Private ruling: Rental property deductions
Date of advice: 23 July 2015
Published: July 2015
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction for the cost of replacing the roof on your rental property? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You and your spouse purchased a rental property. At the time of purchase, the roof was in a good condition. During the year the rental property managers advised that the condition of the roof had deteriorated with rust in several areas causing leaks. On advice on roofing specialists, it was recommended that the entire roof was replaced. The material on the new roof is the same as the old roof. The property has always been income producing.

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 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 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. TR 97/23 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. Paragraph 40 of TR 97/23 specifically states that a roof is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety'. The replacement of the roof is therefore not capital. In your case, you have used the property for income producing purposes for the entire period of ownership. The material for the new roof is the same as the old roof. As your property is used for income producing purposes and the replacement of the roof is not an initial repair, is not the replacement of an entirety and is not an improvement, a deduction is allowable under section 25-10 of the ITAA 1997.