Private ruling: Rental property deductions
Date of advice: 9 January 2020
Published: March 2020
Ruling period: Year ended 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Are you entitled to an immediate deduction for the expenditure you incurred to replace the roof of your rental property? | A1: Yes. The roof of your rental property was damaged due to deterioration over time and consequently required replacement. The work done was not capital in nature as: · It was not an initial repair as the damage was not in existence when you purchased the property. · It did not involve the replacement of an entirety as the entirety in this instance is the building and not the roof which is merely a subsidiary part of the building rather than a separately identifiable principal item of capital equipment. · It did not constitute an improvement. Although the new roof was not an exact repetition of the previous roof in terms of form or material, it merely restored the efficiency of function of the rental property. Consequently the work done is immediately deductible as a repair under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Further information about repairs can be found in Taxation Ruling TR 97/23. As the expenditure is deductible as a repair, section 40-755 of the ITAA 1997 which provides a deduction for certain environmental protection activities does not have to be considered.

Relevant facts and circumstances: You and your spouse purchased a rental property as joint tenants more than 10 years ago. You made the property available for rent and it has not been used for personal use over the ownership period. The property is managed through a real estate agent and rented at market value. You have no relation to the tenants who occupy the property. A leak was identified by the tenant who resides in the property. You engaged a builder to review and quote on the leak to find out what the issue was. The companies advised that there was deterioration/damage to the roof. The entire roof required replacement because of the deterioration/damage. As asbestos roofing is now illegal you replaced the roof with the modern and safer equivalent. Neither you nor your spouse have claimed insurance for the expense.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-10 | Income Tax Assessment Act 1997 Section 40-755