Private ruling: Rental deductions
Published: November 2012
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for the cost of replacing the roof on your rental property? | A1: Yes


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. Taxation Ruling 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. 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'. The work carried out on your property is not considered an initial repair, as you have owned the property for many years. The roof of your rental property was in extremely poor condition and was leaking due to its age and was in need of replacement. We consider the work undertaken to your rental property merely restores the efficiency of the previous function. Therefore the work undertaken is considered to be a repair and you are entitled to a deduction 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. | You replaced the roof with the same materials as previously used. | The property has been rented out for many years.