Private ruling: Repairs
Published: December 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for the cost incurred to conduct maintenance work on your investment property? | A1: Yes.

Relevant facts and circumstances: You had extensive work completed on the external part of the property. Rot was found mainly in parts of the property. Repairs were made to the roof and associated plumbing and flashing were required. The maintenance conducted was to repair the property to bring it back to the state that it was prior to the rot. Repairs were conducted using the same material. The maintenance work did not update the building.

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

Reasons for decision: Summary: Section 25-10 of Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the cost of repairs to premises used for income producing purposes, to the extent that the expenditure is not capital in nature. Taxation Ruling TR 97/23 provides guidelines on the deductibility of repairs. Generally, a repair involves the restoration of the efficiency of function of the property being repaired without changing its character. A repair will merely replace a part of something or correct something that has become worn out or dilapidated. According to TR 97/23, expenditure for repairs to a property will be considered capital in nature and not deductible under section 25-10 of the ITAA 1997 if they provide a greater efficiency of function. Works will also be considered capital if they represent a renewal or reconstruction of an entirety, rather than a replacement of subsidiary parts of a whole. In your case, the works undertaken merely restored the efficiency of function of the property. Therefore, you are entitled to a deduction for the expenditure incurred to repair your rental property under section 25-10 of the ITAA 1997.