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

Ruling: Q1: Are you entitled to a deduction for your share of the costs to maintain your rental property, such as lawn mowing, whipper snipping and weed spraying? | A1: Yes. | Q2: Are you entitled to deduction for your share of the costs to repair pipe joiners? | A2: Yes. | Q3: Are you entitled to deduction for your share of the costs to remove trees (including stumps and roots), a cubby house, rocks and fence and chicken wire, prune fruit trees and level land on your rental property? | A3: No.

Relevant facts and circumstances: You own a large rural rental property jointly with your spouse. The property was acquired a few years ago. The majority of the property is dense bushland. The tenant utilises the residential dwelling situated on the property. You incurred expenses to mow, slash, spray and whipper snip the grounds surrounding the dwelling and other buildings on the property. You have also incurred expenses to remove a cubby house, trees, tree stumps, tree roots, rocks and fence and chicken wire. You have also incurred expenditure to level the land, prune fruit trees in an orchard and fix damaged pipe joiners. The property is rented through a managing agent.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 and | Income Tax Assessment Act 1997 section 25-10.

Reasons for decision: Summary: You are entitled to a deduction for your share of the costs to maintain your rental property, such as lawn mowing, whipper snipping and weed spraying. You are entitled to a deduction for your share of the costs incurred to repair damaged pipe joiners at your rental property. You are not entitled to deduction for your share of the costs to remove trees (including stumps and roots), a cubby house, rocks and fence and chicken wire and to level land. The expenses are capital in nature. You are not entitled to a deduction for your share of the cost to prune fruit trees. This expense is not related to the production of rental income from the property. | Detailed Reasoning - Detailed reasoning: Sections 8-1 and 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) are relevant in determining whether an outright deduction can be claimed in relation to the expenses you have incurred on the grounds surrounding the dwelling on your rental property. Expenditure incurred to maintain a rental property is deductible under section 8-1 of the ITAA 1997 to the extent that it is not capital in nature (section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Typically, deductible expenditure incurred to maintain a rental property will be ongoing and recurrent and is incurred to preserve the property and keep it in a rentable state; whereas non-deductible maintenance expenditure is typically one-off and provides an enduring benefit. Expenditure incurred for repairs to a property used for income producing purposes is deductible providing the expenditure is not of a capital nature (section 25-10 of the ITAA 1997). Taxation Ruling TR 97/23 explains the circumstances in which expenditure incurred for repairs is an allowable deduction. Generally a repair involves a restoration of a thing to a condition and efficiency it formerly had without changing its character. Works can be fairly described as repairs if they are done to make good damage or deterioration of property that has occurred by ordinary wear and tear, by accidental or deliberate damage, or by the operation of natural causes during the passage of time. To repair property improves to some extent the condition it was in immediately before repair; however, a minor or incidental degree of improvement may be done to property and still be a repair. Where the work amounts to a substantial improvement and results in a greater efficiency of function in the property, the expenditure is not for repairs and is of a capital nature. An improvement involves bringing a thing or structure into a more valuable or desirable form, state or condition than a mere repair would do. Some factors that point to work done to property being an improvement include whether the work will extend the property's income producing ability, significantly enhance its saleability or market value or extend the property's expected life. Repair expenditure is also of a capital nature if it makes good damage or deterioration that was in existence at the time of acquiring the property, or relates to damage or deterioration not arising from the operations of the taxpayer who incurs the expenditure. In your case, you have incurred expenditure for lawn mowing, slashing, weed spraying and whipper snipping. This expenditure is ongoing and recurrent, and while the property may be improved aesthetically after this work has been done, any degree of improvement is minor and incidental. You are entitled to a deduction for your share of the ongoing expenditure incurred for lawn mowing, slashing, weed spraying and whipper snipping. The removal of a tree, including its stumps and roots is not a maintenance expense. Normally this is a one-off type expense that produces an enduring benefit, and is considered to be an improvement. The removal of trees (including stumps and roots) is considered to be an expense of a capital nature, and as such you are not entitled to a deduction for your share of the costs to remove them. The expenditure incurred to remove the cubby house, rocks and fence and chicken wire is not recurrent ongoing expenditure incurred to preserve the property or prevent damage or deterioration. In addition, this expenditure brings the property into a more desirable state, and enhances its saleability. The expenditure will provide an enduring benefit, and as such, the expenditure on this work is capital in nature and not deductible under either section 8-1 or 25-10 of the ITAA 1997. Expenditure on landscaping, such as levelling the ground, is an improvement and capital in nature. Therefore you are not entitled to a deduction for the expenditure incurred to level the humps and soil at your rental property. Expenditure for pruning trees on a rental property is generally considered to be deductible under section 8-1 of the ITAA 1997 where the expenditure is incurred to maintain the rental property. However, in your case you have incurred expenditure to prune fruit trees in an orchard located on your property. The expenditure incurred is not considered to have been incurred in earning rental income from your property. As such, you are not entitled to a deduction for your share of the costs incurred to prune fruit trees. Expenditure incurred for repairs to a rental property is deductible where the related damage was not in existence at the time the property was acquired and arose out of the activities from which a taxpayer gains assessable income. You are entitled to a deduction for your share of the cost to repair damaged pipe joiners at your rental property.

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