Private ruling: Rental property deductions
Published: January 2014
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for repairs? | A1: No

Relevant facts and circumstances: You own a rental property. During the 20XX-YY financial year, while still tenanted, a fire broke out and damaged the property. An order was issued from the local council ordering that the property be vacated and that building repair work be carried out to make the building safe. Due to this order, the property has remained vacant ever since. You were unaware that your building insurance policy on the property had been cancelled, and as a result, you were unable to recover any insurance amounts in relation to the damage. Due to the significant amount of money required to repair the property, you were unable to repair the property immediately. You incurred costs in repairing the property in the following financial years. The types of materials that were used were comparable or cheaper than what was originally in the house. You anticipate that the repairs will be completed in the relevant financial year. Once completed, you intend to sell the property.

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. However, subsection 25-10(3) of the ITAA 1997 does not allow a deduction for repairs where the expenditure is of a capital nature. Therefore, to qualify for a deduction under section 25-10 of the ITAA 1997 the expenditure must: · be a repair · not be expenditure of a capital nature; and · be in respect of an asset used in the production of assessable income. You can claim a deduction for certain expenses incurred for the period the property is rented or is available for rent. Repair costs are deductible where they are incurred during the period the property is held for income producing purposes. You may still be considered to hold a rental property for income purposes at the time of the repair even if it is vacant at that time. The cost of repairs to a property after cessation of income producing use is described in Taxation Ruling IT 180. Paragraph 4 of IT 180 states that a deduction may be allowed for the cost of repairs to the property providing: · the necessity for the repairs can be related to a period of time during which the premises have been used to produce assessable income to the taxpayer, and · the premises have been used in the production of such assessable income of the year of income in which the expenditure incurred. In your case, it can be seen that the necessity for the repairs can be related to a period during which the property was used to produce assessable income. However, the property was not used to produce assessable income in the years that you incurred the expenditure. Accordingly, you are not entitled to a deduction for repairs in the relevant financial years.