Private ruling: Deductibility of rental property expenses
Date of advice: 3 August 2022
Published: November 2022
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you deduct the replacement of your roof under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. The tiled roof was damaged and required replacement. Taxation ruling TR 97/23 Income tax: deductions for repairs clarifies that replacing or renewing part of a property using a more modern material may qualify as a repair where the new material restores the efficiency of function of the previous material, as opposed to providing some new or additional function. Even if there is a marginal improvement of function this will not prevent the replacement being classified as a repair - the test is whether there is sufficient degree of improvement to justify characterising the expense as capital. The fact that the tiled roof was replaced with Colourbond tin does not prevent the works from being deductible as the essential function of a roof is to prevent water ingress into the dwelling. Colourbond tin does not improve or enhance this function to any significant degree over and above that which may be expected of a tiled roof. Therefore, the expense incurred in replacing the roof is deductible as a repair under section 25-10 of the ITAA 1997.

Relevant facts and circumstances: You purchased a property. This property has been rented at market rates to tenants at all times since 20XX. The property is managed by a real estate agency. In 20XX your real estate agent brought to your attention that the tiles on the roof of your investment property were cracked. The particular type of tile had been discontinued at the time that the cracked tiles were discovered. You have stated that the builder recommended that you replace the tiles with Colourbond tin sheeting. In 20XX you engaged contractors to replace the entire roof. You paid for the works yourself and did not receive any insurance or compensation.

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