Edited version of private ruling

Authorisation Number: 1011514918163

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Ruling

Subject: Rental deductions

Question

Are you entitled to a deduction for the work carried out on your rental property?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You had your rental property built a number of years ago using blocks.

Over the years the blocks have deteriorated and the front wall has started to leak whenever it rains.

You had the front wall rendered to stop the water leakage, as this was the cheapest and most permanent option.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-10.

Reasons for decision

Summary

The rendering of the front wall is considered a repair and therefore you are entitled to a deduction.

Detailed reasoning

Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the cost of repairs to a rental property.

To be eligible to claim such an expense you must be holding the property for the purpose of gaining or producing assessable income, and the expenses must not be capital in nature.

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.

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

- the extent of the work carried out represents a renewal or reconstruction of the entirety, or

- the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than 'repair', or

- the work is an initial repair.

The word repair is not defined within the tax legislation and takes its ordinary meaning. Repair involves a restoration of a thing to a condition it formerly had without changing its character (W Thomas & Co Pty Ltd v. Federal Commissioner of Taxation (1965) 115 CLR 58; (1965) 14 ATD 78; (1965) 9 AITR 710).

An improvement provides a greater efficiency of function and involves bringing a thing or structure into a more valuable or desirable form, state or condition than a mere repair would do. If the work done restores a previous function, or restores the efficiency of the previous function, it does not matter that a different material is used.

In your case, the work is not an initial repair as the damage was caused after you built the property.

The work carried out is not an entirety, as it will be renewing a part of the property, being the front of the building.

The work carried out has been occasioned by factors that occurred during the period of income production and was undertaken merely to restore the efficiency of the function of the property, to rectify damage and to prevent further damage.

Therefore the work undertaken is considered to be a repair and you are entitled to a deduction under section 25-10 of the ITAA 1997.