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Edited version of your written advice
Authorisation Number: 1051468078770
Date of advice: 10 January 2019
Ruling
Subject: Rental properties and deductions
Question
Is the cost of replacing all the windows in your rental properties an immediate deduction in the year incurred?
Answer
No
This ruling applies for the following periods:
30 June 2018 to 30 June 2019
The scheme commences on:
October 2018
Relevant facts and circumstances
You own rental properties (units) which are part of a strata complex.
It was voted at a strata meeting by the owners of the dwellings to replace all windows within the complex.
The windows were to be replaced in the strata complex due to the condition they were in.
The work undertaken included replacement of all timber windows with aluminium windows and rendering and painting the whole outside of the building.
The total cost to replace the windows of the complex is $X. Your claimable amount is X% of the costs. This estimation was provided by your accountant.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 25-10
Reasons for Decision
Detailed reasoning
Section 25-10 of the 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 states that to repair property improves to some extent the condition it was in immediately before repair. A minor and incidental degree of improvement, addition or alteration 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.
What is a ‘repair’ for the purposes of section 25-10 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.
If work done to property goes beyond what is a ‘repair’ in terms of section 25-10, any expenditure for the work is not deductible. The work may go beyond ‘repairs’ in terms of the section if it:
(a) changes the character of the property; or
(b) does more than restore its efficiency of function.
An ‘improvement’, on the other hand provides a greater efficiency or function to the property – usually in some existing function. It involves bringing a thing or structure into a more valuable or desirable form, state or condition than a mere repair would do.
In your case, the replacement of all windows in the strata complex extends the dwellings’ income producing ability, significantly enhances their market value and extends the dwellings expected life.
The replacement of all windows painting and rendering the building significantly improves the complex as a whole.
Therefore, the replacement of all windows in the dwellings you own is a large significant improvement and will not be an immediate deduction under section 25-10 of the ITAA 1997.