Edited version of private advice

Authorisation Number: 1052003923120

Date of advice: 15 July 2022

Ruling

Subject: Rental property expenses

Question 1

Is the replacement of structural posts for the patio deductible as a repair as per section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. The Commissioner accepts that the works completed meet the requirements within Taxation Ruling TR 97/23 Income Tax: deductions for repairs (TR 97/23) to be deductible as a repair. The replacement of structural posts for the patio is not considered to be a renewal or reconstruction of an entirety, it is not an initial repair, or an improvement and the expense is in respect to an income producing asset. Therefore, your expenses are deductible under section 25-10 of the ITAA 1997.

Question 2

Is the replacement of a garage door deductible as a repair as per section 25-10 of the ITAA 1997?

Answer

Yes. The Commissioner accepts that the works completed meet the requirements within TR 97/23 to be deductible as a repair restoring the previous function of the garage with modern materials without changing the garages character.

Question 3

Are the works completed to the bathroom and neighbouring bedroom to repair damages from a water leak deductible as a repair as per section 25-10 of the ITAA 1997?

Answer

Yes, to the extent they relate to repairing the damages. Other works undertaken at the same time are capital in nature. Please see reasons for decision below.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You own a property that is rented to tenants earning assessable income.

You declare your rental income on your income tax returns.

In the 20XX income year you were advised by your real estate agent that the garage door at the property had a faulty panel resulting in the door remaining open and not able to be closed.

Due to the age of the garage door, you were unable to source a replacement panel.

You arranged for the garage door to be replaced with a modern version.

In 20XX you were advised by your real estate agent that the structural posts for the patio had severe corrosion and would require to be replaced to prevent that patio from collapsing.

You obtained a quote to replace the structural posts at that time. You had the posts replaced in the 20XX income year, at the same time as other work was done. You intend to claim a deduction for the amount you were originally quoted.

In the 20XX income year you were advised by your real estate agent that previous repairs to the ensuite bathroom had failed and water was leaking into the adjoining bedroom wall and wardrobe.

You obtained a quote and an additional quote (from the same supplier) for a range of works to the ensuite and adjoining bedroom wall. The works were completed in the 20XX income year.

You contacted your insurance company and submitted an insurance claim. The insurance company did not cover the work to the patio and garage however they provided a small payment in connection to the bathroom.

You have declared this payment as assessable income.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 25-10

Income Tax Assessment Act 1997 section 40-25

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, to the extent that the expenditure is not capital in 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 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.

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.

In your case, the reconstruction of the ensuite bathroom includes both repairs and capital works.

The requirement to reconstruct the bathroom was due to previous repair attempts failing and causing further damage to the property. It is reasonable to consider that the works done to rectify the damages to the bathroom and bedroom floors and walls as repairs however where the bathroom and bedroom required the replacement of items such as carpet, tiles, shower head and taps and shower screens these items are considered plant items which are depreciable items in accordance with section 40-25 of the ITAA 1997.

Therefore, you cannot claim an immediate deduction for all the works completed and must apportion the cost accordingly to depreciate the relevant items.