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Edited version of private advice
Authorisation Number: 1051576174645
Date of advice: 3 September 2019
Ruling
Subject: Rental properties - repairs
Question
Can repairs to the property be claimed in full as repair in the year incurred?
Answer
Yes.
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 provides 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.
In your case, the deterioration requires remedial work to restore the efficiency and function of the property. The relevant structure acts as an integral part of the units by providing part of the roof of the garages as well as acting as an entry to the complex. Overall, the repairs will not result in a new and different function for the property nor add to the property a function that it did not previously have. The works are considered a repair and are deductible in the year incurred.
This ruling applies for the following period:
1 July 20XX to 30 June 20XX
1 July 20XX to 30 June 20XX
The scheme commences on:
15 February 20XX
Relevant facts and circumstances
You own a property made up of units (the units) constructed a number of decades ago.
You have owned the property for several decades.
The units are rented out and producing rental income.
You engaged engineers who provided a structural inspection report.
The report outlined areas within the property that are of poor condition, with notable deterioration, safety concerns and non-compliance with current standards and codes.
Remedial work is required. The remedial work will involve reusing the existing bricks, replacing like for like, to keep in line with the streetscape. The work will be sympathetic to the era of the building and keep in line with the overall aesthetics of the building.
The works will not result in a new and different function for the property nor add to the property a function that it did not previously have.
You have already incurred some expenses in relation to engineers.
You have provided details of the costs associated with the required works.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 25-10