Private ruling: Rental deductions
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Q1: Can you claim a deduction for replacing the roof of your rental property? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-10. | Income Tax Assessment Act 1997 Subsection 25-10(3).

Reasons for decision: Summary: Section 25-10 of the 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 denies a deduction for repairs where the expenditure is of a capital 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 and efficiency 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. Initial repair Paragraph 72 of TR 97/23 states repair expenditure is deductible where it is incurred during the period the property is 'held, occupied or used' for bona fide income producing purposes and is attributable either to damage that occurs during income producing use of the property or to defects that emerge suddenly during that time. However, expenditure incurred on an initial repair after the property is acquired, where the expenses are incurred in remedying defects or deterioration in existence at the time of purchase, is considered capital in nature. These expenses remain capital in nature even when some income is produced by the property prior to the initial repairs being incurred (paragraph 59 of TR 97/23). Paragraphs 60 and 61 of TR 97/23 state that the main consideration in relation to initial repairs is the appearance, form, state and condition of the property and its functional efficiency when it is acquired. Where expenditure remedies damage, defects or deterioration to the property which existed at the time of purchase of the property and did not arise from the income producing activity, the expenditure is capital in nature. It is immaterial whether at the time of acquisition the taxpayer was aware of the condition of the property, including its need for repair. Expenditure on initial repairs lacks a connection to the income producing activities of the property and is considered an additional cost of acquiring the property or an improvement in the quality of the property you acquired. In your case the property's roof was in need of repair at the time you acquired the property. The damage did not occur at a time you held or used the property for an income producing purpose. As such the work to replace the roof is an initial repair and the cost involved is capital expenditure. Therefore, you are not entitled to an immediate deduction under section 25-10 of the ITAA 1997 for replacing the roof on your rental property.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: 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, | · copy of the original building inspection and | · copy of receipt for roof repairs. | You purchased the rental property in the 2008-09 financial year. | You made the property immediately available for rent and it has been rented since it was purchased. | The property became your main residence in the 2009-10 financial year. | The building inspection of the tiled roof showed: | · the roof frame was performing as intended but structural distress was developing as a result of substandard construction, | · It was given a condition rating of 2, indicating repairs are required, but does not consider these to be major, serious or urgent, | During the time the property was rented you replaced the roof, as there was evidence that parts of the roof was leaking. | You replaced the existing roof using different material.