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Is a taxpayer who replaced a petrol storage tank entitled to claim the cost of the tank as a deduction for repairs under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The taxpayer is not entitled to claim a deduction for repairs under section 25-10 of the ITAA 1997 for the cost of replacing a petrol storage tank as it is capital expenditure.

The taxpayer is the part owner of an income producing property that uses a petrol storage tank (also known as a bowser tank).

The taxpayer replaced the leaking petrol storage tank, which could not be repaired, with a new storage tank of the same capacity and construction. The petrol storage tank is part of the petrol delivery system which included the pipes connecting the pumps and the pumps themselves.

Section 25-10 of the ITAA 1997 provides that the cost of repairs may be deductible for plant used for income producing purposes. However, expenditure of a capital nature is not deductible.

Taxation Ruling TR 97/23 states that repairs ordinarily means remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property.

If however the work done amounts to an improvement by way of replacement rather than a repair then the cost is a capital expense and no deduction is allowable.

In Lindsay v. FC of T (1960-1961) 106 CLR 377; 12 ATD 197; 12 ATD 505; (1960) 8 AITR 99; (1961) 8 AITR 458 the High Court considered whether the replacement of a slipway was a repair or replacement of an entirety. The court held that the slipway was the relevant entirety on the ground and that it was not a subsidiary part of anything else, but was separately identifiable as a principal item of capital expenditure.

The taxpayer replaced the existing petrol storage tank with another equivalent property which is: • separately identifiable as a principal item of capital equipment; • an integral part of the fuel delivery system and is capable of providing a useful function (storage of fuel) without regard to any other part of the income producing property; and • a separate and distinct item of plant in itself from the thing or structure (bowser system) which it serves.

The replacement of the storage tank is not a repair of an existing part or function of the tank, rather it is replacing the entirety. The work carried out went beyond the continued existence of repairing the original tank.

The purchase and installation cost of the new petrol storage tank is not a repair but is capital expenditure. Accordingly, the taxpayer is not entitled to claim the cost of replacing the petrol storage tank under section 25-10 of the ITAA 1997.