Private ruling: Rental property maintenance
Published: September 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for your share of the cost of work carried out on your rental property? | A1: Yes


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) states expenditure incurred by you for repairs to premises used by you for the purpose of producing assessable income is an allowable deduction. However, a deduction is not allowable if the expenditure is of a capital nature. Taxation Ruling TR 97/23 provides the Tax Office's view on repairs that are allowable under section 25-10 of the ITAA 1997 and 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 work results in a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair', or ● the work is an initial repair. | Detailed Reasoning - Replacement of a subsidiary part or an entirety: In the case of W Thomas and Co Pty Ltd v. Federal Commissioner of Taxation [1966] ALR 915;115 CLR 58; (1965) 14 ATD 78; 39 ALJR 246; (1965) 9 AITR 710, which involved a claim for general repairs to a building, it was said that the question was not whether the roof or floor or some other part of the building, looked at in isolation, was repaired as distinct from wholly reconstructed, but whether what was done to the floor or the roof was a repair to the building. In your case, the building itself is considered to be the entirety. The roof is considered a subsidiary part of the building. You also have only replaced parts of one section of the roofing, as it is in two pieces, upper and lower. As you have only replaced some elements of the roof this is considered a subsidiary part of the roof. | Detailed Reasoning - Improvement v Repair: The Commissioner accepts that the use of a different material does not necessarily prevent the work from being a repair, provided the work merely restores a previous function to the property. Whether the use of a more modern material to replace the original material qualifies as a repair is a question determined on the facts of each case. It is restoration of a thing's efficiency of function (without changing its character) rather than exact repetition of form or material that is significant. In your case the work undertaken to your rental property merely restores the efficiency of the previous function. The work is not an improvement. | Detailed Reasoning - Initial repair: You have had the property rented out from late 20XX until the present time, so the work carried out is not considered an initial repair. Therefore the work undertaken in replacing the tiles, beams and other parts of the lower roof is considered to be a repair and you are entitled to a deduction under section 25-10 of the ITAA 1997.

Relevant facts: The property was purchased over 15 years ago, and was occupied as a principal place of residence from then until late 20XX, and since then it has been rented out continuously. | The property is over X years old, and the original roof had been deteriorating over a period of time. It had been repaired by replacing the tiles, which due to the age were difficult to source. | The repairer advised on repair to the whole roof due to damage to ceilings and roof structure. | The leaking worsened in late 20XX, which was verified by the managing agents. | The dwelling has a roof in two parts. In this application, all reference to the whole roof is in fact in reference to one of the two roof sections. The other section was not affected. | You obtained several quotes, which were for both the existing tile type, and also colorbond. | You wished to stay with tiles, and approached a builder who was known to you. | Inspection by the builder showed that there was extensive sagging also, which was initially addressed by attempting to adjust the trusses, which were rusty. | Two beams were then inserted on each side of the roof, replacing existing beams. | The gutters were in reasonable condition and did not need attention. | The old tiles were replaced with new tiles.