Private ruling: Rental property expenses
Published: February 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for replacing the roof of your rental property? | A1: Yes

Relevant facts and circumstances: You have owned a rental property that has been rented since being purchased. You have had instances of damage occurring to the roof for many years. As of a result tree damage the iron roofing has been scarred allowing rust to develop over time. This has resulted in the roof leaking in many different places and damaged beyond repair. The roof is to be replaced with the same type of material. There is no additional construction or improvements planned. Your builder has provided a copy of the quote describing the roof to be in disrepair and recommending the roof be replaced.

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) 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 word 'repair' is not defined within the taxation legislation. Taxation Ruling TR 97/23 states that the word 'repair' ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property. In W Thomas & Co v. FC of T (1965) 115 CLR 58 , it was held that a 'repair' involves a restoration of a thing to a condition it formerly had without changing its character. It is the restoration of efficiency in function rather than the exact repetition of form or material that is significant. 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. 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'. The replacement of the roof is therefore not capital. In your case, you have used the property for income producing purposes for a number of years. You will use zincalume to replace the iron roof. The use of zincalume to replace the existing roof is considered to be a repair as the change in material will not materially alter the character or functionality of the property. As your property is used for income producing purposes and the replacement of the roof is not an initial repair, is not the replacement of an entirety and is not an improvement, a deduction is allowable under section 25-10 of the ITAA 1997.

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