Edited version of private advice

Authorisation Number: 1052351060245

Date of advice: 17 January 2025

Ruling

Subject: Income tax - deductions

Question 1

Is the roof replacement a repair and therefore deductible under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 2

Yes.

Section 25-10 of the ITAA 1997 provides that you can deduct expenditure you incur for repairs to premises that you held solely for the purpose of producing assessable income to the extent of your legal ownership in the property.

The roof became damaged due to natural causes. As the roof is considered a part and not an entirety, the replacement of the roof restores the efficiency of function of the roof and is considered a repair that is deductible under section 25-10 of the ITAA 1997 in accordance with the principles contained in Taxation Ruling TR 97/23 Income tax: deductions for repairs (TR 97/23).

Question 2

Is the supply and fitting of anchor points a repair and therefore deductible under section 25-10 of the ITAA 1997?

Answer 3

Yes.

There has been history of the roof being damaged due to natural causes and degrading over time leading to the sheets lifting, corrosion of screws and damage to timber battens. The roof is considered a part of the building under TR 97/23.

The supply and installation of anchor points occurred in order to affect the repairs to the roof and is therefore part of the cost of that repair. The efficiency of the function of the roof is restored and therefore the supply and installation of anchor points are considered a repair and are deductible under section 25-10 of the ITAA 1997.

Question 3

Is the fascia, gutter and downpipe replacements a repair and therefore deductible under section 25-10 of the ITAA 1997?

Answer 3

Yes.

The fascia, gutter and downpipes became water damaged due to natural causes. These are considered parts of the building under TR 97/23. The replacements are to remedy defects and damage and fall within the meaning of repairs in TR 97/23. Therefore the replacements of the fascia, gutter and downpipes are deductible under section 25-10 of the ITAA 1997.

Question 4

Is the hole drilling and associated vermin proof fitting a repair and therefore deductible under section 25-10 of the ITAA 1997?

Answer 4

Yes.

Due to damage from storm activity, it was decided to install vermin proof fittings as a preventative measure instead of regular rain heads on drainpipes and gutters. This required holes to be drilled into the brick work to ease the pressure on existing brick weep holes which became inundated during storm activity causing flooding on external balconies and staircases. These preventative measures occurred in conjunction with other repairs and functionality of the rain heads has been enhanced only in a minor and incidental way. Therefore, the hole drilling and vermin proof fitting installation meet the definition of repairs in TR 97/23 and are deductible under section 25-10 of the ITAA 1997.

Question 5

Is the painting of eaves and downpipes a repair and therefore deductible under section 25-10 of the ITAA 1997?

Answer 5

Yes.

The painting of the eaves and downpipes are to remedy the water damage from the storm activity. Painting is normally regarded as a repair unless it is done as part of a reconstruction or modernisation of the property. Determining such a matter is a question of fact and degree and it is not considered in the current case that the works undertaken are a reconstruction or modernisation. Therefore, the painting of eaves and downpipes are a repair and are deductible under section 25-10 of the ITAA 1997.

Question 6

Is the removal and replacement of damaged brickwork to upper levels a repair and therefore deductible under section 25-10 of the ITAA 1997?

Answer 6

Yes.

The removal and replacement of damaged brickwork was due to water damage and flooding from storm activity. The damage was localised to two sections of a wall on the upper level of the building. As the damage was to a part of the building rather than the entirety and was for the remedy of defects, the repairs are deductible under section 25-10 of the ITAA 1997.

Question 7

Is the cost of related expenditure (crane hire, scaffolding hire, insurance and scaffolding load certification and penetration details) for the various repairs in questions 1 to 6 also deductible under section 25-10 of the ITAA 1997?

Answer 7

Yes.

These costs have been incurred in order to affect the various repairs and therefore form part of the cost of these repairs. All these expenditures meet the definition of repairs under section 25-10 of the ITAA 1997 and the allocation of these repairs as per the provided worksheet is acceptable.

This ruling applies for the following period:

Income tax year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Background and history

1.            In April 19XX, Person A and Person B purchased the Building as joint tenants.

2.            The Building had a single storey fibro residential dwelling on it at the time.

3.            In July 19XX the dwelling was demolished and construction commenced on a residential building with units and carparking spaces underneath.

4.            In October 19XX construction of the Building was finalised and available for rent from 1 November 19XX.

5.            The units have either been rented or available to rent from that date to current.

6.            Since 1 November 19XX the Building has been managed by a real estate agent.

7.            In April 20XX, Unit 1 was sold and was reacquired in June 20XX.

8.            In February 20XX, Person A passed away and their interest in the Building transferred to Person B. Person B then owned XX% of the Building.

The building

9.            The Building is a concrete and double brick construction block of units supporting a timber framed truss roof clad with Colorbond corrugated metal sheeting.

10.         The Building is approximately XXm² in area.

11.         The Building has external concrete tiled verandas and a curved custom blue orb roof.

12.         Units 11 and 12 on the top floor are two storey.

Repair history

13.         In January 20XX, there was extensive storm damage caused to the Building which was repaired at the insurer's expense. The storm caused damage to the roof; water damage to plasterboard ceilings, walls and carpets of Units X and X; electrical and wiring including refixing and testing of smoke alarm.

14.         In September 20XX there was further storm damage to the Building which was repaired at the insurer's expense. A roofing report provided by Building Contractor W to the insurer dated September 20XX stated:

A piece of clothing from the neighbouring building had blocked the nozzle of the box gutter sump restricting water flow through to the downpipe resulting in water overflowing the gutter into the stairwell below. The piece of clothing had been removed prior to the inspection. The box gutter, nozzles and sump were found to be clear of debris.

