Private ruling: Rental property - deductions - repairs
Published: November 2011
Ruling period: Year ending 30 June 2011 | Year ending 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to claim a deduction for repairs to your rental property due to termite damage, and for painting expenses due to normal wear and tear? | A1: Yes

Relevant facts and circumstances: The arrangement that is the subject of this ruling is described below. The following documents have been relied up to reach a decision: Private ruling application which included invoices for the work carried out. Pest control report submitted with private ruling application You purchased a rental property in late 2008. A pest inspection was not conducted at the time you purchased the property. The property has been rented out since you have owned it. In late 2010 you discovered termite damage in the property. You engaged a pest control expert to prepare a report on the termite problem. You incurred expenses to remove various items to allow access to the termite problem, and to repair the area after termite treatment was applied. The work included: o Removal of ensuite and bathroom shower screens, tiles, shower bases and concrete. o Removal of damaged plaster, skirting boards, door frames and termite nests. o Staining and lacquering of skirting boards and door frames which had been replaced. o Plumbing work to fix the running water and re-fit shower bases and shower screens. You also incurred expenses to paint areas of the house which required painting due to normal wear and tear.

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 held for income producing purposes, provided the repairs are not of a capital nature. Expenses of a capital nature include the replacement of an entirety, work that constitutes an improvement and work that is considered to be initial repairs (that is remedying defects, damage or deterioration that existed when you acquired the property). Taxation Ruling TR 97/23 explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10 of the ITAA 1997. TR 97/23 provides that, as the word 'repair' is not defined within the tax legislation, it takes its ordinary meaning. Generally, a 'repair' involves a restoration of a thing to a condition it formerly had without changing its character. Works can fairly be described as 'repairs' if they are done to make good damage or deterioration that has occurred by ordinary wear and tear, by accidental or deliberate damage, or by the operation of natural causes during the passage of time. In your case, the work performed on the property due to termite damage constitutes repairs as the work was merely restoring the property to its former state. The painting that was carried out due to normal wear and tear on the property would also be considered a repair because it restored the property to its former condition. The work undertaken was not done to an entirety, was not an improvement and is not considered to be an initial repair. Therefore, you are entitled to a deduction for the cost of repairs in respect of the termite damage and for the painting work undertaken on your rental property under section 25-10 of the ITAA 1997.

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