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Edited version of private advice
Authorisation Number: 1012651369741
Ruling
Subject: Rental property expenses
Question
Are you entitled to a deduction for repair work on 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 have owned a rental property for a number of years.
Over the years, parts of the floor were dry rotting and damaged from a tree root and from a leaking galvanised water pipe.
There was also sewer and stormwater damage to the building.
You replaced the rusted roof gable, chimney flashings, rear spoutings and wood rot affected window frames, floor joists and bearers.
You also repaired sewer and stormwater drains and removed the tree root.
The replacements and repairs have not provided greater efficiency of function of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 25-10
Reasons for decision
Section 25-10 of the Income Tax Assessment Act 1997 allows a deduction for the cost of repairs to premises used for income-producing purposes. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs where the expenditure is of a capital nature.
The word 'repair' is not defined within the taxation legislation. Taxation Ruling TR 97/23 Income tax: deductions for repairs states that the word 'repair' 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.
In W Thomas & Co v. FC of T (1965) 115 CLR 58, it was held that a 'repair' involves a restoration of a thing to a condition it formerly had without changing its character. It is the restoration of efficiency in function rather than the exact repetition of form or material that is significant.
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. 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'. The restumping the building is therefore not capital.
In your case, you have owned the property for a number of years. You have undertaken numerous activities to repair the damage.
As your property is used for income producing purposes and the work is not an initial repair, is not the replacement of an entirety and is not an improvement, a deduction is allowable.