Private ruling: Rental property expenses
Published: April 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction for the decline in value for the blinds in your rental property? | A1: Yes. | Q2: Are you entitled to a capital works deduction in relation to the cost of purchasing and installing new taps in your rental property? | A2: Yes. | Q3: Are you entitled to a deduction for money paid to fix the water leakage in your garage of your rental property? | A3: Yes. | Q4: Are you entitled to a 50% discount on the capital gain made on the sale of your shares in entity A? | A4: Yes. | Q5: Is the cost base of your entity B shares $x.xx? | A5: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-10 | Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 Division 43 | Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Division 115

Reasons for decision: Detailed Reasoning - Repairs: 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, to the extent that the expenditure is not capital in nature. Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the circumstances in which deductions for repairs are allowable. TR 97/23 states that what is a repair for the purposes of section 25-10 of the ITAA 1997 is a question of fact and degree in each case having regard to the appearance, form, state and condition of the particular property at the time the expenditure is incurred and to the nature and extent of the work done to the property. The ruling further states that repairs mean the remedying or making good of defects in, damage to, or deterioration of, property. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. 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, or • the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than 'repair', or • the work is an initial repair. TR 97/23 states that with a repair, the work restores the efficiency of function of the property without changing its character. An improvement, on the other hand, provides a greater efficiency of function in the property. It involves bringing a thing or structure into a more valuable or desirable state or condition than a mere repair would do. In your case, the amount paid to fix the water leakage is a deductible repair under section 25-10 of the ITAA 1997. You should keep the relevant emails, quote and other documents relating to the work to support your deduction. | Detailed Reasoning - Capital works: Division 43 of the ITAA 1997 provides a deduction for capital works. Capital works includes buildings and structural improvements, and also extensions, alterations or improvements to buildings and structural improvements where a residential property is used for income producing purposes. Subsection 43-25(1) of the ITAA 1997 provides that the rate of deduction for capital works which began after 26 February 1992 for a residential rental property is 2.5%. However, a deduction cannot be made prior to the completion of the capital works (section 43-30 of the ITAA 1997). You purchased new taps because they were on sale. You later had the new taps installed with new washers. You have not advised that the taps which were replaced were damaged or not functioning properly. Therefore the replacement of the taps cannot be considered a repair; rather this cost is capital in nature. A capital works deduction is allowed under Division 43 of the ITAA 1997. The total cost for the taps, washers and installation are included in the calculation of your capital works deduction. | Detailed Reasoning - Depreciating assets: Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose. The curtains are regarded as depreciating assets for Division 40 of the ITAA 1997 purposes. A deduction for their decline in value is an allowable deduction when it is used for income producing purposes. For depreciating assets you can choose to work out the effective life yourself or you can use the effective life as determined by the Commissioner. The effective life as determined by the Commissioner for blinds is 10 years. Therefore you can choose to use 10 years as the effective life of the blinds when calculating your depreciation deduction. | Detailed Reasoning - Capital gains tax (CGT): Section 108-5 of the ITAA 1997 provides that a CGT asset is any kind of property, or a legal or equitable right that is not property. Your shares are a CGT asset under section 108-5 of the ITAA 1997. Section 102-20 of the ITAA 1997 states that a capital gain or capital loss is made only if a CGT event happens. The gain or loss is made at the time of the CGT event. A discount capital gain may be applied if certain conditions are met under Division 115 of the ITAA 1997. Section 115-5 of the ITAA 1997 states a discount capital gain is a capital gain that meets the requirements of sections 115-10, 115-15, 115-20 and 115-25. You sold your entity A shares in the relevant financial year. As you acquired these shares more than 12 months ago and meet the other conditions of Division 115 of the 1997, you are entitled to a 50% discount capital gain.

Relevant facts: You have a rental property. | You replaced blinds because they were not working properly and presented a hazard. | The cost of the new blinds was over $300. | In 20XX you paid a tradesman to fix the water leakages in the garage at your rental property. | You bought taps costing because they were on sale. Later, you had a plumber replace taps in your rental property with the new items. | In the relevant financial year you sold your remaining shares in entity A. You bought these shares several years ago. | You sold X of your shares in entity B in the relevant financial year. You had paid for these shares in instalments which totalled $x.xx.