Edited version of your private ruling

Authorisation Number: 1012463279049

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Ruling

Subject: Rental deductions

Question

Are you entitled to a deduction for the cost of replacing the damaged sections of driveway and drainage pipe on your rental property?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You own a property, which has been rented for several years.

Due to several severe weather events over the last wet season, the existing plain concrete driveway has cracked badly in one section due to the amount of water washing away soil from underneath it.

You are only going to replace this damaged section with plain concrete again as it has become unsafe for the tenants to continue driving on it.

Another issue relating to the severe weather is that the previous owners of the house installed concrete drainage with drainage pipe running across the front and side of the house.

This drainage has also cracked due to soil washing away and it appears to have damaged the pipe underneath and is now leaking water into the lower floor of the highset house.

You need to have the existing concrete dug up and replace the damaged section of drainage pipe and re-concrete the damaged section to make the lower level of the house useable again.

You do not have any invoices as the repairs have not started yet.

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.

In your case the repairs to the damaged sections of the driveway and drainage pipe do not constitute improvements as the work to be undertaken merely restores functionality to the driveway and drain.

The expenditure is not a renewal, as it does not involve the replacement of an asset in its entirety.

Therefore the work undertaken in replacing the damaged sections of driveway and drainage pipe is considered to be repairs and you are entitled to a deduction under section 25-10 of the ITAA 1997.