Private ruling: Rental property expenses
Published: November 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for repair work and painting on your rental property? | A1: Yes.


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 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. The word 'repair' is not defined within the taxation legislation. Taxation Ruling TR 97/23 Income tax: deductions for repairs states that the word 'repair' ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property. In W Thomas & Co v. FC of T (1965) 115 CLR 58 , it was held that a 'repair' involves a restoration of a thing to a condition it formerly had without changing its character. It is the restoration of efficiency in function rather than the exact repetition of form or material that is significant. Work done to property in controlling health risks associated with the use of dangerous substances, such as asbestos, qualifies as a 'repair' if the work remedies or makes good defects in, damage to, or deterioration of, the property. In your case, you have undertaken activities to repair the damage to the bathroom, including the removal of asbestos. As your property is used for income producing purposes and the work is not an initial repair, is not the replacement of an entirety and is not an improvement, a deduction is allowable.

Relevant facts: You purchased and your spouse purchased an investment property which you rented between 20XX and 20XX. | You had planned to move in to the house after the lease expired. | You needed to undertake repairs to the bathroom and also repaint. | When the repairs were being undertaken, it was discovered that there was asbestos which needed to be fixed prior to any repairs being undertaken. | The work done on the repairs was only to make good the damage. You reused any fixtures and fittings that were usable. | All work was completed in the relevant financial year. | You will now not be moving into the house.