Private ruling: Rental property maintenance
Date of advice: 11 July 2016
Published: August 2016
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

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


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) states expenditure incurred by you for repairs to premises used by you for the purpose of producing assessable income is an allowable deduction. However, a deduction is not allowable if the expenditure is of a capital nature. Taxation Ruling TR 97/23 provides the Tax Office’s view on repairs that are allowable under section 25-10 of the ITAA 1997 and 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 work results in a greater efficiency of function in the property, therefore representing an ‘improvement’ rather than a ‘repair’, or ● the work is an initial repair. | Detailed Reasoning - Replacement of a subsidiary part or an entirety: In the case of W Thomas & Co Pty Ltd v. Federal Commissioner of Taxation [1966] ALR 915;115 CLR 58; (1965) 14 ATD 78; 39 ALJR 246; (1965) 9 AITR 710, which involved a claim for general repairs to a building, it was said that the question was not whether the roof or floor or some other part of the building, looked at in isolation, was repaired as distinct from wholly reconstructed, but whether what was done to the floor or the roof was a repair to the building. In your case, the building itself is considered to be the entirety. The roof is considered a subsidiary part of the building. As you have only replaced some elements of the roof this is considered a subsidiary part of the building. | Detailed Reasoning - Improvement v Repair: The Commissioner accepts that the use of a different material does not necessarily prevent the work from being a repair, provided the work merely restores a previous function to the property. Whether the use of a more modern material to replace the original material qualifies as a repair is a question determined on the facts of each case. It is restoration of a thing's efficiency of function (without changing its character) rather than exact repetition of form or material that is significant. In your case you have endeavoured to replace the existing roofing material with matching items, and the work undertaken to your rental property merely restores the efficiency of the previous function. The work is not an improvement and is not an initial repair. Therefore the work undertaken in replacing the covering of the roof is considered to be a repair and you are entitled to a deduction under section 25-10 of the ITAA 1997.

Relevant facts: You have been the sole owner of a rental property for more than XX years; it has been rented during the 20XX year. The property is over XX years old. | The roofing tiles were in such poor condition that the roof leaked in multiple spots when it rained, damaging many areas of the ceiling, with the possible consequence that the property would not be tenantable. | You have carried out the extensive replacement of roofing material with like materials. | You obtained multiple quotes for the work. | You incurred the cost of the work.