Private ruling: Rental property expenses
Published: August 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. During the 2012-13 financial year extensive repairs were undertaken as a result of stumps shifting underneath the property. The repairs consisted of removing and refitting the plumbing to the bathroom, removing and replacing damaged tiles and flooring, and treating white ant damage to the front steps, garage and fence palings. In order to rectify the damage the bathroom fixtures and fittings were also replaced. The fittings were replaced with equivalent fittings to the originals. The affected areas listed above were repaired using similar materials to the original.

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. The work done on the floor and tiles, removal of white ant damage and replacement of bathroom fixtures and fittings is a restoration to the former state. There is no change to the function of these items, and they have not been replaced with superior quality items. Therefore there is no improvement to the property. In summary, the expenditure incurred by you is considered repairs and is not capital in nature. The expenditure is therefore allowable as a deduction under section 25-10 of the ITAA 1997.