Private ruling: Rental - deductions (repairs, capital works, interest, borrowing expenses)
Published: August 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to claim a deduction for the cost of replacing your floor covering? | A1: Yes.

Relevant facts and circumstances: You have a rental property which is currently rented. Tenants damaged the vinyl floor in the laundry/toilet area of your rental property. You replaced the vinyl in your rental property's laundry/toilet area with new vinyl. The vinyl is fixed to the floor.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-10

Reasons for decision: Summary: Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) states that expenditure incurred for repairs to premises which are held for the purpose of producing assessable income are deductible to the extent they are used for producing income, and are not a capital expense. According to Taxation Ruling TR 97/23, a repair is restoration by replacement of subsidiary parts of a whole without changing the character of the thing. In simple terms, a repair is mostly partial and occasional and should be done to restore something to its former character. Subsidiary parts are things which are an integral part of some larger item of plant, or may be physically, commercially and functionally an inseparable part of something else. Examples of subsidiary parts are windows, roof and walls. TR 97/23 indicates that expenditure for repairs to property is of a capital nature and not immediately deductible where: 1. the extent of the work carried out represents a renewal or reconstruction of the entirety, or 2. the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than 'repair', or 3. the work is an initial repair. In your case, the vinyl floor in the laundry/toilet was past its useful life and damaged in places. The floor was replaced with new vinyl which is very similar to the original. Although the floor material used in the replaced floor is slightly different, the material performs the same function without improving it substantially. A floor is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety'. The required work to rectify the problem is not an initial repair, is not the replacement of an entirety, and is not an improvement. Therefore, when you are replacing the floor covering the work carried out is a repair, and deductible under section 25-10 of the ITAA 1997.