Private ruling: Rental expenses
Date of advice: 21 September 2016
Published: November 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for a body corporate levy for the cost of repairs? | A1: Yes

Relevant facts and circumstances: You own a rental property. You are required to pay corporate body fees. You contacted the body corporate company who advised you that the levies paid are tax deductible. The body corporate company confirmed the levies were used for repairs.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 25-10

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. You may be able to claim a deduction for body corporate fees and charges for your rental property. Body corporate fees and charges may be incurred to cover the cost of day-to-day administration and maintenance or they may be applied for a special purpose fund. Payments you make to body corporate administration funds and general purpose sinking funds are considered to be payments for the provision of services by the body corporate and you can claim a deduction for these levies at the time you incur them. However, if the body corporate requires you to make payments to a special purpose fund to pay for particular capital expenditure, these levies are not deductible. Therefore, we need to consider whether the expenses the levy monies were used for are deductible. Repairs Section 25-10 of the ITAA 1997 states expenditure incurred by you for repairs to any premises, or part of premises, held or used by you solely for the purpose of producing assessable income is an allowable deduction. However, a deduction is not allowable if the expenditure is of a capital nature, for example, an improvement. Taxation Ruling TR 97/23 provides the Commissioner's view on repairs that are allowable under section 25-10 of the ITAA 1997 and indicates that expenditure for repairs to property is of a capital nature where: • the extent of the work carried out represents a renewal or reconstruction of the entirety, or • the work results in a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair', or • the work is an initial repair. Application to your circumstances In this case, the levy was used to complete repairs. Therefore, you are entitled to a deduction for this expense in the 2015-16 financial year.