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Edited version of your private ruling
Authorisation Number: 1012537093999
Ruling
Subject: Rental repairs
Question
Are you entitled to a deduction for the cost of replacing the wooden floor in your rental property?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
You own an investment property, which you recently found to have extensive damage to the pine floorboards.
You had polished the existing floor previously and had been renting out the property.
You decided to replace the entire damaged floor with cypress pine floorboards.
The state of the property after the repairs is no better than it was previously and certainly has not improved in value.
The floor had to be repaired as the damage was extensive enough to allow people to be injured by failing floorboards.
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 a rental property. To be eligible to claim such an expense you must be holding the property for the purpose of gaining or producing assessable income, and the expenses must not be capital in nature.
Taxation Ruling TR 97/23 discusses the Commissioner's views on deductions for repairs. The ruling states that 'repairs' ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property.
The ruling also states that a repair involves a restoration of something without changing its character. The significant factor is the restoration of efficiency rather than exact repetition of form or material. For example, in Case 51 (1960) 9 CTBR (NS) 328, it was held that the replacement of a galvanised iron roof with concrete roof tiles was a repair as it did little more than meet a need for restoration. The material in question was designed to perform substantially the same function as that which it replaced.
An improvement, on the other hand, involves bringing an object into a more valuable of desirable form, state or condition than a repair would do. An improvement would have other features such as, extending the properties income producing ability, enhancing the propertys saleability/market value/extend the expected life of the property, have an additional function and is likely to reduce repair bills.
In your case, you replaced the damaged wooden floor with a different timber floor. In replacing the damaged floor you restored the floor to perform substantially the same function as before. The materials and processes used in the repair do no more than restore the floor to a functional walking surface.
It is considered that your replacing the damaged wooden floor with different timber in your rental property does not materially alter the character or functionality of the rental property. Nor does it increase the life of the rental property. Your replacement of the wooden floor is therefore considered a repair. Accordingly, the expenditure incurred is deductible under section 25-10 of the ITAA 1997.