Private ruling: rental expenses
Published: March 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for the costs in replacing the asbestos roof 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. The property had existing tenants and has always been available for rent. During a storm, a portion of the roof sustained damage. You got three quotes for repair of the roof but all three advised that you would have to replace the roof due to asbestos. The asbestos roof was replaced with Colourbond.

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 sustained storm damage. The use of Colourbond 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.