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 an outright deduction for the cost of the works carried out on the verandah of your rental property? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You purchased a rental property more than 20 years ago. The property including the verandah was in good condition at the time of purchase. The property has been leased to tenants since its purchase. Over time, the condition of the verandah has deteriorated due to exposure to the weather. Major works have been carried out on the verandah to restore it to its previous condition. The existing verandah posts were reinstalled as part of the process. The verandah has always been part of the house and not an addition to the house at a later point in time. The roof of the house covers the verandah and has always done so.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 25-10.

Reasons for decision: Summary: As the works carried out on the verandah of your rental property are considered repairs, you are entitled to a deduction under section 25-10 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 25-10 of ITAA 1997 allows a deduction for the cost of repairs to premises used for income producing purposes, to the extent that the expenditure is not capital in nature. Taxation Ruling TR 97/23 provides guidelines on the deductibility of repairs. Generally, a repair involves the restoration of the efficiency of function of the property being repaired without changing its character. A repair will merely replace a part of something or correct something that has become worn out or dilapidated. According to TR 97/23, expenditure for repairs to a property will be considered capital in nature and not deductible under section 25-10 of the ITAA 1997 if they provide a greater efficiency of function. Works will also be considered capital if they represent a renewal or reconstruction of an entirety, rather than a replacement of subsidiary parts of a whole. It is acknowledged in TR 97/23 that to repair property improves to some extent the condition it was in immediately before repair. A minor and incidental degree of improvement, addition or alteration may be done to property and still be a repair. If the work done to a property involves an enhancement arising from the use of more modern materials and it does not change the property's character, the expenditure can still be characterised as a repair. In your case, the verandah of your rental property deteriorated due to exposure to the weather. Major works were carried out on the verandah and the existing posts were reinstalled. The works to the verandah do not constitute an improvement to the property. The works are not considered a replacement of an entirety as the verandah forms only a part of the building. The works undertaken on the verandah merely restored the efficiency of function of the property. Therefore, you are entitled to a deduction for the expenditure incurred to repair the verandah 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.