Private ruling: Rental expenses
Published: March 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for the expenses incurred to remove trees from your rental property? | A1: No.

Relevant facts and circumstances: You own a rental property. You engaged an arborist to assess the risk of trees on the property causing damage. It was identified that there was a high risk that the tree will cause damage to the property. An application was submitted to the council requesting to have them removed. The trees were removed with the approval from the council.

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. Subsection 25-10(1) of the ITAA 1997 allows a deduction for expenditure incurred for repairs to premises (or part of premises), or plant that you held or used solely for the purpose of producing assessable income. However capital expenditure is not deductible under subsection 25-10(3) of the ITAA 1997. Expenditure associated with the removal of trees on a rental property is similar to that which normally falls for consideration under section 25-10 of the ITAA 1997. However, if tree felling is not strictly a repair, it may fall for consideration under section 8-1 of the ITAA 1997, if the expenditure is not deemed to be capital in nature. Taxation Ruling TR 97/23 outlines the circumstances in which expenditure incurred by a taxpayer on repairs is an allowable deduction. Paragraph 13 of TR 97/23 provides a definition of the word repairs. It 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. Repair involves restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair replaces a part of something or corrects something that is already in existence and has become worn out or dilapidated. Works can be described as repairs if they are done to make good damage or deterioration that has occurred by ordinary wear and tear, by accidental or deliberate damage or by the operation of natural causes during the passage of time. Work done to remedy defects, damage or deterioration does not cease to be a repair if it is also done to prevent or anticipate defects, damage or deterioration (in a mechanical or physical sense) in property. In Day v. Harland and Wolff (1953) 2 All ER 387 Pearson J observed at 388: I think that to repair is to remedy defects, but it can also properly include an element of the stitch in time which saves nine. Work does not cease to be repair work because it is done to a large extent in anticipation of forthcoming defects or in rectification of merely incipient defects, rather than the rectification of defects which have already become serious. Some element of anticipation is included. His Honours statement, by necessary implication, indicates that work done that is only in anticipation of forthcoming defects or deterioration does in fact cease to be repair work. Work done in anticipation of forthcoming defects or deterioration can only be considered a repair if it is done in combination with work of rectification. In your case, you incurred expenses to remove trees that were likely to cause damage to your rental property. The removal of trees is not considered to be a repair as there is no replacement or correction of defects in or damage to the trees. The trees were removed to eliminate any potential risk and are no longer in existence. As the removal of the trees is not actually repairing any damage, a repairs deduction is not allowable under section 25-10 of the ITAA 1997. Additionally, the expense is considered to be capital in nature as it is a one-off expense that provides an enduring benefit, that being, the removal of a potential hazard. As the expense is capital in nature, a deduction is also not allowable under section 8-1 of the ITAA 1997. Therefore, you are not entitled to a deduction for the expenses incurred to have the trees removed from your rental property.