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Edited version of your private ruling
Authorisation Number: 1012454035619
Ruling
Subject: Rental property expense
Question
Are you entitled to a deduction for the cost of replacing the roof of the garage and carport of your rental property?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You have owned a property which has always been tenanted as a holiday rental, for over 10 years.
The garage and carport roof clad in aluminium sheets is leaking in several places due to corrosion from the salt environment.
You have received quotes for various materials to replace the original roofing, and wish to use colorbond.
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, 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 capital in nature and is not deductible under section 25-10 of the ITAA 1997 if:
- the works provide a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair', or
- the extent of the work carried out represents a renewal or reconstruction of an entirety, rather than a replacement of subsidiary parts of a whole; or the work is an initial repair.
An 'entirety' is defined as something 'separately identifiable as a principal item of capital equipment' (Lindsay v. FC of T (1961) 106 CLR 377 at 385).
Paragraph 40 of TR 97/23 specifically states that a roof is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety'.
In your case the garage and carport roofing material has deteriorated over time.
The damage that occurred to the property which subsequently required the relevant repairs, can be attributed to the period of time that the property was used for income producing purposes. The aluminium roofing material will be replaced with Colorbond, the modern equivalent. Although the Colorbond roof may have some advantages to the aluminium the change is not so great for the work to be considered an improvement as opposed to a repair.
The replacement of the roof is not an initial repair, is not the replacement of an entirety, is not an improvement and is in respect of an asset used in the production of assessable income. Therefore the costs incurred in replacing the damaged roof of the garage and carport of your rental property is a 'repair', and the expense incurred is deductible under section 25-10 of the ITAA 1997.