Private ruling: Rental property expenses
Published: January 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to claim an immediate deduction under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for the expenses you will incur in repairing your rental property? | A1: 

Relevant facts and circumstances: You own a 50% share of a residential investment rental property. The property has been rented out since 2006 and is still currently rented out. During the 2012 financial year you will undertake extensive repairs to the interior and exterior walls of the property that have sustained damage as a result of salt damp. The exterior wall will have the stonework replaced and repaired. Internally, the plasterwork will be removed and replaced and then repainted. The repairs will return the house to its original condition and also prevent further salt damp. The salt damp repairs with cost approximately $X and, replastering and re-painting of the walls will cost approximately $X.

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

Reasons for decision: Detailed Reasoning - Detailed reasoning: Where an expense is incurred for repairs by the owner of a rental property, a deduction for the expense is allowable under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997). The deduction is allowable in full in the year the expense is incurred. Taxation Ruling TR 97/23 discusses the circumstances in which an expense for work carried out on an income producing capital asset (such as a rental property) can be fairly described as a repair expense, as opposed to an expense for an improvement or an initial repair. Considering the facts of your situation, it is accepted the works to be carried out on your rental property are repair expenses, as they meet the guidelines in TR 97/23 for deductibility and do not constitute: § 'improvements', as they merely restored the efficiency of function of the property without materially altering its character § 'initial repairs', as it was only after 5 years of utilising the property for income producing activities that the repairs were required. Accordingly, the expenses you incurred in repairing your rental property are deductible under section 25-10 of the ITAA 1997. | Detailed Reasoning - Further issues for you to consider: Co-owners of a rental property, who are not carrying on a rental property business, must divide the income and expenses of the rental property in-line with their legal interest in the property. In your case, as you own a 50% share or the property, you would be entitled to claim a 50% share of any expenditure incurred in relation to the property.

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