Private ruling: Deductibility of repairs to a relocated barn
Published: June 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Are you entitled to a deduction for repairs to the barn? | No.

Relevant facts and circumstances: There is a barn located on another party's property that is around 100 years old. Significant repairs to the barn are required. The owner of the property on which the barn is located is unable to carry out the necessary repairs to the barn. You intend to relocate the barn to your property and conduct the necessary repairs to the barn. The barn is designed in such a way that it can be disassembled in order to access parts that need replacing or correcting, and reassembled after the part is replaced and corrected. A written agreement between you and the owner of the property on which the barn is located provides you with a licence to use the barn. You use the barn as part of your income producing activities and have done so since at least as long as the written agreement has been in place.

Relevant legislative provisions: Subsection 25-10(1) Income Tax Assessment Act 1997. | Section 108-55 Income Tax Assessment Act 1997.

Reasons for decision: Detailed Reasoning - Ownership of the barn: There are only very limited circumstances in which a building is a separate asset from land, such as in section 108-55 of the Income Tax Assessment Act 1997 (ITAA 1997). There is nothing in the legislation in regards to separate assets that applies to your circumstances. You can only legally own the barn that is located on another party's property if the barn is not a 'fixture' but in fact a 'chattel' not annexed to the land, as fixtures are chattels that are annexed to the land and are treated in law as part of the land (Halsbury's Laws of Australia, vol. 19, paragraph 315-20). A building such as a barn is by its nature a fixture that is annexed to the land. Although the barn in this case may be designed in such a way to be partially dismantled, this is for the purposes of conducting repairs, not for the purpose of moving it to another location. It is concluded, therefore, that the barn is a fixture and therefore, and therefore the agreement cannot provide you with an ownership interest in the barn as the barn is fixed to the land it was built on and therefore the owner of that land is also the owner of the barn. You will obtain ownership of the barn at the time that it is relocated to your land. | Detailed Reasoning - Deductibility of repairs: Subsection 25-10(1) of the ITAA 1997 states that you can deduct expenditure you incur for repairs to premises (or part of premises) or a depreciating asset that you held or used solely for the purpose of producing assessable income. However, subsection 25-10(1) of the ITAA 1997 does not apply in your situation as expenditure incurred on an initial repair after property is acquired, if the expenditure is incurred in remedying defects, damage or deterioration in existence at the date of acquisition, is capital expenditure. This is so whether the property is purchased or obtained under lease or licence by the taxpayer (paragraph 59 of Taxation Ruling TR 97/23 Income tax: deductions for repairs ). In your case, you will be moving the barn from the other party's property to your property and will acquire legal ownership of it at that time. It is not necessary to consider whether the works you are undertaking are a 'repair' for the purpose of subsection 25-10(1) of the ITAA 1997, as any repairs you undertake that would have been deductible under subsection 25-10(1) of the ITAA 1997 will not be deductible as they will be initial repairs. Furthermore, any works undertaken that would not have been deductible under subsection 25-10(1) of the ITAA 1997 will also be capital in nature. Therefore, no part of the cost of the repairs and works to be undertaken to the barn are deductible to you under subsection 25-10(1) of the ITAA 1997.