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

Ruling: Q1: Are you entitled to a deduction for the levy incurred in relation to works carried out on your rental property? | A1: Yes.

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: · the application for private ruling, and · the documents provided with the application for private ruling. You own an investment property. It is a strata unit within a complex. You are responsible for a portion of the strata area. The building required repairs and a special levy was imposed. Your portion of the special levy was paid in the 2011-12 financial year. The preliminaries, engineering and some repair work started a few months ago and the work is expected to be completed over the next year or more as there are five individual tasks to be completed. The balustrades and upturns have concrete cancer and are non compliant and structurally inadequate. The sliding doors to the balconies have water damage. The doors need to be removed for repairs to the flashing and sealing below the glazing panels and doors. The water debris and soil needs to be removed from the existing planter boxes. The subfloor to the building requires a drainage system. Repair work also needs to be carried out on damaged timbers. The concrete columns in the basement need to be resurfaced.

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 made to premises or depreciating assets used for producing assessable income. However, subsection 25-10(3) of the ITAA 1997 denies a deduction for repairs where the expenditure is of a capital nature. An improvement to a property would be capital in nature and therefore not deductible. Taxation Ruling TR 97/23 provides guidelines on the deductibility of repairs. Generally, a 'repair' involves a restoration of a thing to a condition and efficiency it formerly had. 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. TR 97/23 provides that where the work done to a property results in a greater efficiency of function in the property the work represents an 'improvement' rather than a 'repair'. A repair involves a restoration of a thing to a condition and efficiency it formerly had. Where the body corporate has levied a special contribution to the general purpose sinking fund to finance certain works, 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 otherwise deductible then the contribution made towards the levy is also deductible. In your case, you were required to pay a special levy to finance work to be carried out on the common areas of the unit complex. The works undertaken are to rectify damage that has occurred to the common areas of the property. The repairs restore the efficiency of the function of the property without changing its character. Therefore, you are entitled to a deduction for the expense incurred for the levy.

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