Private ruling: Rental property expenses
Published: October 2013
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for repairs for the expense of replacing all the windows and frames on your rental property? | A1: Yes.

Relevant facts and circumstances: You have owned a multi storey block of flats for some years. The block was built over 40 years ago. This year the timber framed windows in the unit block were considered beyond repair, due to the rotted frames and broken glass. Some windows had repairs carried out in the past, but more recently none were considered repairable. All quotes and information you received strongly suggested the use of aluminium to replace the old wooden frames and windows. The windows have been replaced with new aluminium-timber windows.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | 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, it is not considered that the work undertaken is initial as you have owned the property for some years and the property has been tenanted from that time. It is also considered that the windows in the block of units do not constitute an entirety. Replacing timber windows and frames in a rental property with those made of a different material does not alter the character or functionality of the rental property. The new frames may be seen as simply using the modern equivalent of the timber window frames. Frames made of a different material perform substantially the same function as the timber frames. The materials and processes used in the repair do no more than restore the windows to a functional condition, as does the repainting of repaired windows and frames. Therefore the replacing of the windows and frames is not considered to be an improvement. As the work does not constitute the renewal or reconstruction of an entirety, is not an initial repair and is not an improvement the expenditure incurred is deductible.