Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012735892165

Ruling

Subject: Rental property

Question

Are you entitled to claim a deduction for expenses incurred for the special levy?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commenced on

1 July 2012

Relevant facts

You own a unit.

You purchased the unit many years ago. The unit has been rented for more than 10 years.

There have been concerns regarding the structural integrity of the complex facade and related internal supports.

Due to the possible danger, it was recommended to have remedial work done as soon as possible to the common property.

The owners' corporation raised a special levy in relation to the remedial work required.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-10

Reasons for decision

In your state, the ownership of common property is vested in the body corporate as agent for the proprietors as tenants in common in proportions equal to their lot entitlements. Where deductible expenses are incurred in relation to the common property, such expenses are generally deductible to the individual owners rather than the owner's corporation.

The character of the special levy follows the purpose for which the expense was incurred. It follows that if the levy is used to fund expenditure which would be deductible then the contribution made is also deductible.

We therefore need to determine if the work carried out to the common property is deductible.

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, to the extent that the expenditure is not capital in nature.

Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the circumstances in which deductions for repairs are allowable. TR 97/23 states that what is a repair for the purposes of section 25-10 of the ITAA 1997 is a question of fact and degree in each case having regard to the appearance, form, state and condition of the particular property at the time the expenditure is incurred and to the nature and extent of the work done to the property. The ruling further states that repairs mean the remedying or making good of defects in, damage to, or deterioration of, property. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. A repair restores the efficiency of function of the property without changing its character.

Repair costs are deductible where they are incurred during the period the property is held for income producing purposes and are attributable either to damage that occurs during your income producing use of the property or to defects that emerge suddenly during that time.

TR 97/23 indicates that expenditure for repairs to property is of a capital nature where:

In your case, the work is not regarded as a renewal or reconstruction of the entirety. The work is also not regarded as an initial repair.

The work carried out to the common property is undertaken to repair the damage present. That is, the works performed to the façade and supports rectify the damage that existed. The works will restore the efficiency of the function of the building without changing the character. It is bringing the building back to a safe condition and is not regarded as an improvement.

Such work constitutes a repair as the work performed is merely a renewal of the defective parts of the building and a restoration of the building to its former state. Accordingly the works performed to rectify the problems qualify as deductible repairs under section 25-10 of the ITAA 1997.

It follows that the expenditure incurred for the special levy to carry out the repairs to the building will be deductible under section 25-10 of the ITAA 1997.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).