Private ruling: Rental property - deductions - repairs - new depreciating assets - capital works
Date of advice: 9 April 2020
Published: May 2020
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to an immediate deduction for the cost of the following works to your rental property: · removal and disposal of existing kitchen and appliances · removal and disposal of tiles in the kitchen · removal and disposal of existing carpet and edging · painting of unit throughout, and · acquiring and installing a new rangehood? | A1: Yes. These works are not considered to be initial repairs or replacements of entireties; nor are they considered to be improvements. As such, the cost of carrying out these works is deductible under section 25-10 of the Income Tax Assessment Act (ITAA 1997) (except the supply of the rangehood which is a (capital) depreciating asset). As the cost of the rangehood is less than $300 you are entitled to an immediate deduction for its cost under section 40-25 of the ITAA 1997. Further information about expenses you can claim an immediate deduction for can be found by searching 'QC 23635' on ato.gov.au | Q2: Are you entitled to a decline in value deduction for the cost of: · acquiring and installing a new oven and cooktop · replacing flooring to bedrooms, lounge room and hallway · acquiring and installing new LED lighting, and · acquiring and installing a new air conditioner? | A2: Yes. These items are depreciating assets as they have a limited effective life and can reasonably be expected to decline in value over the time they are used. As you use these depreciating assets in your rental property you are entitled to claim deductions for their decline in value under section 40-25 of the ITAA 1997. Further information about claiming deductions for depreciating assets in residential rental properties can be found by searching 'QC 23636' on ato.gov.au | Q3: Are you entitled to a capital works deduction for the cost of: · a new laminated kitchen with timber bench top, stainless steel handles and soft door closers · replacing the tiles on the kitchen splashback · replacing the kitchen sink and tap, and · installing new wiring and replacing/installing new power points? | A3: Yes. The kitchen (including the sink, taps and tiled splashback), new wiring and power points are affixed permanently to the building and cannot be easily removed without causing damage. As such, they are considered to form part of the fabric of the building and are considered capital works. You are entitled to a capital works deduction for the cost of these items under Division 43 of the ITAA 1997 over 40 years at the rate of 2.5% per annum. Further information about claiming deductions for capital works can be found by searching 'QC 23636' on ato.gov.au

Relevant facts and circumstances: You purchased a property approximately 20 years ago. When you purchased the property it was in its original condition. The property has always been used to produce assessable income. Your tenant recently vacated the property. The managing agent advised that the property is in poor condition and required a significant amount of work to bring it up to a standard to re-let. You intend on carrying out the following work to the property: · removing and replacing the existing kitchen and splashback · installing a new oven, cooktop, rangehood, kitchen sink, tap and undertaking associated plumbing and electrical work · removing and replacing the existing carpet to bedrooms, lounge room and hallway with similar flooring · painting of the unit throughout, and · removing and replacing existing lighting with new lighting throughout. The new rangehood will cost less than $300. All other new depreciating assets will cost in excess of $300. You intend to re-let the property after the required work has been completed.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 25-10 | Income Tax Assessment Act 1997 section 40-25 | Income Tax Assessment Act 1997 Division 43