Private ruling: Rental - deductions (repairs, capital works, interest, borrowing expenses)
Published: August 2013
Date scheme commenced: 1 July 2012.

Ruling: Q1: Are you entitled to a deduction for the cost incurred as a result of damage to a motor vehicle involved in an accident that happened whilst on your way to repair your rental property? | A1: Yes. Year ended 30 June 2013.

Relevant facts and circumstances: You have a rental property. You hired a vehicle to do repairs on your rental property. When you were on the way to your property you had a car accident. The car accident was found to be your fault and you were liable for insurance excess payments. You paid an amount of approximately $1000 in excess insurance payments.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowable where the losses or outgoings are of a capital, private or domestic nature or another provision prevents the deduction. Expenditure in the form of compensation or damages paid to third parties will be an allowable deduction under section 8-1 of the ITAA 1997 to the extent that it is incurred in the course of gaining or producing assessable income, and the expense is not of a capital, private or domestic nature. In Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236 (Ronpibon's Case), the High Court stated that for an expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. In Case T22 86 ATC 223; (1986) 29 CTBR (NS) Case 25 a lawn mowing contractor caused a motor accident while driving in the course of his work. In making its decision, the Board of Review applied the 'incidental and relevant' test from the decision of the High Court in Ronpibon's Case and held that the payments made to the other parties involved in the accident were deductible as the expenses were 'incidental and relevant' to the gaining or producing of the taxpayers assessable income. The Board of Review further stated that 'the expenses were clearly not outgoings of a capital, private or domestic nature'. In your case, you were travelling to your rental property to undertake repairs when the accident occurred. As the accident occurred in the course of producing assessable income, the expenses associated with the liability to pay for the damage to the vehicles involved in the accident are incidental and relevant to the production of that assessable income and are not of a capital, private or domestic nature. Therefore, you are entitled to a deduction under section 8-1 of the ITAA 1997, for costs incurred as a result of damage caused to the vehicles involved in motor vehicle accident that happened on your way to undertake repairs on your rental property.