Private ruling: Rental property expenses
Published: February 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to an immediate deduction for the cost of light switches for your investment property? | A1: Yes | Q2: Are you entitled to claim a deduction for decline in value of an exhaust fan and a new oven including installation costs for your investment property? | A2: Yes

Relevant facts and circumstances: You are an Australian resident. You own an investment property. You organised the installation of an exhaust fan. You purchased a new oven. You purchased new light switches. As the new oven was smaller than the broken oven, the tradesperson bought wood to fill the gap between the old oven and the new oven.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-10. | Income Tax Assessment Act 1997 Section 40-25. | Income Tax Assessment Act 1997 Subsection 40-30(1).

Reasons for decision: Summary: Work such as the replacement of light switches restores the efficiency of function, does not provide any substantial improvement, and is considered a repair. As such, you are entitled to an immediate deduction for the cost of the light switches. You are not entitled to a deduction for the purchase of the oven and exhaust fan as they are depreciating assets. You can claim a deduction for the decline in value. The purchase of the Tasmanian oak is part of the installation cost of the oven. You are therefore required to include the cost of the wood in the total cost of the oven to calculate a deduction for the decline in value. | Detailed Reasoning - Repairs: 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. In your case, you have incurred expenses for new light switches on your rental property. As a result you have incurred expenses to restore your property to its original state. The expenses are not considered to be capital in nature. Therefore, you are entitled to a deduction for the light switches. | Detailed Reasoning - Decline in value: Section 40-25 of the ITAA 1997 states that you can deduct an amount for the decline in value of a depreciating asset you hold to the extent that you use it for a taxable purpose. The term 'depreciating asset' is defined in subsection 40-30(1) of the ITAA 1997 as an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Expenses incurred for installing an exhaust fan and supplying and fitting a new oven are capital in nature and not deductible as a repair under section 25-10 of the ITAA 1997. However, a deduction is allowable for these costs under section 40-25 of the ITAA 1997 as exhaust fans and ovens are depreciating assets within the definition of subsection 40-30(1) of the ITAA 1997. Taxation Ruling IT 2197 states that installation costs are part of the total cost of the depreciating asset upon which a decline in value deduction is calculated. Therefore the wood that was used to fill the gap between the old oven and the new oven is an installation cost of the oven. It is included in the total cost of the oven upon which decline in value is calculated. The Commissioner's determination of the effective life of depreciating assets for the 2011-12 financial year are listed in Taxation Ruling TR 2011/2. Listed in the ruling are the effective lives for an exhaust fan of 10 years and an oven of 12 years.

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.