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Edited version of your private ruling
Authorisation Number: 1012382230648
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Ruling
Subject: Investment property - replacement of floor tiles
Question:
Are the costs of replacing the floor tiles in your investment property deductible?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2012
The scheme commenced on
1 July 2012
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Prior to 20 September 1985, your and your spouse purchased a unit (the unit).
You and your spouse have used the unit solely for income producing purposes.
During the period that you and your spouse have owned the unit you have replaced quite a few of the tiles due to cracking or chipping.
You and your spouse are no longer able to match the colour/texture or size of tiles to enable you to replace the ones that are broken or chipped.
You and your spouse are going to replace all the tiles with new tiles.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 25-10
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 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in the course of gaining or producing assessable income. However, a deduction is not allowable for expenses which are of a capital, private or domestic nature.
Repairs and maintenance
Section 25-10 of the 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 -97 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.
Distinction between a repair and an improvement
Taxation Ruling TR 97/23 states that, with a repair, the work restores the efficiency of function of the property without changing its character. An improvement, on the other hand, provides a greater efficiency of function in the property. An improvement involves bringing a thing or structure into a more valuable or desirable state or condition than a mere repair would do.
It is acknowledged in TR 97/23 that to repair property improves to some extent the condition it was in immediately before repair. A minor and incidental degree of improvement, addition or alteration may be done to property and still be a repair. However, if the work amounts to a substantial improvement, addition or alteration, it is not a repair and is not deductible.
In your case, you and your spouse will place the existing tiles due to their poor state of repair, with new floor tiles. There will not be a sufficient degree of improvement to justify characterising the expenditure as capital which would exclude it from deductibility.
Therefore, it is considered that the replacement of the tiles in the unit is a 'repair' and the costs that you and your spouse will incur are deductible.
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