Private ruling: Deductions
Date of advice: 22 January 2020
Published: March 2020
Ruling period: Year ended 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the cost of a replacing a concrete house foundation an allowable deduction? | A1: No.

Relevant facts and circumstances: You purchased the house and land in early 20XX. It was burnt down in mid 20XX. The property was then fully demolished. The demolition was completed in late 20XX. A new concrete house slab was laid in early 20XX. The vacant land was rented to a business starting in mid 20XX. You have no current plans to build a house on the land.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 25-10

Reasons for decision: Detailed Reasoning - Detailed reasoning: 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 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. Expenditure incurred for repairs is not deductible under section 25-10 if the expenditure is of a capital nature. TR 97/23 states that expenditure for repairs to property is capital expenditure if the expenditure, rather than being for work done to restore the property by renewal or replacement of subsidiary parts of a whole, is for work that is a renewal in the sense of a reconstruction of the entirety. In your case, the cost of the foundation is of a capital nature as it is not a repair of the previous foundation but a replacement of an entirety and therefore is not a deductible repair under section 25-10 ITAA 1997.