings

Generally, items such as light fittings in a rental property are considered to be depreciating assets and would need to be depreciated over a number of years. However, an immediate deduction is available for certain depreciating assets costing $300 or less. This means you get an immediate deduction for the cost of the asset to the extent that you use it for a taxable purpose during the income year in which the deduction is available.

In your case, you purchased two new light fittings for less than $300 for your rental property in June but will not have them installed until later in the year. As the light fittings cost $300.00 or less, you are entitled to an immediate deduction for these in the income year they are installed ready for use in your rental property.

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