Private ruling: Deductions - repairs
Published: June 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the entity entitled to a deduction for the cost of replacing the shopfront canopy of a commercial rental property? | A1: Yes.


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

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. 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. The word 'repair' is not defined within the taxation legislation. Accordingly, it takes its ordinary meaning. 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. An entirety is defined as something separately identifiable as a principal item of capital equipment ( Lindsay v. FC of T (1961) 106 CLR 377 at 385). Paragraph 40 of Taxation Ruling TR 97/23 specifically states that a roof is only part of a building and does not constitute an entirety. The building itself is the entirety. In your case, the rental property awning had deteriorated to a level where it required replacement. It is accepted the use of mini-orb to replace the metal sheeting constitutes a repair as the change in material will not improve the efficiency or function of the property. The awning has merely been repaired by its modern equivalent which restored the original function. Therefore, the entity is entitled to a deduction for the cost of replacing the awning of the rental property under section 25-10 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: The entity purchased a rental property several years ago. | Since time of acquisition the property has always been rented out to commercial tenants. | At the time of purchase the shopfront canopy of the property, made of metal sheeting, was in reasonably good condition. | The soffit lining and the front fascia of the shopfront canopy became damaged and deteriorated by ordinary wear and tear. | The soffit lining, front fascia (and where required the timber batons and structural timber rafters) were replaced. | No work was required to the structural steel frame. | The new soffit and façade is made of metal deck sheeting, mini-orb type. The profile (mini-orb) is different to the pre-existing (panelled) profile. | The new material does not change or enhance the function of the shopfront canopy. It is merely a modern-day equivalent of an old product.