Private ruling: rental property expense
Published: January 2014
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to claim a deduction for the special purpose levies raised for repair work undertaken on your rental property? | A1: Yes.

Relevant facts and circumstances: You are the sole owner of a rental property which has had major repairs to concrete parts due to concrete cancer. Your property is one of a block of units. The property is over 80 years old, and you acquired it several years ago. The need for repairs was not evident when you acquired the property. The property has been rented for many years before you acquired it, and you have never lived in it. The concrete parts were deteriorating and were replaced with the same material. The amounts for the repairs have been raised by a series of special levies which are continuing to cover the costs.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 25-10 | Income Tax Assessment Act 1997 Subsection 25-10(3)

Reasons for decision: Summary: You may be able to claim a deduction for body corporate fees and charges you incur for your rental property. Body corporate fees and charges may be incurred to cover the cost of day-to-day administration and maintenance or they may be applied to a special purpose fund. If the body corporate requires you to make payments to a special purpose fund to pay for particular capital expenditure, these levies are not deductible. Payments to cover the cost of capital improvements or repairs of a capital nature are not deductible. However if special levies are raised to cover deductible repairs the levy amounts will be deductible. Therefore in order to determine whether the special levies raised by your body corporate are deductible it must be determined whether the repairs undertaken are of a capital or revenue nature. 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. Accordingly, it takes its ordinary meaning. In W Thomas & Co v. Federal Commissioner of Taxation (1965) 115 CLR 58); (1965) 14 ATD 78; (1965) 9 AITR 710, it was held that a 'repair' involves a restoration of a thing to a condition it formerly had without changing its character. It is the restoration of efficiency in function rather than the exact repetition of form or material that is significant. Taxation Ruling 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, or · the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than 'repair', or · the work is an initial repair. In your case, the work was not considered to be the renewal or reconstruction of an entirety, nor an improvement (as the replacement of the concrete parts was with the same material and did not create a significant increase in the efficiency or function of the property) and is not considered to be an initial repair. Therefore the work carried out to the concrete parts is a deductible repair. Accordingly, the special levies raised for the cost of the repairs are deductible.