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

Ruling: Q1: Can you claim a deduction for work carried out to the roof of your rental property? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You have owned a commercial rental property for over 7 years. You have had repairs carried out to sections of the guttering and roof of the property. Some of the guttering was repaired with stainless steel rather than galvanised iron, as the property is situated close to the sea. There was no damage apparent to the property when you purchased it.

Relevant legislative provisions: Income tax Assessment Act 1997 Section 8-1, | Income tax Assessment Act 1997 Section 25-10 and | Income tax Assessment Act 1997 Subsection 25-10(3).

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature. Section 25-10 of the 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. The word repair is not defined within the taxation legislation. Accordingly, it takes its ordinary meaning. In W Thomas & Co Pty Ltd v. Federal Commissioner of Taxation (1965) 115 CLR 58; (1965) 14 ATD 78; (1965) 9 AITR 710, it was held that a 'repair' involves a restoration of a thing to a condition it formerly had without changing its character. It is the restoration of efficiency in function rather than the exact repetition of form or material that is significant. 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. Repair or improvement Paragraph 45 of TR 97/23 distinguishes between a 'repair' and an 'improvement' to property which one needs to consider the effect that the work done on the property has on its efficiency of function. If the work entails the replacement or restoration of some defective, damaged or deteriorated part of the property, one does not focus on the effect the work has on the efficiency of function of the part. That is not determinative of whether the property is repaired or improved. It is a relevant factor to take into account, however, in considering the effect of the work on the property's efficiency of function. It is possible, for instance, that the replacement of a subsidiary part of property with a part better in some ways than the original is a repair to the property without the work being an improvement to the property. In your case, you have replaced sections of guttering and roofing of your rental property to ensure it remains safe and functional for your commercial tenant. This will restore the property to its original condition, function and appearance. It is not considered that the use of stainless steel instead of galvanised iron would constitute an improvement in your circumstances The replacement of the guttering and roofing restores the property to its former appearance without changing its character. The expenditure incurred in doing this is deductible 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.