Private ruling: rental property expenses
Date of advice: 30 August 2016
Published: October 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to claim your share of the expenses of underpinning your rental property garage as a repair? | A1: Yes.


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. 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. In your case the work undertaken is not an initial repair and does not constitute the renewal or reconstruction of an entirety. Consideration does however need to be given to whether any of the work undertaken is an improvement. Paragraph 45 of TR 97/23 states that to distinguish between a 'repair' and an 'improvement' to property, 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, the foundation of the garage was underpinned. You have restored the property to its original condition, function and appearance. The addition of the underpinning 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. You are only entitled to a deduction according to your legal title in the property.

Relevant facts: You are an owner of a property which has been rented for over 5 years. | You received a notice from the council regarding the crack which had appeared in a wall of the garage. | In that same month you obtained quotes from structural engineers for a detailed structural report on the garage, as requested by the council. | The council issued a building order to commence work on the garage. | You determined there was no water leakage through the easement. | You received a number of quotes for underpinning of the garage. | You decided on a builder, and a Geo technical engineer conducted a site visit to determine the amount of pins required. | The underpinning works were completed, and a certificate of final inspection was issued. | The extent of the underpinning was only to restore those parts of the foundation to their former state, and was not performed to the entire foundation. | The property continued to be rented while the work was done. | You are not entitled to any recompense from your neighbour, insurer or any other entity.