Private ruling: Rental property deductions
Date of advice: 7 September 2016
Published: October 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Questions and answers | Are you entitled to a deduction for your share of the costs associated with repairing a swimming pool at your rental property? | Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 25-10 | Income Tax Assessment Act 1997 Division 43

Reasons for decision: Summary: Section 8-1 of the ITAA 1997 allows a deduction for a loss or outgoing to the extent that it is incurred in gaining or producing the assessable income. 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. Accordingly, it takes its ordinary meaning. In W Thomas & Co v. Federal Commissioner of Taxation (1965) 115 CLR 58); (1965) 14 ATD 78; (1965) 9 AITR 710, 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. Taxation Ruling TR 97/23 Income tax: deductions for repairs (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 construction of the entirety; or • the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than 'repair'; or • The work is an initial repair. Repair for the most part is occasional and partial. It involves restoration of the efficiency of function of the property being repaired without changing its 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. 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. The cost of replacing items such as locks and exhaust fans, which are permanent fixtures installed in premises used for income purposes, is deductible as a repair under section 25-10 of the ITAA 1997, provided it is a replacement of a worn out unit by a new unit of a similar design that simply restores its efficiency of function and is not an improvement. In your case, the works undertaken in relation to the swimming pool are considered to be a repair and not capital in nature. Therefore, a deduction under section 25-10 of the ITAA 1997 for your share of the costs associated with the repair is allowable.

Relevant facts: You and your spouse own a rental property. | You purchased the property a number of years ago as an investment property. | Since you acquired the property it has been rented or available for rent. | In early XXXX the then tenants notified you that the pool was in need of repair due to deterioration leading to exposure of the steel reinforcement which then rusted resulting in the pool becoming unsafe. | You and your spouse sought advice on restoring the pool to a safe and functional condition. | • Resurfacing the pool interior | • Replacing the steel with concrete | • Retiling the pool area around the edge of the pool