Private ruling: Rental repairs
Date of advice: 13 August 2015
Published: August 2015
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction for the cost to relevelling to your rental property? | A1: Yes.

Relevant facts and circumstances: You have a rental property which has been rented since xxxx. The property was flooded. Subsequently, the doors and windows became hard to open and cracks appeared where the ceiling met the walls. The previous tenants vacated the house. You took the opportunity to engage a house leveller to look at the levels in the house. The property suffered serious sinking of the stumps. In order to rectify the damage, relevelling of the house by packing the tops of the stumps was required. You incurred a cost of a few thousand dollars in relation to the relevelling of the rental property.

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. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs where the expenditure is of a capital nature. The word 'repair' is not defined within the taxation legislation. Taxation Ruling TR 97/23 states that the word 'repair' 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. 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. Paragraph 40 of TR 97/23 provides an example, stating that a roof is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety'. In your case, you have owned the property for a number of years. You have relevelled the house in accordance with a house leveller's recommendations. As your property is used for income producing purposes and the relevelling of the house by packing the tops of the stumps is not an initial repair, is not the replacement of an entirety and is not an improvement, a deduction is allowable.