Private ruling: Rental property expenses
Date of advice: 23 November 2016
Published: January 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Questions and answers | Are you entitled to claim a deduction for the removal of trees on your rental property? | Yes


Relevant legislative provisions: Income Tax Assessment Act 1936 Section 8-1 | Income Tax Assessment Act 1997 Section 25-10

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. Section 25-10 of the ITAA 1997 allows a deduction for expenditure incurred for repairs to premises or plant that you held or used solely for the purpose of producing assessable income. However capital expenditure is not deductible under subsection 25-10(3) of the ITAA 1997. Expenditure associated with the removal of trees on a rental property is similar to that which normally falls for consideration under section 25-10 of the ITAA 1997. However, if tree felling is not strictly a repair, it may fall for consideration under section 8-1 of the ITAA 1997, if the expenditure is not deemed to be capital in nature. Taxation Ruling TR 97/23 outlines the Commissioner of Taxation's interpretation of section 25-10 of the ITAA 1997 and outlines the circumstances in which expenditure incurred by a taxpayer on repairs is an allowable deduction. Paragraph 13 of TR 97/23 provides a definition of the word repairs. It ordinarily means the remedying or making good of defects in, damage to, or deterioration of property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property. Repair involves restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair replaces a part of something or corrects something that is already in existence and has become worn out or dilapidated. Works can be described as repairs if they are done to make good damage or deterioration that has occurred by ordinary wear and tear, by accidental or deliberate damage or by the operation of natural causes during the passage of time. Maintenance includes the prevention of defects, damage or deterioration. Work done to prevent or anticipate defects, damage or deterioration (in a mechanical or physical sense) in property is not in itself a 'repair' unless it is done in conjunction with remedying or making good defects in, damage to, or deterioration of, the property. Some kinds of maintenance work constitute 'repairs', for example, painting plant or business premises to rectify existing deterioration and to prevent further deterioration. Maintenance work done to property not in need of repair, however, is not repair work and any expenditure for the work in these circumstances is not deductible under section 25-10 of the ITAA 1997. Work done to remedy defects, damage or deterioration does not cease to be a repair if it is also done to prevent or anticipate defects, damage or deterioration (in a mechanical or physical sense) in property. In Day v. Harland and Wolff (1953) 2 All ER 387 Pearson J observed at 388: I think that to repair is to remedy defects, but it can also properly include an element of the stitch in time which saves nine. Work does not cease to be repair work because it is done to a large extent in anticipation of forthcoming defects or in rectification of merely incipient defects, rather than the rectification of defects which have already become serious. Some element of anticipation is included. His Honour’s statement, by necessary implication, indicates that work done that is only in anticipation of forthcoming defects or deterioration does in fact cease to be repair work. Work done in anticipation of forthcoming defects or deterioration can only be considered a repair if it is done in combination with work of rectification. In your case, there were several large trees, one in particular on your rental property which you had removed. Trash from the trees had blocked guttering and drainpipes causing water entry and damage to the ceiling and walls of the dwelling. Removal of the trees would only be deductible as a repair if it had already caused damage to your property and these repairs had been done in conjunction with the removal of the trees. You removed trees from your rental property which were blocking drains and causing damage to the electrical cables through leaking in the roof, lifting pavers and causing damage to the roof. The removal of the trees is considered a repair as it makes good damage or deterioration that has occurred by the natural causes during the passage of time. As such, you are entitled to a deduction for the cost of removing the trees on your rental property as a 'repair' under section 25-10 of the ITAA 1997.

Relevant facts: You are the joint owner of multiple rental properties that are side by side. | You have owned these properties for a number of years and they have always been rented. | Since purchasing the properties some of the trees have grown very large. | An issue has been that the trees were planted too close to the house. | One tree is located at the front of the tree and three trees are at the back of the house. | These are a very large X tree and Y umbrella trees. | Most of the expenditure incurred was to cut down a very large X tree in the back yard that covered part of the roof of the house. | The Y trees were also cut down as they were planted close to the house and the roots have been causing damage to the sewerage pipes. | The front tree and the X tree have also damaged the roof have caused serious leaks into the house. | The most serious damage caused by the leakage was damage to the electrical work. | The roots from the front tree had led to the lifting of pavers.