Private ruling: Rental expenses
Ruling period: Year ending 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to claim a deduction under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for the cost of removing and replacing the asbestos roof of your rental property? | A1: No. | Q2: Are you entitled to claim a deduction under section 40-755 of the ITAA 1997 for the cost of removing and replacing the asbestos roof of your rental property? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-10. | Income Tax Assessment Act 1997 Section 40-755.

Reasons for decision: Summary: 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. The removal and replacement of the asbestos roof does not qualify as a repair for the purposes of section 25-10 of the ITAA 1997. The asbestos roof was deteriorating when you purchased the property; therefore the cost of replacing the roof is incurred in remedying defects that existed at the date of acquisition. This is considered to be an initial repair which is capital expenditure and is not, therefore, deductible under section 25-10 of the ITAA 1997. However section 40-755 of the ITAA 1997 allows a deduction for expenditure, including expenditure of a capital nature, incurred on or after 30 June 2001 by taxpayers for the sole or dominant purpose of carrying on eligible environmental protection activities. These activities are the preventing, fighting or remedying of pollution (which includes contamination of the environment by harmful or such potentially dangerous substances as asbestos) in the circumstances specified in paragraph 40-755(2)(a) of the ITAA 1997. Also included are activities in treating, cleaning up, removing or storing of waste in the circumstances specified in paragraph 40-755(2)(b) of the ITAA 1997. The pollution or waste must be of, on or from a site on which the taxpayer carried on, carries on, or proposes to carry on an activity for the purpose of producing assessable income. A deduction for undertaking environmental protection activities is not allowable for the construction of a building, structure or structural improvement or for an extension, alteration or improvement to a building. In your case, removing and replacing the asbestos roof of a rental property that is used to produce assessable income constitutes an eligible environmental protection activity as it remedies an environmental pollutant. The asbestos roof was removed and replaced with the sole or dominant purpose of preventing pollution of the site of your income earning activities. Also this work is not considered to be an extension, alteration or improvement to the building as it is merely replacing the asbestos with Colourbond, which is considered to be the modern equivalent of asbestos. Therefore you are entitled to a deduction under section 40-755 of the ITAA 1997 for the expense incurred in removing and replacing the asbestos roof on your rental property.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You purchased your rental property a number of years ago. | The roof of the property was made of asbestos and was deteriorating at the time of purchase. | The old corrugated asbestos roof had a recent history of leaking and was deteriorating and damaged. | Previous tenants had complained of finding 'drip' containers in the ceiling space and in 2010 the maintenance man/gutter cleaner had refused to clean the gutters because of the presence/condition of the asbestos roof. | You replaced the roof because of fear of leaking/failure. | As asbestos roofing is now illegal you replaced the roof with colourbond steel which is the modern and safer equivalent.