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

Ruling: Q1: Is your share of the cost of replacing the roof cladding, gutters and associated work an allowable deduction? | A1: Yes

Relevant facts and circumstances: You have been a co-owner of a rental property for the past nine years. This property has been rented out for the entire time of its ownership. When you acquired the property the roof was in good condition. However for the past two years you have had water problems internally as the roof has been leaking. The roofers advised you that the roof was showing signs of wear and tear. You decided to replace the roof cladding with similar material as you were unable to repair the original roof in a cost effective manner. The roof was large and steep and required extensive scaffolding and harness safety equipment during the work. The work carried out did not in any way reconstruct the roof line. It only replaced the sheets of iron, gutters etc. The replacement roof cladding and gutters have not changed the character and have merely restored a previous function to the property.


Reasons for decision: Summary: 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. Subsection 25-10(3) of the ITAA 1997 precludes a deduction for repairs where the expenditure is of a capital nature. The word 'repair' is not defined within the tax legislation. Accordingly, it takes its ordinary meaning. 'Repair' involves a restoration of a thing to a condition it formerly had without changing its character ( W Thomas & Co v. Federal Commissioner of Taxation (1965) 115 CLR 58. Taxation Ruling TR 97/23 deals with the issue of deductions for repairs. TR 97/23 provides 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 (paragraphs 36-42), or the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair' (paragraphs 44-58). Taxation Ruling TR 97/23 states: 'Works can fairly be described as 'repairs' if they are done to make good damage or deterioration that has occurred by ordinary wear and tear, by accidental or deliberate damage or by the operation of natural causes (whether expected or unexpected) during the passage of time. 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. If the work amounts to a substantial improvement, addition or alteration, it is not a repair and is not deductible under section 25-10.' An 'entirety' is defined as something 'separately identifiable as a principal item of capital equipment' ( Lindsay v. Federal Commissioner of Taxation (1960) 106 CLR 377 at 385). Paragraph 40 of TR 97/23 specifically states that a roof is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety'. In your case, the replacement of the roof cladding and gutters does not go beyond what is a repair, as the essential nature of the roof remains unchanged. The works carried out represent a repair to deterioration of the roof over time. Accordingly, the expenditures incurred are considered to be repairs and therefore deductible under section 25-10 of the ITAA 1997.

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