Private ruling: Rental property deductions
Published: June 2012
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2009

Ruling: Q1: Are you entitled to a deduction for the cost of replacing the roof of your rental property? | A1: Yes. | Q2: Are you entitled to a deduction for the cost of replacing rotten timbers and painting the exterior of your rental property? | A2: Yes.

Relevant facts and circumstances: You purchased a rental property. You do not engage the services of a real estate agent. The unit is one of a block of units. Each unit has its own roof. The block is a stratum title and the shared land held by a company. The roof was painted with an anti-corrosive application. A report identified there was corrosion in the galvanised roof sheeting of the units. You had all roof sheets replaced and re-graded and re-battoned. Work was undertaken to repair timber palings and paint all units.

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

Reasons for decision: Summary: In your case, an inspection identified corrosion in the galvanised roof sheeting of your rental property. You had all the roof sheets replaced, re-graded and re-battoned. It is accepted that the replacement of the roof constitutes a repair to only part of the building. Therefore, the entity is entitled to a deduction for the cost of replacing the roof of the rental property under section 25-10 of the ITAA 1997. In your case, the work to replace timbers and paint the exterior of the rental property has been occasioned by ordinary wear and tear during the period of income production and has been undertaken merely to restore the efficiency of the function of the property, to rectify damage and to prevent further damage. Therefore, the work that was undertaken is considered to be a repair and you are entitled to a deduction 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. | Reasons for decision: 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. Taxation Ruling 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 Taxation Ruling 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.