Edited version of private advice

Authorisation Number: 1052143816686

Date of advice: 19 July 2023

Ruling

Subject: Deduction for a rental property including removal of trees

Question

Is removal of trees and other repairs to your rental property incurred during the 20XX financial year deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. A deduction is allowed for all losses and outgoings to the extent to which they are incurred in gaining or producing your assessable income except where the outgoings are of a capital, private or domestic nature (section 8-1 of the ITAA 1997). However, there are also provisions in the income tax law which deal with specific deductions, including repairs (section 25-10 of the ITAA 1997).

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 1997 does not allow a deduction for repairs where the expenditure is of a capital nature.

The following are examples of expenses which are capital or of a capital nature:

•                     replacement of an entire structure or unit of property (such as a complete fence or building, a stove, kitchen cupboards or refrigerator)

•                     improvements, renovations, extensions, and alterations, and

•                     initial repairs, for example, in remedying defects, damage or deterioration that existed at the date you acquired the property.

Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the principles and the circumstances in which expenditure incurred for repairs is an allowable deduction.

The term 'repair' means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired and contemplates the continued existence of the property. Repair for the most part is occasional and partial. It involves restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state, or condition. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated.

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.

In your case the removal of the trees and the remediation work on the inside and outside of the house are considered repairs as they rectified the damages caused by the operation of natural causes during the passage of time.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Due to hailstorm in 19XX a new Colourbond roof was installed at the rear of your rental property (under insurance) and tiles replaced to the main property. Work was poorly done and not covered by insurance after the event. Over time, the house developed leaks, with ceiling, carpet, wall and structural damage.

A torrential storm in February 20XX led to major internal water damage. The roof at the rear of the property was repaired. The work exposed larger issues related to mature trees and palms which had been small when the property was purchased. The trees caused blocked and damaged guttering, flooding and mould to the upper store and ground floor, structural damage to the side wall of the house and damage to the front fence.

The neighbours provided supportive documentation regarding your application to council to remove two of the larger palms (on the client's property) as they had damage to their property from falling fronds, major and expensive plumbing problems (sewer and stormwater) from tree roots. There are no trees on the neighbours' property and sewer are common lines shared by four properties.

You obtained council approval to remove palms and replace trees at a distance from house to reduce risk of recurrent problems and damage.

Scaffolding was required to remove the trees safely and there were other associated costs relating to the removal of the trees and tree roots. Repair and remediation work was done to the rental property. Most of the house (internal and external) was repainted, the upper-level corridor water damaged ceilings replaced, the staircase repaired as it had dropped over time making it unstable and broken windows repaired.

The work has not involved any modifications or internal structural modifications.

You seek to claim the cost of the removal of the trees and other repairs as a deduction for the rental property in the 20XX income tax return.

The repairs you want to claim as a deduction include:

•                     Removal of palm trees from front yard and side passage to rear of property

•                     Re-rendering and setting to badly cracked surfaces to internal wall

•                     Sanding of kitchen floor

•                     Replacement of parapet flashing to front of main roof

•                     Painting to front exterior of terrace, including front parapet walls

•                     Strip paint from fireplace surround in main bedroom and stairs

•                     Repair of ceiling to upstairs front veranda

•                     Carpet Court (carpet)

•                     Coates Hire (scaffold hire to remove palm tree).

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 25-10

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