Private ruling: rental property expenses
Published: December 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to claim an immediate deduction under section 25-10 of the Income Tax Assessment Act 1997 (ITAA1997) for the expenses you incurred in repairing your rental property? | A1: 

Relevant facts and circumstances: You have a property that has been continually rented out since 1998. Since that time, the exterior of the property has deteriorated significantly In April 2011 you engaged a builder to carry out repairs on the property, work carried out included; · replace weatherboards and timber exterior with new cement sheet weatherboards and treated pine boards · replace rotten timber in pergola · remove and replace rotten windows with new aluminium windows · supply and install new front door and meter board cupboard · replace panelling in shower recess (due to leaking) and waterproofing · replace rotten fascias · painting and various other minor repairs

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

Reasons for decision: Detailed Reasoning - Detailed reasoning: Where an expense is incurred for repairs by the owner of a rental property, a deduction for the expense is allowable under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997). The deduction is allowable in full in the year the expense is incurred. Taxation Ruling TR 97/23 discusses the circumstances in which an expense for work carried out on an income producing capital asset (such as a rental property) can be fairly described as a repair expense, as opposed to an expense for an improvement or an initial repair. While the original weatherboards were replaced with cement sheet weatherboards, and the timber windows were replaced with aluminium windows, the different materials used may be seen as simply the modern equivalent of the original materials. The replacement weatherboards and windows perform substantially the same function as the original items without materially altering the character or functionality of the rental property. Given a consideration of your situation as a whole, it is accepted the works carried on your rental property meets the guidelines of TR 97/23 for deductibility as repairs and do not constitute: · 'improvements', as they merely restored the efficiency of function of the property without materially altering its character, or · 'initial repairs', as it was only after 10 years of utilising the property for income producing activities that the repairs were required. Accordingly, the expenses you incurred in repairing your rental property are deductible under section 25-10 of the ITAA 1997.

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