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Edited version of private ruling
Authorisation Number: 1011807928024
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Ruling
Subject: rental property repairs
Question and answer
Are you entitled to a deduction for the cost of interior painting works of an income producing property
Yes
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
The scheme that is the subject of this ruling
You have owned the rental property for X years.
The property is rented through a real estate agent.
You are the landlord of the property.
The property is rented at a market rate.
There has not been any private use of the property.
You are the owner of the property on the title.
You paid for the repainting of the interior of the property.
You hired a professional painter to undertake the repainting.
The property was repainted because the interior finish had deteriorated.
The whole of the interior of the property was repainted.
No other work to the property was done at this time.
You have written evidence of the repair being undertaken
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 25-10.
Explanation (This does not form part of the ruling)
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. Accordingly, it takes its ordinary meaning. In (W Thomas & Co v. Federal Commissioner of Taxation (1965) 115 CLR 58); (1965) 14 ATD 78; (1965) 9 AITR 710, 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.
Taxation Ruling 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, or
· the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than 'repair', or
· the work is an initial repair.
Case V2 88 ATC 107; AAT Case 4012 (1988) 19 ATR 3038 concerned partial underpinning of a rental property caused by excessive drying of the subsoil. It was found that the foundations were restored to their former efficiency in function without the essential character of the foundations being altered. The repairs to the foundations were not capital in nature, as they did not change the nature and character of the building and as such were deductible as repairs.
In your case, you have owned the property for approximately X years and the property has been income producing for all that time. The need for repairs and the painting of the interior of the property was due to general wear and tear which occurred during the period of income production. The property was merely restored to its original structure, function and appearance. As the essential character of the property was not altered, the work is therefore considered to be a repair and not capital in nature and any expenditure incurred is deductible.
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