Private ruling: Income tax – deductions - rental property expenses – repairs and maintenance expenses
Date of advice: 12 January 2018
Published: May 2018
Ruling period: 1 July 2016 to 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to claim a deduction for repairs to your rental property due to water damage? | A1: Yes

Relevant facts and circumstances: You own a rental property which you have rented for a number of years. There were costs incurred on the property to rectify water damage to the property. Over a number of years water was entering the property from the balconies and was seeping under the tiles. The seepage of water had damaged a number of levels of the property including the balconies, stairs and garage. The replacement new tiles were limited to those in a certain price range.

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

Reasons for decision: Summary: Repairs 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, to the extent that the expenditure is not capital in nature. Taxation Ruling TR 97/23 explains the circumstances in which deductions for repairs are allowable. It states that what is a repair for the purposes of section 25-10 of the ITAA 1997 is a question of fact and degree in each case having regard to the appearance, form, state and condition of the particular property at the time the expenditure is incurred and to the nature and extent of the work done to the property. The ruling further states that repairs mean the remedying or making good of defects in, damage to, or deterioration of, property. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. 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 ● the works result in a greater efficiency of function in the property, representing an ‘improvement’ rather than ‘repair’ ● the work is an initial repair. Repair costs are deductible where they are incurred during the period the property is held for income producing purposes and are attributable to damage that occurs during your income producing use of the property or to defects that emerge suddenly during that time. TR 97/23 states that with a repair, the work restores the efficiency of function of the property without changing its character. An improvement provides a greater efficiency of function in the property. It involves bringing a thing or structure into a more valuable or desirable state or condition than a mere repair would do. It is acknowledged in TR 97/23 that to repair property improves to some extent the condition it was in immediately before repair. A minor and incidental degree of improvement, addition or alteration may be done to property and still be a repair. However if the work amounts to a substantial improvement, addition, or alteration, it is not a repair and is not deductible under section 25-10 of the ITAA 1997. Painting and repairs Fixing the damaged decking, stair treads, door to garage, garage ceiling and cornice, first level ceiling, wall and floor, and upstairs balcony are considered to be deductible repairs. That is, this work is not regarded as capital in nature and is regarded as normal maintenance expenditure. This also applies to the removal and dumping of trade waste. A deduction is allowable under section 25-10 of the ITAA 1997.