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Ruling
Subject: Rental expense deduction - repairs
Question
Are you entitled to a deduction for repairs and maintenance for the replacement of your rental property's side fence?
Answer
No
This ruling applies for the following period
Year ending 30 June 2012
The scheme commences on
1 July 2011
Relevant facts and circumstances
You have a rental property
The side fence at the rental property was collapsing due to deterioration from wear and tear and age.
The side fence was originally constructed of wood.
You replaced the side fence with a colorbond fence.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 25-10,
Income Tax Assessment Act 1997 subsection 25-10(3) and
Income Tax Assessment Act 1997 subsection 43-25(2).
Reasons for decision
Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the cost of repairs to a property used for income producing purposes. However, subsection 25-10(3) of the ITAA 1997 denies a deduction for repairs where the expenditure is of a capital nature.
The meaning of repairs
Taxation Ruling TR 97/23 provides guidelines on the deductibility of repairs. Generally, a 'repair' involves a restoration of a thing to a condition and efficiency it formerly had without changing its character. Works can be fairly described as repairs if they are done to make good damage 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.
Taxation Ruling TR 97/23 indicates that expenditure for repairs to property is capital in nature and not deductible under section 25-10 of the ITAA 1997 where:
· the work is an initial repair;
· the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair'; or
· the extent of the work carried out represents a renewal or reconstruction of the entirety.
You replaced the entire length of the timber fence on one side of your property with a new colorbond fence.
The replacement of wood to colorbond is an improvement as colorbond is considered more durable, not affected by pests and requires less maintenance. This would amount to a capital improvement and is a capital expenditure.
You are not entitled to a deduction under section 25-10 of the ITAA 1997 as expenditure is capital in nature.
You are entitled to a deduction for capital works at the rate of 2.5% per year, apportioned from the date the work was completed, under subsection 43-25(2) of the ITAA 1997.
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