Private ruling: Rental Property Deductions
Published: February 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for the cost of replacing the windows in your rental property? | A1: Yes.

Relevant facts and circumstances: You own a rental property. You have rented out the property for many years. The windows in your rental property were weathered and rotten beyond repair. The windows in your rental property were replaced. Due to the age of the property, the exact type of window was no longer available. The new windows were the most basic option available.

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. 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 window is only part of a building and does not constitute an entirety. The building itself is the entirety. In your case, you replaced the windows in your rental property because they were damaged and rotten beyond repair. It is accepted that, even though the new windows are made of a different material, the replacement of the windows still constitutes a repair as the change in material will not improve the efficiency or function of the property. The windows have merely been replaced by their modern equivalent which has restored the original function. Therefore, you are entitled to a deduction for the cost of repairing your rental property under section 25-10 of the ITAA 1997.

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