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Edited version of your written advice
Authorisation Number: 1012728266571
Ruling
Subject: Rental property fence
Question
Are you entitled to a deduction for the cost of replacing a fence?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You have owned a rental property for a number of years.
You were ordered by the city council to demolish and remove the brick front fence/retaining wall, batter the soil behind the wall to an angle of 45 degrees and provide associated drainage.
The fence had cracks and was leaning over.
The brick fence ran on two sides of the property and you replaced the whole brick fence.
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 non-capital expenditure incurred on repairs to premises or depreciating assets held or used for the purpose of producing assessable income.
To determine whether work done to meet requirements of regulatory bodies, or to conform with their standards, constitutes 'repairs', it is necessary to consider the general principles and the various factors discussed in this Ruling.
Expenditure on work that modifies property to satisfy regulatory requirements is allowable as repair expenditure only if the work:
• remedies or makes good a defect in, damage to, or deterioration (in a mechanical or physical sense) of, property; and
• restores the efficiency of function of the property; and
• does not produce a new and different function for the property nor add to the property a function that it did not previously have.
The expenditure must not be of a capital nature, that is, an improvement.
Taxation Ruling TR 97/23 Income tax: Deductions for repairs, explains the circumstances in which deductions for repairs are allowable, and states that the word 'repairs' has its ordinary meaning. It ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated.
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.
You replaced the entire brick fence which was on two sides of the property. As part of the replacement, you also put in drainage, a retaining wall and you also replaced the entire brick work with palings.
While we accept that you were ordered to undertake the work, the work done goes beyond repair and is a renewal or reconstruction of the entirety. As such the expense is capital in nature and no deduction is allowed.