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Edited version of your written advice
Authorisation Number: 1012719820610
Ruling
Subject: Rental property repairs
Question
Are you entitled to a deduction for repair work on your rental property?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You and your spouse have owned a rental property for a number of years.
The property was affected by serious water damage to the two bathrooms.
When undertaking the repairs, you encountered asbestos which required removal before you could continue.
Where possible, you used existing fixtures and only replaced what was not able to be removed.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 25-10
Reasons for decision
Section 25-10 of the Income Tax Assessment Act 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. Taxation Ruling TR 97/23 Income tax: deductions for repairs states that the word 'repair' ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property.
In W Thomas & Co v. FC of T (1965) 115 CLR 58, 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.
Work done to property in controlling health risks associated with the use of dangerous substances, such as asbestos, qualifies as a 'repair' if the work remedies or makes good defects in, damage to, or deterioration of, the property.
In your case, you have owned the property for a number of years. You have undertaken numerous activities to repair the damage including the removal of asbestos.
As your property is used for income producing purposes and the work is not an initial repair, is not the replacement of an entirety and is not an improvement, a deduction is allowable.
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