Private ruling: Rental deductions
Published: May 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for the cost of replacing the rusted gutters, rotted window frame and deteriorated section of fence 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 (ITAA 1997) states expenditure incurred by you for repairs to premises used by you 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. Taxation Ruling TR 97/23 provides the Tax Office'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. | Detailed Reasoning - Replacement of a subsidiary part or an entirety: In the case of W Thomas & Co Pty Ltd v. Federal Commissioner of Taxation [1966] ALR 915;115 CLR 58; (1965) 14 ATD 78; 39 ALJR 246; (1965) 9 AITR 710, which involved a claim for general repairs to a building, it was said that the question was not whether the roof or floor or some other part of the building, looked at in isolation, was repaired as distinct from wholly reconstructed, but whether what was done to the floor or the roof was a repair to the building. In your case, the building itself is considered to be the entirety. The gutters and window are considered a subsidiary part of the building. As you have only replaced a section of the fence this is considered a subsidiary part of the entire fence. | Detailed Reasoning - Improvement v Repair: The Commissioner accepts that the use of a different material does not necessarily prevent the work from being a repair, provided the work merely restores a previous function to the property. Whether the use of a more modern material to replace the original material qualifies as a repair is a question determined on the facts of each case. It is restoration of a thing's efficiency of function (without changing its character) rather than exact repetition of form or material that is significant. In your case the work undertaken to your rental property merely restores the efficiency of the previous function. The work is not an improvement and is not considered an initial repair. Therefore the work undertaken in replacing the rusted gutters, rotted window frame and deteriorated section of fence are considered to be repairs and you are entitled to a deduction under section 25-10 of the ITAA 1997.

Relevant facts: You have owned a rental property for a number of years. | All the gutters around the house had deteriorated over this time with various degrees of rust and holes in them. They have now been replaced with colour bond gutters. | A window had a rotten frame and you replaced it with an aluminium window of the same size, shape and style. | A section of wooden picket fence had deteriorated and was replaced.