Private ruling: Rental property expenses - repairs
Date of advice: 17 March 2016
Published: May 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is a deduction allowable for the cost of repairing damaged eaves and surrounds on a rental property? | A1: Yes

Relevant facts and circumstances: You purchased a property in 20XX and lived in it as a main residence. In 20XX you moved out of the property and obtained a tenant. The eaves and surrounds of the house and the garage were in good condition when the property was purchased. During a storm, the eaves and their surrounds were damaged. As the eaves were constructed from asbestos, you were required to remove and replace the asbestos, and undertake repairs to the surrounds.

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. In your case, the removal and replacement of the damaged eaves is not considered an initial repair or a renewal or reconstruction of the entirety. The damage to the eaves and surrounds did not exist when the property was purchased, and was caused by a storm which occurred after the property had been tenanted. The fact that the eaves were constructed from asbestos meant there was no option but to have them completely replaced. Paragraph 88 of TR 97/23 states that a repair involves a restoration of something without changing its character. The significant factor is the restoration of efficiency rather than exact repetition of form or material. It is considered the work required to correct the damaged eaves and their surrounds constitutes a repair as the change in material of the eaves did not improve their efficiency or function. The work undertaken has merely replaced the damaged eaves and surrounds using a modern substitute for the asbestos. Therefore, you are entitled to a deduction under section 25-10 of the ITAA 1997 for the repairs to the leaking areas of the roof.