Private ruling: Rental property maintenance work
Date of advice: 1 June 2016
Published: July 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for your share of the cost of work carried out on the deck of 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 (ITAA 1997) states expenditure incurred by you for repairs to premises used by you for the purpose of producing assessable income is an allowable deduction. However, a deduction is not allowable if the expenditure is of a capital nature. Taxation Ruling TR 97/23 provides the Tax Office's view on repairs that are allowable under section 25-10 of the ITAA 1997 and 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 work results in a greater efficiency of function in the property, therefore representing an 'improvement' rather than a 'repair', or • the work is an initial repair. Replacement of a subsidiary part or an entirety In the case of W Thomas & Co Pty Ltd v. Federal Commissioner of Taxation ALR 915;115 CLR 58; (1965) 14 ATD 78; 39 ALJR 246; (1965) 9 AITR 710, which involved a claim for general repairs to a building, it was said that the question was not whether the roof or floor or some other part of the building, looked at in isolation, was repaired as distinct from wholly reconstructed, but whether what was done to the floor or the roof was a repair to the building. In your case, the building itself is considered to be the entirety. The deck is considered a subsidiary part of the building. As you have only replaced some elements of the deck this is considered a subsidiary part of the deck. Improvement v Repair The Commissioner accepts that the use of a different material does not necessarily prevent the work from being a repair, provided the work merely restores a previous function to the property. Whether the use of a more modern material to replace the original material qualifies as a repair is a question determined on the facts of each case. It is restoration of a thing's efficiency of function (without changing its character) rather than exact repetition of form or material that is significant. In your case the work undertaken to your rental property merely restores the efficiency of the previous function. The work is not an improvement and is not an initial repair. Therefore the work undertaken in replacing the handrail, beam and support post of the deck is considered to be a repair and you are entitled to a deduction under section 25-10 of the ITAA 1997. Initial repair You have had the property rented out using a property manager for some time, after having it constructed over 10 years ago, so the work carried out is not considered an initial repair.

Relevant facts: You and your spouse have been the joint owners of a property which you had built over 10 years ago, and has been rented and managed by agents continually for over 7 years. | The tenant notified the property manager that the deck support post and hand rail was damaged. | The agent inspection reports dated around that time did not indicate any problems with deck or handrail. | You obtained a builder's quote and had the weather damaged support post, hand rail and supporting beam replaced. | You and your spouse incurred the cost of the work and no insurance or other monetary recovery for expenses was available.