Edited version of your written advice

Authorisation Number: 1013015809281

Date of advice: 19 May 2016

Ruling

Subject: Rental repairs

Question 1

Are you entitled to a repairs deduction for the cost of the following:

• Replace the water pipes in the bathrooms of each unit

• Repair the water proofing

• Replace the metal door frames and bathroom doors

• Painting the bathrooms?

Answer

Yes.

Question 2

Are you entitled to a repairs deduction for the following:

• Replace the vanity units

• Replace the bathroom tiles

• Replace the taps, handles, towel rails, curtain rails and shower heads?

Answer

No.

Question 3

Are you entitled to a capital works deduction for the following:

• Replace the vanity units

• Replace the bathroom tiles

• Replace the taps, handles, towel rails, curtain rails and shower heads?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You operate an accommodation facility.

The bathrooms require repairs and refurbishment.

You will undertake the following:

• Replace the leaking water pipes in the bathrooms

• Replace the vanity units

• Replace the bathroom tiles

• Repair the water proofing

• Replace the damaged metal door frames and bathroom doors

• Replace the taps, handles, towel rails, curtain rails and shower heads

• Paint the walls

All items will be replaced with functionally similar items.

It is only during your ownership that age, wear and water have caused the problems to the bathrooms.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-10

Income Tax Assessment Act 1997 Division 43

Reasons for decision

Summary

You are entitled to an immediate deduction for the expenses incurred to replace the water pipes in the bathrooms, repair the water proofing, replace the door frames and doors and painting the bathrooms.

The replacement of the vanity units, bathroom tiles, taps, handles, towel rails, curtain rails and shower heads are capital in nature and you are entitled to a capital works deduction.

Detailed reasoning

Repairs

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 explains the circumstances in which deductions for repairs are allowable. TR 97/23 states that what is a repair for the purposes of section 25-10 of the ITAA 1997 is a question of fact and degree in each case having regard to the appearance, form, state and condition of the particular property at the time the expenditure is incurred and to the nature and extent of the work done to the property. The ruling further states that repairs mean 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. A repair restores the efficiency of function of the property without changing its character.

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, or

• the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than 'repair', or

• the work is an initial repair. 

TR 97/23 states that with a repair, the work restores the efficiency of function of the property without changing its character. An improvement, on the other hand, provides a greater efficiency of function in the property. It involves bringing a thing or structure into a more valuable or desirable state or condition than a mere repair would do.

It is acknowledged in TR 97/23 that to repair property improves to some extent the condition it was in immediately before repair. A minor and incidental degree of improvement may be done to property and still be a repair. However, if the work amounts to a substantial improvement, addition or alteration, it is not a repair and is not deductible under section 25-10 of the ITAA 1997. That is, where work done to a property goes beyond what is a repair, any expenditure for the work is not deductible.

In your case, the work undertaken to replace the water pipes in the bathrooms, repair the water proofing, replace the door frames and doors and painting the bathrooms constitutes a repair and will be deductible under section 25-10 of the ITAA 1997.

Capital works

Division 43 of the ITAA 1997 provides a deduction for capital works. Capital works includes buildings and structural improvements, and also extensions, alterations or improvements to buildings and structural improvements where a residential property is used for income producing purposes.

A capital works deduction is generally claimed at a rate of 2.5% over 40 years.

Items fixed to the building are considered structural improvements within the definition of Division 43 of the ITAA 1997 and a capital works deduction is allowed.

In your case, the replacement of vanity units, bathroom tiles, taps, handles, towel rails, curtain rails and shower heads are considered to be items fixed to the building and treated as structural improvements. Consequently they are not deductible as a repair. However you are entitled to a 2.5% capital works deduction as they form part of the premises and are not plant.