Private ruling: Rental property deduction
Published: February 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to an immediate deduction for the cost of replacing the roof on your rental property? | 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. 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. The word 'repair' is not defined within the taxation legislation. Accordingly, it takes its ordinary meaning. 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 is only part of a building and does not constitute an 'entirety'. The building itself is the 'entirety'. In this case, the rental property roof had deteriorated and was cracking and exposing asbestos fibres, causing leaks which were affecting the tenant. The use of zincalume to replace the asbestos merely constituted the utilisation of a modern equivalent in substitution for an obsolete material. The replacement of the roof did not improve the efficiency or function of the property; rather it merely restored it to its original function. It is accepted that the replacement of the leaking roof constituted a repair to the property. Also, it is not an initial repair as the property was purchased more than 15 years ago. Therefore, you are entitled to a deduction for the cost of replacing the roof of your rental property under section 25-10 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You purchased a rental property more than 15 years ago. | The building was originally constructed in the 1950's with an asbestos roof. | This building is currently tenanted and derives income for you. | A recent inspection of the roof found that the asbestos sheets were cracking and exposing asbestos fibres, causing leaks which were affecting the tenant. | You were advised that the asbestos roof was showing significant signs of ageing/weathering and required replacing. | A contractor provided a quotation for the cost of works to remove the asbestos and supply/install new zincalume roofing sheets to the building.