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Edited version of your written advice
Authorisation Number: 1012758153956
Ruling
Subject: Rental property expenses
Question 1
Are you entitled to a deduction for structural repairs to the rental property?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You purchased a rental property in the 200X financial year.
The property has been continually rented since the 200X financial year.
Verandah
Work included removing and replacing support beams, posts and brackets to maintain the structure and safety of the deck.
House
Wood rot was caused by a build-up of moisture in the timber over a number of years. Work included removing and replacing timber affected by wood rot such timber barge, lining boards, support beams, fascia boards and hand rails.
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. 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 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 or wall is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety'. The structural repairs are therefore not capital.
In your case, you have owned the property for a number of years. It has been rented since you purchased it. You have conducted structural repairs to the verandah and house.
Your property is used for income producing purposes and the structural repairs are not an initial repair, are not the replacement of an entirety and are not an improvement. Therefore, a deduction is allowable under section 25-10 of the ITAA 1997.