Private ruling: Rental property expenses
Published: October 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for the works undertaken (except for the drainage works) as repairs? | A1: Yes. | Q2: Are you entitled to a capital works deduction for the cost of drainage works around the garage? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-10 | Income Tax Assessment Act 1997 Paragraph 43-25(2)(b)

Reasons for decision: Summary: Section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for expenditure on repairs to income producing premises, provided the expenditure is not capital in nature. Division 43 of the ITAA 1997 allows a deduction for construction expenditure on capital works. Paragraph 43-25(2)(b) of the ITAA 1997 states that if the construction expenditure commenced after 16 September 1987 the rate of deduction would be 2.5% per annum. Capital works generally include buildings and structural improvements, such as sealed driveways, sealed car parks and retaining walls. Taxation Ruling TR 97/23 explains deductions for repairs. It states that in section 25-10 the word 'repairs' has its ordinary meaning, which is the remedying, or making good of defects in, damage to, or deterioration of, property. It involves restoration of the efficiency of function of the property without changing its character. In your case, all of the work done except the drainage works is considered to be repairs and as such, you are entitled to an immediate deduction. However, the cost of installing drainage is considered to be capital works and a deduction is allowed at the rate of 2.5% per annum.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You have a rental property. | Recent heavy rains caused some damage to the property and revealed the existing drainage to be inadequate. | You undertook the following work to remedy the identified deficiencies and damage: | · repair a crack in the ceiling and cornices in the bathroom and paint where required | · re-seal around the shower | · fixed the lock on the sliding door | · replace the door and step and repair the termite damage and paint | · replace the shower door | · replace the wooden garage gates with a colorbond gates | · installed drainage around the garage