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Edited version of your written advice
Authorisation Number: 1051506999481
Date of advice: 16 April 2019
Ruling
Subject: Rental property repairs
Question 1
Are you entitled to a deduction for cleaning, respraying and resurfacing of the bathrooms and toilets under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer 1
Yes
Question 2
Are you entitled to a deduction for the replacement of damaged window blinds under section 25-10 of the ITAA 1997?
Answer 2
No
Question 3
Are you entitled to a deduction for cleaning and repainting ceilings and walls of the whole interior of the house under section 25-10 of the ITAA 1997?
Answer 3
Yes
Question 4
Are you entitled to a deduction for indoor carpentry and general work under section 25-10 of the ITAA 1997?
Answer 4
Yes
Question 5
Are you entitled to a deduction for installation of new carpet under section 25-10 of the ITAA 1997?
Answer 5
No
This ruling applies for the following period:
Year ending 30 June 2018
The scheme commences on:
1 July 2017
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 own an investment property.
The property has been rented since its purchase over 30 years ago.
One tenant leased the property for a significant period.
Upon vacating the property, the property manager advised that major work was required to re-tenant the property.
The works were conducted during an eight month period.
The bathrooms and toilets were cleaned, resprayed and resurfaced. Several broken tiles were also replaced.
Damaged blinds were replaced.
The whole interior of the house was repainted.
Indoor carpentry and general work was completed:
Carpet was installed in all indoor rooms
The house was re-tenanted.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 25-10
Income Tax Assessment Act 1997 division 40
Reasons for decision
Section 25-10 of the 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.
Taxation Ruling TR 97/23 Income tax: deductions for repairs 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 means the remedying or making good of defects in, damage to, or deterioration of the 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, or
● the works result in a great efficiency of function in the property, therefore representing an ‘improvement’ rather than ‘repair’, or the work is an initial repair.
In Ready Mixed Concrete (Victoria) Pty Ltd v FC of T (1969) 18 CLR 177, the Court considered the term ‘entirety’. It asked whether the property is a ‘unit of property’ as that expression is used in the depreciation provisions of the ITAA 1997, bearing in mind that, to be such a unit, the thing must be functionally separate and independent.
In your circumstances
The replacement of the blinds and the installation of the new carpets are considered to be of a capital nature. They represent a renewal of the entirety and are functionally separate and independent. They are depreciable assets in accordance with Division 40 of the ITAA 1997. You are therefore entitled to a deduction for the decline in value of the blinds and carpets under the uniform capital allowances in division 40 of the ITAA 1997.
The remaining works are repairs and you are entitled to an immediate deduction under section 25-10 of the ITAA 1997.