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Edited version of your private ruling
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Ruling
Subject: Repairs
Question:
Is the replacement of a tub on a trailer considered a repair?
Answer:
No.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You operate a business.
The tub on the back of a trailer needed to be replaced.
You replaced a drop-side steel tub with an aluminium tipper tub.
The wheels and axle remain the same.
The tipper tub is considered less dangerous than the drop-side tub.
Both the old and new tub holds the same volume. The new tipper weighs the same as the drop-side; therefore no efficiency gains have been achieved.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 25-10, and
Income Tax Assessment Act 1997 section 25-10(3).
Reasons for decision
Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the cost of repairs made to premises or depreciating assets used for producing assessable income.
However, subsection 25-10(3) of the ITAA 1997 denies a deduction for repairs where the expenditure is of a capital nature. An improvement to a property would be capital in nature and therefore not deductible.
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. 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.
TR 97/23 provides that where the work done to a property results in a greater efficiency of function in the property the work represents an 'improvement' rather than a 'repair'.
In your case, you replaced a drop-side steel tub on your trailer with an aluminium tipper tub. This new tipper tub is considered an improvement as it provides a greater efficiency of function than the original drop side steel tub. Even though the new tub holds the same volume and is the same weight as the original tub, the new tub provides additional functionality. Therefore, the expenditure incurred to purchase the aluminium tipper tub is not deductible as a repair.
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