Private ruling: Rental property - repairs - demolition and replacement of damaged verandas
Published: February 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a repairs deduction for the cost of removing and replacing the damaged verandas on your rental property? | A1: Yes

Relevant facts and circumstances: You have owned a residential rental property for many years. You were advised that the verandas on the property were collapsing and were unsafe for tenants. The verandas were in good condition when you acquired the property. A structural inspection concluded that the verandas were structurally deficient and that urgent maintenance was required. The verandas had deteriorated over time due to foundation movement and normal wear and tear. It was recommended that, due to their dilapidated condition, the verandas be demolished and rebuilt to an adequate standard. The original verandas, which were in good condition when you acquired the property, were a timber structure. You incurred expenses to have the verandas were demolished and rebuilt. The replacement verandas are of the same dimensions as the original ones, made from a combination of concrete slab, timber framework and gyprock lining. Concrete was used rather than timber as it was a cheaper and longer lasting option.

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

Reasons for decision: Summary: You can deduct expenditure you incur for repairs to premises (or part of premises) that you use solely for the purpose of producing assessable income providing the expenditure is not capital in nature (section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). Expenditure for repairs is considered to be capital in nature where: • the extent of the work carried out represents a renewal or reconstruction of the entirety • the work results in a greater efficiency of function in the property and represents an improvement rather than a repair, or • the work is an initial repair. In your case you will be removing and replacing damaged verandas. A veranda is a subsidiary part of a whole; the whole being the building itself, and therefore the verandas themselves are not entireties. The replacement verandas are of the same dimensions as the old ones, and while some different materials have been used, the work undertaken merely restores the efficiency of function of the verandas and is not considered to be an improvement. The verandas were in good condition when you acquired the property. The damage that is being repaired is a result of normal wear and tear that has occurred over the passage of time. Therefore, the works done are not considered initial repairs. As such, you are entitled to an immediate deduction under section 25-10 of the ITAA 1997 for the cost of demolishing and replacing the damaged verandas on your rental property.