Private ruling: Rental deductions
Published: October 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to an immediate deduction for the cost of replacing the roof 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) 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. 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 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 roof had deteriorated and was leaking in a number of places. The use of corrugated iron to replace the asbestos merely constituted the utilisation of a modern equivalent in substitution for an obsolete material. The replacement of the roof did not improve the efficiency or function of the property; rather it merely restored it to its original function. It is accepted that the replacement of the leaking roof constituted a repair to the property. Therefore, you are entitled to a deduction for the cost of replacing the roof of your 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: You have an investment property which was built in the early 70's. | You are the sole owner of this property and have owned it for over 10 years. | The roof on the property was an asbestos roof which was breaking down due to the age and had started leaking. | You had the roof inspected and the report indicated the asbestos fibres were expanding and starting to retain water causing the leaking. | The entire roof was leaking rather than only one part of the roof. | You replaced the asbestos roof with corrugated iron.