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Ruling

Subject: Rental property expenses

Question and answer

Can you claim the cost of painting your rental property as a repair?

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You and your sibling own a rental property.

This property was your parent's home.

The property was painted a number of years ago.

80% of the house is weather boards and requires painting.

At the time you and your sibling acquired the property the paint was not flaking or deteriorating.

A few years after you acquired the property it needed painting.

The property was painted in similar colours to the original paint job.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 768-910.

Income Tax Assessment Act 1997 Section 768-915.

Income Tax Assessment Act 1997 Section 104-10.

Reasons for decision

Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides for a deduction for expenses incurred for repairs to premises that are held or used solely for income producing purposes. However, a deduction for capital expenditure is not allowed under this section (subsection 25-10(3) of the ITAA 1997).

Taxation Ruling TR 97/23 explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10 of the ITAA 1997.

Paragraph 15 of this ruling explains that a repair involves restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. A repair is work done to make good damage or deterioration that has occurred by ordinary wear and tear, by accidental or deliberate damage or by the operation of natural causes (whether expected or unexpected) over a period of time.

'Initial repairs' arise where a taxpayer makes good defects to property which existed at the time the property was acquired. Expenditure incurred for initial repairs represents the cost of improving the item from the condition it was in at the time of acquiring it rather than repairing ordinary wear and tear occurring while the item was owned and used by the taxpayer for income producing purposes.

If the defect or damage to or deterioration of the property existed at the time of acquisition of the property, and if it did not arise from the income producing activities of the person who incurs the expenditure, expenditure in remedying the situation is capital expenditure.

In your case, you acquired the rental property a few years ago and painted it.

The property had not been painted for sometime prior to you acquiring the property.

There was no flaking or deterioration when you and your sibling acquired the property.

The painting of the property has brought the property back to its original state and condition and is therefore a repair.

The cost of the painting is deductible under section 25-10 of the ITAA 1997.