Private ruling: Rental property - removing and replacing the damaged balcony
Published: February 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

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

Relevant facts and circumstances: You own a property which has been rented or available for rent since you acquired it more than 10 years ago. A building report commissioned at the time of purchase noted that the handrail to the balcony was insecure with decay to the base fixings, and that while the sub-floor structure could not be inspected in its entirety due to the construction method, there was no reason to suspect all was not in order. The damage to the handrail that existed when you purchased the property was repaired some years ago. A building contractor recently advised that the sub-floor framing of the balcony was not structurally sound due to extensive timber rot, and recommended that it be completely replaced including the posts, bearers, joists and decking boards. You will incur expenses to remove and replace the damaged balcony. The replacement balcony will be made using materials that best match those existing and will not alter the size, form or configuration of the property.


Reasons for decision: Summary: You can deduct expenditure you incur for repairs to premises (or part of premises) that you use solely for the purpose of producing assessable income providing the expenditure is not capital in nature (section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). Expenditure for repairs is considered to be capital in nature where: • the extent of the work carried out represents a renewal or reconstruction of the entirety • the work results in a greater efficiency of function in the property and represents an improvement rather than a repair, or • the work is an initial repair. In your case you will be removing and replacing a damaged balcony. The balcony is a subsidiary part of a whole; the whole being the building itself, and therefore the balcony is not an entirety. The replacement balcony will be made of the same or similar materials to those used in the old balcony, and the new balcony will be of the same size and configuration as the old one. The work to be undertaken merely restores the efficiency of function of the balcony and is not considered to be an improvement. In addition, the evidence provided indicates that the damage that is being repaired was not in existence when you acquired the property, and is therefore not an initial repair. As such, you are entitled to a deduction under section 25-10 of the ITAA 1997 for the cost of removing and replacing the damaged balcony on your rental property.

Relevant legislative provision: Income Tax Assessment Act 1997 section 25-10