Private ruling: Rental property expenses - repairs
Published: February 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for the cost of re-aligning the damaged fence on your rental property, including the cost of removing two trees and their root systems that have caused the damage? | A1: Yes

Relevant facts and circumstances: You are the sole owner of a rental property. The property has been tenanted continuously since you acquired it over 20 years ago. Over the period of your ownership the root structures of two trees have pushed a panel of a fence out of alignment. The fence is now unsafe. You will incur expenses to remove the trees and their root systems, and to re-align the damaged fence.

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

Reasons for decision: Summary: You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is private or capital in nature (section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)). You can deduct expenditure you incur for repairs to premises used for income producing purposes providing the expenditure is not capital in nature (section 25-10 of the ITAA 1997). The word 'repair' is not defined within the income 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 ( W Thomas & Co v. FC of T (1965) 115 CLR 58). Generally, works can be fairly 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. Expenditure for repairs to property is of a capital nature where the work is considered to be an initial repair, where the extent of the work carried out represents a renewal or reconstruction of the entirety, or the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair'. In your case, you will incur expenditure to re-align a panel of a fence that has been pushed out of alignment by the root structures of two trees on your property. The work to be done to repair the fence includes the removal of the trees and their root systems. Given the length of time you have owned the property the work is not considered an initial repair; rather, the problems with the trees and their root systems, and the damage to the fence, can be attributed to the period you have used the property to produce assessable income. The work to be done will not result in a greater efficiency of function of the property and is therefore not an improvement to the property, nor is the work a renewal or reconstruction of an entirety. The removal of the trees and the re-alignment of the fence merely return the property to the state it was in before the problem with the trees and fence arose. As such, the cost of removing the trees and their root systems, and the re-alignment of the fence, is not capital in nature and is deductible under section 25-10 of the ITAA 1997.