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Ruling

Subject: Rental deductions

Question

Are you entitled to a deduction for the cost of replacing the deck, ramp and a section of fence on your rental property?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You and your spouse own a rental property which is being rented out.

Your tenant and property agent advised you that the ramp access to the deck was rotting and was a safety risk.

Upon the builder supplying a quote to fix the ramp they noticed that the deck was also rotting.

You received a number of quotes to remove the rotting deck and build a new one. You used the cheapest of the quotes.

You also replaced a fence between your property and a neighbouring property, which had almost fallen down.

Half of the cost of replacement of the fence was paid by the neighbour.

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) states expenditure incurred by you for repairs to premises used by you for the purpose of producing assessable income is an allowable deduction. However, a deduction is not allowable if the expenditure is of a capital nature.

Taxation Ruling TR 97/23 provides the Tax Office's view on repairs that are allowable under section 25-10 of the ITAA 1997 and 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 work results in a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair', or

· the work is an initial repair.

Replacement of a subsidiary part or an entirety

In the case of W Thomas & Co Pty Ltd v. Federal Commissioner of Taxation [1966] ALR 915;115 CLR 58; (1965) 14 ATD 78; 39 ALJR 246; (1965) 9 AITR 710, which involved a claim for general repairs to a building, it was said that the question was not whether the roof or floor or some other part of the building, looked at in isolation, was repaired as distinct from wholly reconstructed, but whether what was done to the floor or the roof was a repair to the building.

In your case, the building itself is considered to be the entirety. The deck and ramp are considered a subsidiary part of the building. As you have only replaced a section of the fence this is considered a subsidiary part of the entire fence.

 Improvement v Repair

 The Commissioner accepts that the use of a different material does not necessarily prevent the work from being a repair, provided the work merely restores a previous function to the property. Whether the use of a more modern material to replace the original material qualifies as a repair is a question determined on the facts of each case. It is restoration of a thing's efficiency of function (without changing its character) rather than exact repetition of form or material that is significant.

In your case the work undertaken to your rental property merely restores the efficiency of the previous function. The work is not an improvement and is not an initial repair.

Therefore the work undertaken in replacing the deck, ramp and a section of fence is considered to be a repair and you are entitled to a deduction under section 25-10 of the ITAA 1997