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Ruling
Subject: Repair Expenses
Question and Answer
Question:
Is the repair component of $Y tax deductible?
Answer:
Yes
This ruling applies for the following period:
Year Ending 30 June 2011
The scheme commenced on:
01 July 2010
Relevant facts and circumstances:
Capital works and repairs were completed on the property.
Additional capital works and repairs were completed.
In mid 2011 you got a completed a report in regards to the capital works and repairs, breaking down the work carried out into repairs and capital works.
The property was rented out during the year except when the work was being undertaken.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 25-10
Reasons for decision
Rental property expenses
A deduction for expenditure incurred for repairs to property used to produce assessable income is specifically allowed under section 25-10 of the ITAA 1997. However, as with section 8-1 of the ITAA 1997, the expenses must not be capital in nature.
The renewal, replacement, or reconstruction of, the whole or substantially the whole of a thing or structure (entirety) is likely to be considered a capital expense rather than a deductible repair.
Determining what is an entirety is a question of fact in each case. According to Taxation Ruling TR 97/23, property is more likely to be an entirety if:
a. The property is separately identifiable as a principal item of capital equipment.
b. The thing or structure is an integral part, but only a part, of entire premises and is capable of providing a useful function without regard to any other part the premises.
c. The thing or structure is a separate and distinct item of plant in itself from the thing or structure which it serves, or
d. The thing is a unit of property as that expression is used in the depreciation deduction provisions of the income tax law.
Application of the above to your situation
Rental property deductions are allowable where a property is being held for income producing purposes. Although your rental property was vacant for a period during the 2010-11 financial year, this was because it was being repaired. The property was re-tenanted as soon as it was possible. It is accepted that during the period the property was vacant, it was still being held for income producing purposes. Therefore, you are entitled to rental property deductions in relation to this period.
Outright deduction
The Commissioner accepts the classification of the work carried out as per the report prepared. The expenses classified as repairs are deductible: