Private ruling: Rental property repairs
Published: November 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for the cost of replacing the roof on your rental property? | A1: Yes.

Relevant facts and circumstances: You own a rental property. Inspection of the roof at the time of purchase found it to be old but in good order. You were informed by the tenants that the roof had begun to leak. You were advised that there were numerous pinhole leaks affecting much of the metal and that the roof needed replacement. The work was not able to be easily done while tenants were in residence. The tenants subsequently gave notice of their intention to vacate and moved out at the conclusion of their lease. The original roof was metal and it has been replaced with an equivalent metal covering (colourbond). The property was available for rent again immediately following the repair and it is currently tenanted.

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 the cost of repairs to premises used for income producing purposes. To be eligible to claim such an expense you must be holding the property for the purpose of gaining or producing assessable income, and the expenses must not be capital in nature. 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. You may still be considered to hold a rental property for income purposes at the time of repair even if it is vacant at the time. Taxation Ruling 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. The word 'repair' is not defined within the taxation legislation. Accordingly, it takes its ordinary meaning. 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. An 'entirety' is defined as something 'separately identifiable as a principal item of capital equipment' ( Lindsay v. FC of T (1961) 106 CLR 377 at 385). 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'. In your case, the rental property roof had deteriorated and was leaking in a number of places. It is accepted the use of colourbond to replace the original metal roof is a repair as the change in material did not improve the efficiency or function of the property. The roof has merely been repaired by its modern equivalent which restored the original function. Although your rental property was vacant for a period of time, this was because it was being restored after being damaged. The property was available for rent again immediately following the repair and was subsequently re-tenanted. It is accepted that during the period the property was vacant it was still being held for income producing purposes. Therefore, you are entitled to a deduction for the cost of replacing the roof of your rental property under section 25-10 of the ITAA 1997.