Private ruling: Rental deductions
Published: November 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for your share of the costs associated with the replacement of the guttering system and foyer door frame? | A1: Yes.

Relevant facts and circumstances: You have held an investment unit for more than a decade. You received a special levy notice from the body corporate to cover your share of the following costs:- • Replacement of all the gutters and downpipes of the building due to deterioration. • Replacement of a foyer door frame due to deterioration - replaced with a new door frame of the same style (the original door was kept and re-used).

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 Income tax: deductions for repairs, 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. The word 'repair' is not defined within the taxation legislation. Accordingly, it takes its ordinary meaning. Taxation Ruling TR 97/23 states that the word 'repair' ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property. An 'entirety' is defined as something 'separately identifiable as a principal item of capital equipment' ( Lindsay v. FC of T (1961) 106 CLR 377 at 385). Paragraph 40 of TR 97/23 specifically states that a roof or wall is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety' In your case, you have incurred expenses for your share of work carried out at the unit block where you hold an investment unit. The work associated with the replacement of the existing guttering system and foyer door frame were undertaken due to wear and tear over time and merely restored the building to its former state. The expense is not considered to be capital in nature. The work performed was not done as an entirety, is not an improvement and is not considered to be an initial repair. Therefore, you are entitled to a deduction for your share of the costs under section 25-10 of the ITAA 1997.