Private ruling: Deduction for building repairs
Published: July 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 01 July 2010

Ruling: Q1: Are you entitled to a deduction for the cost of the repairs to the veranda at your rental property? | A1: Yes

Relevant facts and circumstances: You jointly own a rental property which has been rented continually for a number of years. The house is constructed of sandstone and was built in the late 1800's and has an attached wooden first floor veranda at the front. This veranda area is exposed to the weather and the area had been affected over time. The front veranda has deteriorated in recent years and was dangerous and collapsing and repair was necessary for the safety of tenants. You engaged a local builder to carry out the repairs that included removing and repairing the veranda floor, retiling the lower floor, repairing the balustrade, replacing the upper level ceiling and replacing the supporting columns. These replacement columns are galvanised steel and are the modern equivalent of the wooden columns that were replaced. The repaired veranda is the same dimensions and performs the same function as the original one. The work undertaken is not an initial repair or work undertaken on an entirety.

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 if the expenditure is not of a capital nature. Repairs are considered to be 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. In your case the building itself is considered to be the entirety and the work carried out on the veranda is not the renewal or reconstruction of the entirety. The work is not considered to be an initial repair as you have rented the property for a substantial time and the veranda has deteriorated over this time. In respect of whether all or any of the work is an improvement rather than a 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. Whilst you have replaced some wooden posts with galvanised steel it is considered that these are the modern equivalent. The new veranda is of the same dimensions and we consider the work undertaken merely restores the efficiency of the previous function. The work undertaken is considered to be a repair and you are entitled to a deduction under section 25-10 of the ITAA 1997.

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