Private ruling: Rental property expenses
Published: April 2013
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to claim an immediate deduction for the payment of a Special Administrative Fund Levy used for your share of the cost of the work to be carried out on your property? | A1: No.

Relevant facts and circumstances: You purchased a residential unit over four years ago. The body corporate of the unit block held a meeting at which it was determined that a Special Administrative Fund levy would be raised to attend to a number of works to and around the building. The notice of the levy was issued to you before the property was first made available for rent.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 and | 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 a rental property. To be eligible to claim such an expense you must be holding the property for the purpose of gaining or producing assessable income, and the expenses must not be capital in nature. Taxation Ruling TR 97/23 explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction. Under section 25-10, a deduction is allowed for expenditure incurred for repairs to property held for income producing purposes. However, expenditure incurred in repairing property not held, nor ever having been held, for income producing purposes is not deductible. Repair expenditure, incurred by a taxpayer in a year of income on property held in earlier years for non-income producing purposes, can qualify for deduction under section 25-10 if the property is held for income producing purposes when the repair expenditure is incurred: see Case V167 88 ATC 1107; AAT Case 12 (1986) 18 ATR 3056 and Case W7 89 ATC 161; AAT Case 4845 (1988) 20 ATR 3170. Section 25-10 requires that you 'incur' expenditure for repairs for it to be deductible. For this purpose, the word 'incur' in section 25-10 has the same meaning as that given by the courts to the word 'incurred' in relation to the general deduction provisions in section 8-1 of the ITAA 1997: Case Q48 (1965) 15 TBRD 229. Broadly stated, to be 'incurred' there needs to be a presently existing pecuniary obligation in relation to the repairs that has become due, but not necessarily payable, at that time. The taxpayer must be definitively committed to the expenditure. You purchased your unit over four years ago, and the apartment block is now in need of repair. You were notified of your portion of the repair costs prior to the property becoming available for rent. As discussed above, a deduction may be available for costs incurred for repairs on property previously held for private purposes providing it is held for income producing purposes when the repair costs are incurred. Under section 25-10 of the ITAA 1997, incurred means a presently existing pecuniary obligation in relation to the repairs is due, although not necessarily payable, at that time. In your case, the repair costs were incurred when you were notified of your portion of the total repair costs even though the amount was not payable at this time. You, as owner of the apartment, were committed to the expenditure when you were notified of the costs. As a result, the repair costs are considered to be incurred in repairing a property not being held for an income producing purpose. That is, although the property was made available for rent after you received the notice of repair costs, at the time you incurred the costs, the property was not used or made available for an income producing purpose. Therefore, the costs incurred are not deductible under section 25-10 of the ITAA 1997.