Private ruling: Rental property expenses
Date of advice: 12 December 2017
Published: April 2018
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a deduction for the remedial work carried out on your rental property? | A1: Yes. | Q2: Are you entitled to a deduction for the termite treatment to your rental property? | A2: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | 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 to premises used for income producing purposes, to the extent that the expenditure is not capital in nature. Taxation Ruling TR 97/23 explains the circumstances in which deductions for repairs are allowable. TR 97/23 states that what is a repair for the purposes of section 25-10 of the ITAA 1997 is a question of fact and degree in each case having regard to the appearance, form, state and condition of the particular property at the time the expenditure is incurred and to the nature and extent of the work done to the property. The ruling further states that repairs mean the remedying or making good of defects in, damage to, or deterioration of, property. A repair merely replaces a part of something or corrects something that is already there and has become worn out or dilapidated. 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. Repair costs are deductible where they are incurred during the period the property is held for income producing purposes and are attributable either to damage that occurs during your income producing use of the property or to defects that emerge suddenly during that time. TR 97/23 states that with a repair, the work restores the efficiency of function of the property without changing its character. An improvement, on the other hand, provides a greater efficiency of function in the property. It involves bringing a thing or structure into a more valuable or desirable state or condition than a mere repair would do. It is acknowledged in TR 97/23 that to repair property improves to some extent the condition it was in immediately before repair. A minor and incidental degree of improvement, addition or alteration may be done to property and still be a repair. However, if the work amounts to a substantial improvement, addition or alteration, it is not a repair and is not deductible under section 25-10 of the ITAA 1997. Application to your circumstances The works you carried out to your rental property are considered to be deductible repairs. That is, this work is not regarded as capital in nature and is regarded as normal maintenance expenditure. Therefore a deduction is allowable under section 25-10 of the ITAA 1997. The cost of pest control fees incurred while the property is rented is an allowable deduction under section 8-1 of the ITAA 1997.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions. | Relevant facts: You are the joint owner of a rental property which has been continually rented for over 6 years, and has an attached flat. | White ants caused considerable damage to the flat, including roof trusses, battens, barge boards, external trims, timber cladding over the external block wall. Because of this, approximately half of the ceiling collapsed. The external roof was not damaged, as the hardwood beams supporting the roof were not damaged. The entire internal ceiling had to be removed to replace damage battens. | Some ceiling gyprock was reused, as was some of the guttering. | The guttering had to be removed in order to replace the barge boards and external timber trim. You paid a termite treatment company for a termite management plan and treatment to the whole building, including establishing an external white ant barrier around the whole house. | The only change to the building material involved bagging and painting the external block walls, instead of replacing the damaged external timber cladding. | The only work carried out was to the flat.