Edited version of private advice

Authorisation Number: 1052206950529

Date of advice: 25 January 2024

Ruling

Subject: Rental property - deductions for repairs

Question

Are you entitled to a deduction under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for the full amounts of the special levies paid to the body corporate for the re-run of the cold-water supply and balcony works?

Answer

Yes.

Taxation Ruling TR 97/23 Income tax:deductions for repairs 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.

Where the body corporate has levied a special contribution to finance works required, the character of the expense will follow the purpose for which the expenditure was incurred. If the levy is used to fund expenditure which would otherwise be deductible, then the contribution made towards the levy is also deductible.

In your case, you were required to pay two special levies to finance work to be carried out to unit balconies and to re-run the cold-water supply. It is considered that on balance, the works restored the efficiency of the function of the property without changing its character and are not considered to be capital in nature. Therefore, you are entitled to a deduction for the expenses incurred for the special levies.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You own a strata-title unit(the Property). The unit complex was built many years ago.

You purchased the Property in 20XX. There are multiple units in the complex.

You use the Property to earn assessable income.

Balcony works

The body corporate engaged with Company A to undertake a concrete investigation of the units to determine the cause and extent of cracking and exposed reinforcement noted on the hobs and balcony slabs of various units.

Inspection of the unit complex was carried out. Most of the units in the apartment complex were inspected by Company A.

Investigation revealed that the primary cause of the existing balcony defects was a combination of chloride-induced corrosion of the reinforcement and low concrete cover.

The affected reinforcement provides structural support to the cantilevered balconies of the building.

Following inspection, it was determined that more than some of the hobs and some of the balcony slabs required repair.

The types of defects present were:

•         Cracking on the concrete hob of the balcony

•         Cracking on the slab of the balcony

•         Evidence of concrete spalling and reinforcement corrosion in the balcony hobs and slabs

•         Issues related to spalled concrete on the hob causing impediment to the sliding balcony doors

•         Isolated locations of concrete spalling at the balcony soffits.

Re-run of the cold-water supply

Over a period of several months during the relevant income year, there were multiple burst water pipes in the driveway and garage area of the Property. The pipes were subsequently repaired. As a result, the local council advised that they would no longer be able to offer any further subsidy on excessive water usage costs and recommended that the main water line be replaced.

A quote was issued. The substance of the works required is as follows:

•         Excavate a new trench between the existing mains cold water meter and the front of the building, make a good connection to the water meter at the front of the property.

•         Install a new copper water pipework from the water meter through the new trenching up and into the garage area.

•         Continue new copper pipework across the garage ceilings through to each cold-water stack throughout car parks of the building and install branch lines as required to make a good connection to existing cold water copper riser pipes, installing new isolation valves to each riser.

•         Make a good connection to the common ground floor toilet/shower room and supply and install new garden hose taps on the same/similar location as the existing garden taps

•         Pressure test new installation, backfill excavations, clean up and remove all rubbish from the site.

Balcony works were completed on several units in the income year ending 30 June 20XX

Re-run of the cold-water supply was completed in the same income year.

A special levy for the balcony works was due and payable in instalments as per unit entitlement.

An amount was paid for the balcony work on several dates in the relevant income year.

A special levy for the re-run of the cold-water supply was due and payable in instalments as per unit entitlement.

An amount was paid for the re-run of the cold-water supply on several dates in the relevant income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-10

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