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

Ruling: Q1: Are you entitled to a deduction for work done to correct the subsidence on your rental property? | A1: Yes.


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 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. 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. In W Thomas & Co v. FC of T (1965) 115 CLR 58 , 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. 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. Paragraph 40 of 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'. The restumping the building is therefore not capital. In your case, you have owned the property for a number of years. You have undertaken work to correct the subsidence in accordance with a building report. As your property is used for income producing purposes and the work done is not an initial repair, is not the replacement of an entirety and is not an improvement, a deduction is allowable.

Relevant facts: You have owned a rental property for a number of years. | You have undertaken work to repair and correct the subsidence in the slab of your property after obtaining a building report which detailed the defects and the work needed to correct the defects.