Private ruling: Deductibility of repairs to roof
Ruling period: Year ended 30 June 2010.
Date scheme commenced: 1 July 2009.

Ruling: Question and answer: | Are you entitled to a deduction for your share of the costs in replacing the asbestos roof of your jointly owned 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 section 40-755

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. Section 25-10 of the 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. In your situation, the expenses incurred in the demolition and removal of the asbestos roof are of a capital nature and are therefore not deductible under the general deduction provisions of section 8-1 or section 25-10 of the ITAA 1997. Additionally, the demolition and removal of the asbestos roof does not constitute a repair within section 25-10 of the ITAA 1997 as the work done was not limited to rectifying a defect as specified in section 25-10. Instead the roof was replaced because of the health risk it might pose to tenants of your rental property. However section 40-755 of the ITAA 1997 allows a deduction for expenditure, including expenditure of a capital nature, incurred after 30 June 2001 by a taxpayer carrying on eligible environmental protection activities. An 'environmental protection activity' is an activity carried on in preventing, fighting or remedying pollution, or treating, cleaning up, removing or storing waste. 'Pollution' includes contamination by harmful or potentially dangerous substances, such as asbestos. The pollution or waste must be on a site on which the taxpayer carried on, carries on, or proposes to carry on an activity whose purpose is the production of assessable income. In your situation, as the property is used for producing assessable income these conditions have been met. Consequently, the cost of replacing the asbestos roof is deductible under section 40-755 of the ITAA 1997 and you are entitled to a deduction for your 50% share.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You and another person purchased a property as joint tenants. | When you purchased the property the roof was in relatively good condition for its age. | You discovered that the asbestos sheeting was damaged and required immediate repairs. | You were not able to repair the asbestos roofing due to health and safety concerns. | The damaged asbestos roof was removed and replaced with a zincalume roof. | You and the other person each paid your share of the expense. | No insurance claim was made for the replacement of the roof.