Taxation Ruling

IT 2587

Income tax : apportionment of repairs

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FOI status:

May be releasedFOI number: I 1011940

PREAMBLE

The purpose of this Ruling is to clarify the application of section 53 of the Income Tax Assessment Act 1936 (the Act) where expenditure is incurred by a taxpayer on repairs to an asset which, although owned by the taxpayer in earlier years, was not held, occupied, or used for the production of assessable income in those years.

2. Section 53 provides that non-capital expenditure incurred on repairs to an asset which is used by the taxpayer for the purpose of producing assessable income, or in carrying on a business for that purpose, is deductible in the year in which it is incurred. Under subsection 53(3) expenditure incurred on repairs to an asset which is used only partly for income producing purposes, is deductible only to the extent to which the asset is used for such purposes. That subsection was introduced following a decision by a Taxation Board of Review which allowed a deduction for the whole cost of repairs to a car, even though the car was used only partly for business purposes during the year (see Case Q98 83 ATC 487; (1983) 27 CTBR (NS) Case 26).

3. In a case recently considered by this Office the taxpayer incurred expenditure on repairs to a building which it had owned for a considerable number of years. Prior to the year in which the expenditure was incurred, the taxpayer's income was exempt from tax. The question which arose was whether the expenditure on repairs was deductible under section 53, even though the repairs were occasioned by the premises being used by the taxpayer in earlier years of income for purposes other than that of producing assessable income. In particular, consideration was given to the application of subsection 53(3).

RULING

4. Subsection 53(3) does not provide for apportionment of expenditure on repairs where an asset has been used by a taxpayer in earlier years of income for purposes other than that of producing assessable income. The subsection only provides for apportionment of expenditure where an asset is used by a taxpayer partly for income producing purposes in the year of income in which the expenditure on repairs is incurred.

5. Where an asset is used wholly for the production of assessable income during the year in which expenditure on repairs is incurred, the total cost of repairs is deductible provided of course that the expenditure is not of a capital nature. A deduction is allowable, even though some or all of the deterioration or damage giving rise to the repairs may be attributable to use of the asset by the taxpayer prior to its use for the purpose of producing assessable income (see Case V167, 88 ATC 1107; AAT Case 12 (1986) 18 ATR 3056).

COMMISSIONER OF TAXATION
17 May 1990

References

ATO references:
NO 89/2906-8

Date of effect:
Immediate

Subject References:
REPAIRS
APPORTIONMENT

Legislative References:
53

Case References:
Case Q98
83 ATC 487

Case 26
(1983) 27 CTBR (NS) 158
Case V167
88 ATC 1107
AAT Case 12
(1986) 18 ATR 3056