Private ruling: Rental deduction
Ruling period: Year ending 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for your contribution to a special levy imposed for replacing the electrical wiring and mains power line for the property in which your rental unit is located? | A1: 

Relevant facts and circumstances: You own a unit. You have rented out the unit for almost 20 years. Recently, all of the units in the Strata Plan had to be rewired to fix recurring electricity problems as a consequence of the old wiring being over 50 years old, cloth insulated and unsafe. Due to electrical defect, the main power line for the property also needed to be replaced. The new wiring is PVC insulated and safe. The body corporate called an extraordinary general meeting and decided to impose a special levy.

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

Reasons for decision: Summary: The character of an expense follows the purpose for which the expense was incurred. It follows that if the levy is used to fund expenditure which would be deductible then the contribution made is also deductible. To determine if your special levy contribution is deductible, we first need to look at what the levy monies will be expended upon and the deductibility of those expenses. 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, to the extent that the expenditure is not capital in nature. Taxation Ruling TR 97/23 provides guidelines on the deductibility of repairs. Generally, a repair involves a restoration of a thing to a condition it formerly had without changing its character. Works can be fairly described as repairs if they are done to make good damage or deterioration of property 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. The replacement of the electrical wiring and mains power line is not considered to be an entirety, as it is incapable of providing a useful function without regard to any other part of the premises and is not a separate and distinct item of plant in itself apart from the thing or structure which it serves. Also, replacing the damaged wiring and mains power line is not considered an improvement as the work done merely returns it to the condition it was in before the need for the work arose. Therefore, the replacement of the electrical wiring and mains power line is considered to be a repair. The work done is not an initial repair as you have owned the unit for almost 20 years. Therefore, the special levy you have incurred in relation to your rental unit to replace the electrical wiring and mains power line is considered to have the essential character of a repair and is an allowable deduction under section 25-10 of the ITAA 1997.

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