Private ruling: Rental property - repairs - tree removal
Published: March 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for your share of the expenditure incurred to fell and remove two trees from your jointly owned property that was used for both income-producing and private purposes? | A1: No. | Q2: Are you entitled to a deduction for a portion of your share of the expenditure incurred to fell and remove two trees from your jointly owned property that was used for both income-producing and private purposes? | A2: Yes.

Relevant facts and circumstances: You and your spouse purchased a property in as joint tenants. You and your spouse used the property as your main residence from the date of acquisition. The property was damaged while you were using the property as your main residence. The damage resulted mainly from large limbs falling from a number of trees. The majority of the damage was repaired soon after the damage occurred. You lodged an application with the local council to have the trees investigated for safety and potential removal to ensure no future damage was caused. The application was finalised approving the removal of two trees as they were considered dangerous. Various quotes to remove the trees were obtained You and your spouse moved out of the property and tenants moved in. You incurred expenditure to fell and remove the trees after the tenants moved in.

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

Reasons for decision: Summary: If you use a property only partly for the purpose of producing assessable income, you can deduct so much of the expenditure you incur to repair it as is reasonable in the circumstances, provided the expenditure is not capital in nature (section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the circumstances in which expenditure incurred for repairs is an allowable deduction under section 25-10 of the ITAA 1997. The word 'repairs' has its ordinary meaning. It ordinarily means the remedying or making good of defects in, damage to, or deterioration of, property to be repairs (being defects, damage or deterioration in a mechanical and physical sense ) and contemplates the continued existence of the property (paragraph 13 of TR 97/23). Work done to prevent or anticipate defects, damage or deterioration (in a mechanical or physical sense) in property is not in itself a 'repair' unless it is done in conjunction with remedying or making good defects in, damage to, or deterioration of, the property (paragraph 14 of TR 97/23). Expenditure associated with the removal of trees would not ordinarily be considered a repair for the purposes of section 25-10 of the ITAA 1997. However, in your case, the removal of the trees can be linked to the damage and repairs to the property. Whilst the work was done for safety reasons and to prevent further damage to the property, it is considered that this was done in conjunction with remedying or making good the damage to the property, and is therefore a repair for the purposes of section 25-10 of the ITAA 1997. In addition, the expenditure you incurred is not considered to be capital in nature. While the removal of the trees might appear to be an improvement by resolving the safety issue as well as removing the potential for future damage to the property, the expenditure incurred in felling and removing the trees does no more than remove the problems so as to put you in the same position you were in before the wind event resulted in the trees posing a threat to both persons and property. As you used the property only partly for income-producing purposes, you are entitled to a deduction under section 25-10 of the ITAA 1997 for so much of the expenditure as is reasonable in the circumstances.