Private ruling: Work carried out to stormwater drainage system of rental property
Published: March 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a repairs deduction for expenses that you incurred in respect of replacing the stormwater drainage of your rental property? | A1: Yes.

Relevant facts and circumstances: You are the joint owner of a rental property which you had built over ten years ago. You lived in the property for a short period of time and it has since been rented continually. The rental property is in a semi-rural area where residents are required to provide all their own water. Rainwater collected from the roof is collected in tanks, and the overflow and grey water are used for irrigation and washing around the house. Following an extended period of low rainfall, when a lot of water had to be purchased, it was found that insufficient rainwater was being collected and recycled. An inspection by a plumber showed that ground movement and substandard pipes were the cause of the problem. A number of metres of storm water pipes were replaced due to damage and breakage caused by the land subsidence. Some of the piping was located underneath concrete. Only the concrete which had to be removed to rectify the piping was disturbed. The telephone incoming cable also had to be reinstated due to the pipe works.

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) generally allows a deduction for expenditure incurred on repairs to premises or plant held or used by a taxpayer for the purpose of producing assessable income. However, capital expenditure is not deductible under section 25-10. Taxation Ruling TR 97/23 explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10. TR 97/23 states that in its context in section 25-10, the word 'repairs' has its ordinary meaning. It ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired and contemplates the continued existence of the property. Repair for the most part is occasional and partial. It involves restoration of the efficiency of function of the property being repaired without changing it's character and may include restoration to its former appearance, form, state or condition. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. However, no deduction is allowed where the expenditure constitutes and initial repair, a replacement of an entirety or is an improvement. In your case the work undertaken is not an initial repair, is not an improvement and it not considered that you replaced an entirety. You have replaced only the damaged and faulty components of the plumbing and drainage system which were necessary to restore it to its former function. Therefore, you are entitled to a deduction for the expenses that you incurred in respect of the work carried out to the stormwater system of your rental property.