Private ruling: De-stumping of land for lease
Date of advice: 29 June 2016
Published: August 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are the costs incurred in de-stumping land you leased an allowable deduction? | A1: Yes.

Relevant facts and circumstances: You have land available for lease that was purchased in 20XX. In 20YY a parcel of the land was leased to a third party to grow trees. The tree harvest was completed by 20ZZ and the land was released back to you in 20ZZ. A clause of the lease states the owner is responsible for removing any stumps or debris from the harvested land In 20ZZ you paid $XXX to have the stumps removed from the land. You removed the stumps in order to return the land to the condition it was in prior to being leased.

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, to the extent that the expenditure is not capital in nature. Taxation Ruling TR 97/23 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. • Repair costs are deductible where they are incurred during the period the property is held for income producing purposes and are attributable either to damage that occurs during your income producing use of the property or to defects that emerge suddenly during that time. 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. It is acknowledged in TR 97/23 that to repair property improves to some extent the condition it was in immediately before repair. A minor and incidental degree of improvement, addition or alteration may be done to property and still be a repair. However, if the work amounts to a substantial improvement, addition or alteration, it is not a repair and is not deductible under section 25-10 of the ITAA 1997. In your case the land that you leased was not improved in anyway by removing the stumps of the trees harvested, merely bought back to its original state in order to be leased again. Also, as per the lease signed with the Lessee it was your responsibility to have the stumps removed after the lease ended. Accordingly the costs incurred in the de-stumping of the land leased for the tree plantation is an allowable deduction under section 25-10 of the ITAA 1997.