Edited version of private advice

Authorisation Number: 1051837529955

Date of advice: 15 July 2021

Ruling

Subject: Rental expenses - repairs

Question 1

Are the expenses incurred to repair the damages caused by birds deductible as repairs under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes. Your expenses meet the requirements in Taxation Ruling TR 97/23 Income tax: deductions for repairs and are deductible. Further information about repairs can be found by searching 'QC 55249' on ato.gov.au

Question 2

Are the expenses incurred to replace additional window frames to prevent possible future damage deductible under section 25-10 ITAA 1997?

Answer 2

No.

This ruling applies for the following period:

Year ended 30 June XXXX

The scheme commences on:

1 July XXXX

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 a rental property.

The property has been rented since XXXX up to and including the year ending XXXX.

The rental property sustained severe damage whilst tenanted.

The damage was to the cedar windows, surrounding cedar weatherboards and roofing gables.

Birds tore out the colonial bars to most of the windows to the point where the window panes became dangerous.

The damage to the cedar roofing gables and outer walls caused rain to penetrate the roof cavity and walls.

The window frames were replaced with aluminium to prevent the same damage from reoccurring.

The cost of replacing the windows with aluminium was less than the cost of replacing the windows with cedar.

You incurred costs which you have paid off in instalments.

On the XXXX in a phone discussion with your accountant the ATO was advised only the damaged windows had been replaced. Your accountant was advised that if any only damaged windows were replaced these would not be deductible as repairs however could be added to the cost base of the property and that the cost would need to be apportioned.

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.

Taxation Ruling TR 97/23 which explains the principles and the circumstances in which expenditure incurred for repairs is an allowable deduction. The term 'repair' means the remedying or making good of defects in, damage to, or deterioration of property as long as the restoration is of the entirety and does not change the character of the property. The cost of repairing an income producing property is deductible.

In your case you have replaced windows and window frames that were damaged by the birds. They tore the colonial bars to most of the windows to a point where the window panes became dangerous. You replaced all the windows and window frames in the property with alumimium frames to prevent the same damage from reoccurring and it was 20% cheaper then replacing them with original cedar windows.

As per the phone discussion with your accountant on the XX Month 20XX, hawse have been advised that all the windows that were replaced were damaged by the birds. Your accountant was advised that if any of the windows replaced were not damaged, then the costs incurred will need to be apportioned between capital and repairs under subsection 25-10(3) of the ITAA 1997.

In accordance with your facts and statement by your accountant, the Commissioner accepts that all the windows were damaged and the expenses incurred are deductible in accordance with section 25-10 of the ITAA 1997.