Edited version of private ruling

Authorisation Number: 1011650416975

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Ruling

Are you entitled to a deduction for the cost of replacing the roof on your rental property?

Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

You and your spouse purchased a rental property several years ago.

The purchase of the property was subject to a building inspection.

The report stated that the decramastic roof was in fair to good condition, and the internal paint work to be good with an overall assessment of the dwelling to be good.

The property has been at all times rented or available for rent.

You and your spouse engaged a painting contractor to do a full internal repaint of the dwelling.

The contractor advised that it appeared that moisture was entering the roof cavity through the roof tiles as they had noticed cracking at the taped joints of the gyprock ceiling and also bubbling of the paint under the eves at the front of the dwelling.

You and your spouse sought to repair the roof by replacing the tiles, but after making several enquiries found that it was not possible to buy new tiles or even obtain second hand tiles.

You and your spouse were advised by the roofing contractor that the only way to fix the problem was to replace the roof with an equivalent material being colourbond as the original roof material is no longer available.

You and your spouse incurred the costs to replace the decramastic tiles, with a new colourbond roof.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-10

Reasons for decision

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. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs where the expenditure is of a capital nature.

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 taxation legislation. Accordingly, it takes its ordinary meaning. Taxation Ruling TR 97/23 states that the word 'repair' ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property.

An 'entirety' is defined as something 'separately identifiable as a principal item of capital equipment' (Lindsay v. Federal Commissioner of Taxation (1960) 106 CLR 377; (1960) 12 ATD 197; (1960) 8 AITR 99). Paragraph 40 of TR 97/23 specifically states that a roof is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety'.

In your case, the rental property roof had deteriorated and was leaking in a number of places. It is accepted the use of colourbound to replace the decramastic tiles constitutes a repair as the change in material did not improve the efficiency or function of the property. The roof has merely been repaired by its modern equivalent which restored the original function.

Therefore, you and your spouse are entitled to a deduction for the cost of replacing the roof of your rental property under section 25-10 of the ITAA 1997.