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

Ruling: Q1: Are you entitled to a deduction for expenditure incurred in removing worn carpets and polishing existing concrete in a rental property? | A1: Yes

Relevant facts and circumstances: You own a residential rental property. You are concerned that your current tenants are damaging the carpet and it will need to be replaced when they vacate the premises. You plan instead to remove the carpet and polish the concrete underneath.

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 expenditure incurred for repairs to premises or depreciating assets held or used solely for the purpose of producing assessable income. Taxation Ruling TR 97/23 explains the circumstances in which something will be considered to be a 'repair' and an allowable deduction. Paragraph 88 of TR 97/23 states that a repair involves a restoration of something without changing its character. The significant factor is the restoration of efficiency rather than exact repetition of form or material. For example, in Case 51 (1960) 9 CTBR (NS) 328, it was held that the replacement of a galvanised iron roof with concrete roof tiles was a repair as it did little more than meet a need for restoration. The material in question was designed to perform substantially the same function as that which it replaced. Polished concrete performs substantially the same function as the carpet. The materials and processes used in the repair do no more than restore the floor to a functional walking surface (Example 8 in TR 97/23). Replacing worn carpets in a rental property by polishing the concrete does not materially alter the character or functionality of the rental property. Nor does it increase the life of the rental property. The removal of the carpets and polishing of the concrete is a repair. Accordingly, the expenditure incurred is deductible under section 25-10 of the ITAA 1997.