Edited version of your private ruling

Authorisation Number: 1012446489449

Ruling

Subject: Rental deductions

Question 1

Are you entitled to an outright deduction for the following items in relation to your investment property?

· oven

· hot water unit

· air conditioner

· frameless shower screen

· laundry trough

· shower head and mixer

· bathroom vanity

· laundry and kitchen mixer

· installed bedroom wardrobes

· sliding door locks

· Door phone/intercom

· heated towel rail

· light fittings and down lights

· Door handles

Answer

No

Question 2

Are you entitled to a 2.5% capital works deduction with respect to the following items?

· frameless shower screen

· laundry trough

· shower head and mixer

· bathroom vanity

· laundry and kitchen mixer

· installed bedroom wardrobes

· sliding door locks

Answer

Yes

Question 3

Are you entitled to claim a deduction for the decline in value of the following items listed?

· oven

· hot water unit

· air conditioner

· Door phone/intercom

· heated towel rail

· light fittings and down lights

· Door handles

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You have a rental property which has been used to derive rental income.

The condition of the property was in a state where it could no longer be rented due to extensive damage caused by tenants over the years.

During the relevant income year you had work carried out to the property to restore the property to its original condition.

The work included replacing the following;

· oven

· hot water unit

· air conditioner

· frameless shower screen

· laundry trough

· shower head and mixer

· bathroom vanity

· laundry and kitchen mixer

· installed bedroom wardrobes

· sliding door locks

· Door phone/intercom

· heated towel rail

· light fittings and down lights

· Door handles

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-10

Income Tax Assessment Act 1997 Section 40-25

Income Tax Assessment Act 1997 Section 40-30

Income Tax Assessment Act 1997 Section 43-10

Income Tax Assessment Act 1997 Section 43-20

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, to the extent that the expenditure is not capital in nature.

Taxation Ruling TR 97/23 provides guidelines on the deductibility of repairs. Generally, a repair involves a restoration of a thing to a condition it formerly had without changing its character. Works can be fairly described as repairs if they are done to make good damage or deterioration of property that has occurred by ordinary wear and tear, by accidental or deliberate damage, or by the operation of natural causes during the passage of time.

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 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.

Whilst you have carried some repairs on your property you are not entitled to a full deduction for all the work completed on your rental property. The replacement of the items listed below are considered capital expenditure as they are a separately identifiable thing representing an entirety in themselves and the expenditure on replacing these items results in an improvement or a renewal of an entirety.

Capital works

Section 43-10 of the ITAA 1997 operates generally to provide a deduction for capital expenditure on capital works used to produce assessable income. Capital works includes buildings and structural improvements or an extension, alteration or improvement to a building.  A deduction under section 43-10 of the ITAA 1997 is based on the amount of construction expenditure. This is defined in subsection 43-70(1) of the ITAA 1997 as capital expenditure incurred in respect of the construction of the capital works.

A capital works deduction is generally claimed at a rate of 2.5% over 40 years.

In your case, the following items are considered to be a renewal of an entirety and not deductible as a repair:

· frameless shower screen

· laundry trough

· shower head and mixer

· bathroom vanity

· laundry and kitchen mixer

· installed bedroom wardrobes

· sliding door locks

However you are entitled to a 2.5% capital works deduction in relation to the above items as they form part of the premises and are not plant.

Decline in value

A deduction is allowable under section 40-25 of the ITAA 1997 for the decline in value of depreciating assets within the definition of subsection 40-30(1) of the ITAA 1997. Depreciating assets have a limited effective life and can reasonably be expected to decline in value over the time they are used in the rental property.

The decline in value of certain depreciating assets costing $300 or less is their cost. This means you get an immediate deduction for the cost of the asset to the extent that you use it for a taxable purpose during the income year in which the deduction is available.

These items are considered to be depreciating assets and therefore, you are entitled to a deduction for their decline in value under Division 40 of the ITAA 1997.

· oven

· hot water unit

· air conditioner

· Door phone/intercom

· heated towel rail

· light fittings and down lights

· Door handles