1011650739844 | Legal database

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Edited version of private ruling

Authorisation Number: 1011650739844

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Ruling

Subject: Rental property repairs

1. Is the cost of painting your rental property deductible at the rate of 2.5 percent over 40 years?

No.

2. Are you entitled to a deduction for the total cost of the external painting of your rental property in the year you incur the expense?

Yes.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You are engaging a painter to paint the exterior of your rental property which has been available for rent for a number of years.

Your intentions are to paint the exterior of the property every eight to ten years to keep the property in good condition.

It is your understanding that you could claim 2.5 percent of the cost for painting the house each year which means that you will not realise the cost for forty years.

You are asking if this is the correct rate to claim each year.

You were not aware of the rental deductions that you may be entitled to, such as painting.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-10

Income Tax Assessment Act 1997 Section 43-10

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides for a deduction for expenses incurred for repairs to premises that are held or used solely for income producing purposes. However, a deduction for capital expenditure is not allowed under this section (subsection 25-10(3) of the ITAA 1997).

Taxation Ruling TR 97/23 explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10 of the ITAA 1997.

Paragraph 15 of this ruling explains that a repair involves restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. A repair is work done to make good damage or deterioration that has occurred by ordinary wear and tear, by accidental or deliberate damage or by the operation of natural causes (whether expected or unexpected) over a period of time.

'Initial repairs' arise where a taxpayer makes good defects to property which existed at the time the property was acquired. Expenditure incurred for initial repairs represents the cost of improving the item from the condition it was in at the time of acquiring it rather than repairing ordinary wear and tear occurring while the item was owned and used by the taxpayer for income producing purposes.

If the defect or damage to or deterioration of the property existed at the time of acquisition of the property, and if it did not arise from the income producing activities of the person who incurs the expenditure, expenditure in remedying the situation is capital expenditure.

A deduction is allowable under section 43-10 of the ITAA 1997 for capital expenditure incurred on the improvement to certain income producing buildings. The deduction is either 2.5% or 4% of the construction expenditure, depending on when construction started and the purpose for which the capital works are used.

In your case, you have rented the property for 10 years with only minor work being carried out on the property in this period. As you have held the property for a number of years, it is not considered that the painting of the property would fall under consideration as an 'initial repair' and be capital in nature.

The painting of the rental property restores the property to its former appearance without changing its character. The painting is work done to make good damage or deterioration that has occurred by ordinary wear and tear over a period of time. Therefore, the expenditure incurred in painting the property is deductible under section 25-10 of the ITAA 1997 and the total cost of painting your rental property is deductible in the year you incur the expense.

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