Private ruling: Rental property - repairs
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are repairs to your rental property undertaken in the 2012-13 financial year an allowable deduction? | A1: Yes

Relevant facts and circumstances: You own a property which is used to produce assessable income. Several months after the property was tenanted the plumbing became blocked. During the removal of the blockage it was discovered part of the plumbing was cracked and damaged. These areas were required to be lined and patched to repair them.

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 non capital expenditure incurred on repairs to plant or premises held or used for producing assessable income. The word 'repair' is not defined within the tax legislation. Accordingly, it takes its ordinary meaning. Repair involves a restoration of a thing to a condition it formerly had without changing its character. Taxation Ruling TR 97/23 also provides that a 'repair' involves making good defects, damage or deterioration. It includes the renewal of parts but the term does not imply a total reconstruction. What is a 'repair' for the purposes of section 25-10 of the ITAA 1997, is a question of fact and degree having regard to the form, state and condition of the particular property and its functional efficiency when the expenditure is incurred and to the nature and extent of the work done. A 'repair' may involve some improvement but only to a minor and incidental extent. A renewal, as distinguished from repair, is reconstruction of the entirety, meaning not necessarily the whole but substantially the whole. The courts in considering repair cases have interpreted the term 'entirety' to be something separately identifiable as a principal item of capital equipment. Work done to a part of a property, though not amounting to a replacement or reconstruction of an entirety, may still be capital expenditure and not deductible because it amounts to an improvement. In your case, the plumbing is not considered a separate item as it is an integral part of the entirety, which is the rental property. Furthermore, the repairs have only been undertaken to restore the efficiency of function of the plumbing, and do not constitute an improvement. The expenditure incurred by you is therefore considered repairs and is not capital in nature. The expenditure is allowable as a deduction under section 25-10 of the ITAA 1997