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Ruling
Subject: rental property repairs
Question
Are you entitled to a deduction for repairs?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You own a property.
The property was tenanted from the 2007-08 income year to the 2009-10 income year.
You resumed occupancy of the property during the 2009-10 income year.
Prior to resuming occupancy it was apparent that the swimming pool on the property had suffered damage to the interior surface of the fibreglass.
The damage was unsightly but did not pose an immediate risk of the pool leaking.
Failure to repair the pool would however, lead to leakage in the future.
At the time, the area was subjected to water restrictions which meant that the pool would not be able to be refilled if it was emptied to be repaired.
The repairs could therefore not proceed as leaving the pool empty posed a risk of the pool shell cracking from sun damage. As the problem was essentially cosmetic, you were unable to receive an exemption from the water restrictions.
The water restrictions were lifted during the 2010-11 income year and replaced by permanent water conservation measures. Under these measures you were able to obtain a permit to undertake the repairs and refill the pool.
The repairs were completed during the 2010-11 income year.
Since you have resumed occupancy of the property you have not received any rental income from the property.
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.
Taxation Ruling IT 180 considers the deductibility of repairs to a property that are carried out after the cessation of the income production of the property.
IT 180 provides that a deduction may be allowed for the cost of repairs to property providing:
§ the necessity for the repairs can be related to a period of time during which the premises have been used to produce assessable income of the taxpayer, and
§ the premises have been used in the production of such assessable income of the year of income in which the expenditure in incurred.
In your case, although the pool repairs can be related to a period of time during which the property was used to produce assessable income, you did not receive any rental income in the year in which the repair expenses where incurred. The imposition of water restrictions does not alter the deductibility of the expenses.
Accordingly, you are not entitled to a deduction for repairs under section 25-10 of the ITAA 1997.