The roof condition is good and roof profile is suitable for the pitch. The box gutters are starting to show minor signs of corrosion.

15.         In February 20XX there was further storm damage to the Building and emergency repairs were undertaken at the insurer's expense.

16.         In February 20XX a roofing report provided from Roofing Contractor Y requested by Construction Contractor Z found that the roof sheets and timber roof battens had detached from the rafters of Units X and X due to strong winds and recommended that the roof would need to be replaced. Photographic evidence has been provided showing the detachment of the metal roofing from the rafters inside and outside the Building.

17.         In March 20XX a causation report provided from Construction Contractor Z to the insurer found the following damage due to heavy winds and driving rain during storm activity:

•                     damage to ceilings, walls and bulkheads of Unit X;

•                     water damage to Unit X carpets;

•                     water damage to Unit X carpets and bedroom wall; and

•                     roof lifting above Units X and X.

The report stated that the cause of the damage was due to heavy winds and driving rain during storm activity. The report also provided a scope of works for repairs.

18.         In April 20XX a report provided from Building Contractor W to the insurer found the following damage:

•                     Unit X

                             i.                damage to bulkhead in kitchen;

                            ii.                water staining on ceiling near rear door;

                           iii.                render coming off walls in Bedroom X; and

                           iv.                water damage to external eaves.

•                     Unit X

                             i.                water damage to external eaves and laundry ceiling;

                            ii.                flooding over first floor sliding door and into lounge and downstairs; and

                           iii.                brick movement issues on external walls.

•                     The main roof was blamed for water ingress. No sheets had come off and the only loose areas are lap joints near gutter ends. The roof hadn't sustained any storm damage and there was no need for a re-roof.

•                     External:

                             i.                eaves damage due to overflowing gutters from large volumes of water;

                            ii.                both balconies are fully enclosed with no external wall overflow pipes;

                           iii.                building weep holes very close to tiles; and

                           iv.                overflow pipes to be installed and overflows to gutters be installed.

•                     Recommended that overflow pipes be installed to gutters and on top of the perimeter of walls of all closed in balconies.

19.         In May 20XX a report from Engineering Contractor V was provided to the insurer stating:

•                     during the 20XX storm, the building owner noticed water inundation to carpeted floors in Unit X. Unit X was vacant prior to storm and all internal walls had been cleaned pending new tenant.

•                     Construction Contractor Z had attended property and temporarily fixed a section of roof that had lifted at building's north-eastern side.

•                     there was no discernible water damage to plasterboard ceilings in Units X and X

•                     all roof battens above Units X and X had lifted upwards and separated from trusses.

•                     several intermediate batten to truss joints within roof space had also lifted.

•                     surface corrosion was evident to most of the extruded nails between the battens and the trusses' top chords. This had occurred most likely prior to February 20XX storm.

•                     recommended that all existing roof battens and sheets be replaced

•                     daily rain records show a total of XXmm of rain fell in the X hour period to X on XX February 20XX.

•                     maximum wind gust on XX February 20XX were reported from a X direction at approximately XXkm/h.

20.         In October 20XX subsequent reports from the insurer to the building owner were provided stating the insurance company denied the claim as the cost of repair is specifically excluded in the policy. The insurer advised the roof repairs must be undertaken prior to policy renewal.

21.         Person B considered legal action against the insurer but decided not to due to time and costs involved. They proceeded with the replacement of the roof and other necessary repairs at their own expense.

22.         Due to Covid-19 government imposed lockdowns, there were issues obtaining quotes, legal advice and commencement of Court proceedings.

23.         In early 20XX, Person B again attempted to organise the roof replacement quote but still had difficulties. The need to replace the roof had become pressing due to the insurance premium and excess increases and the ongoing water issues resulting in Unit X not being able to be rented.

24.         In June 20XX, Person B became very ill and their illness continued for many months. In November 20XX, they commenced treatment.

25.         In January 20XX Person B passed away.

26.         In July 20XX probate is granted to the Estate's executors.

27.         In November 20XX as part of administering the Estate, the executors instigated the roof replacement and other repairs that had previously attempted to be undertaken by Person B.

28.         In April 20XX an invoice from Engineering Contractor S to the Estate was provided for certification of scaffolding and penetration for a total cost of $XXXX.

29.         In May 20XX an invoice from Roofing Contractor T to the Estate was provided for the roof replacement and other repairs undertaken and an amount of $XXXXX is incurred. The repairs per the invoice are as follows:

•                     removal and disposal of corrugated roof sheets and insulation;

•                     supply and fit new corrugated roof sheeting, insulation, flashings and anchor points;

•                     removal and replacement of existing fascia, gutters and downpipes;

•                     core drilling of XX holes, supply of XX vermin proof fittings and alterations to left hand side downpipe under staircase;

•                     painting of existing eaves and new PVC downpipes;

•                     removal and replacement of damaged brickwork to upper levels front and rear of building;

•                     supply of permitter scaffolding of X access towers, a load platform including X weeks rental;

•                     supply of X cranes and organise traffic controls and permits; and

•                     insurance - this insurance provides a safety net for home owners faced with incomplete and defective building work carried out by a builder or tradesperson.

Relevant legislative provisions

The Income Tax Assessment Act 1997 section 25-10

The Income Tax Assessment Act 1997 section 8-1

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).