1 Can you claim a deduction for the following repairs to your rental property completed between XX XXXXX 20XX and XX XXXXX 20XX under section 8-1 of the Income Tax Assessment Act 1997 (ITAA1997)?
No. You are not able to claim a deduction for any repairs or maintenance completed during this period as the property was not rented nor genuinely available for rent. In this period the property was either lived in by you and your spouse, or it was vacant. Therefore, the following work cannot be claimed as a deduction: preparing the house for rent, paint for X sides of the house, weatherboards, architrave around windows and flashing, extra timber for rotting parts of exterior, cement sheeting, external tap, galvanised vent, plasterboard, base and finish coats, joining tape, tile glue, grout silicone, angle iron, skirting, framing timber, paint. Painting and repairing all walls, ceilings, windows, doors and skirtings, replacing the roof and associated works. Question 2 Can you claim a deduction for the following repairs for your rental property completed after XX XXXXX 20XX under section 8-1 of the ITAA 1997? Answer Yes. You can claim an immediate deduction in the income year you incurred the repair (or maintenance) expenses for the repair made when painting in XXXXX 20XX. Question 3
Can you claim a capital allowance deduction for the following items in your rental property completed between XX XXXXX 20XX and XX XXXXX 20XX under section 40-25 of the ITAA 1997? Answer Yes. You can deduct an amount equal in the decline in value of a depreciating asset that you held at any time during the year that you use the property for a taxable purpose. You purchased new underlay and carpet for the loungeroom, hallway and 3 bedrooms. Immediate deductions are not available for depreciating assets as they must be claimed over the useful life of the asset over a number of years. If you use a depreciating asset for other than a taxable purpose you can only claim a partial deduction for the assets decline in value using the percentage of the assets total use that was for a taxable purpose. Question 4 Can you claim the following capital works deduction for your rental property completed between XX XXXXX 20XX and XX XXXXX 20XX under Division 43 of the ITAA 1997? Answer Yes.
You can deduct certain kinds of expenses that are capital or capital in nature such as extending front window arcs and front door jam, front veranda beams replacement, installation of front beams and good block fronted weatherboards, and supply and fit bullnose veranda sheets and gutter to the front of the property. Immediate deductions are not available for these expenses as fixtures and capital assets are considered part of the entire building and must be claimed over a number of years, usually at 2.5% each year over 40 years. This ruling applies for the following periods DD MM 20YY DD MM 20YY The scheme commenced on: DD MM 20YY
On XX XXXXX 20XX, you and your spouse purchased the Property. On XX XXXXX 20XX, the property settled, and you moved into it as your main residence for taxation purposes. You owned this property with your spouse as joint tenants. The property has been both your main residence and a rental property at different times. When the property is rented out it is managed by a Property Manager and rented at market rate, where the rental charge is determined by the agent, and rented to unrelated parties. Before the first tenancy ended you and your spouse sent the property manager an email asking for their advice on repairs and improvements to be made before renting the property out. The property manager advised you to make several repairs near the end of the first tenancy which you elected not to do as you and your spouse were moving back into the property. For a period of time, you and your spouse lived in the property and considered it to be your main residence for taxation purposes. The property was then vacant for a period of time. During this vacancy the following repairs were completed • exterior woodwork repair on the Property and painting of the weatherboards
• replacement of flashing in a window • plasterwork repair inside the house • bathroom grout repair • skirting repair in one room • fixing of kitchen cupboards and paintwork • internal repainting of lean-to • fence repair, including replacement of rioting post capitals • external tap replacement • toilet cistern replacement • bathroom exhaust fan replacement • repainting • new carpets • replacement of roofing The property was then leased by a tenant. You carried out further work which included a new veranda.
Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 section 25-10 Income Tax Assessment Act 1997 section 40-25 Income Tax Assessment Act 1997 Division 43
Taxation Ruling TR 97/23 Income tax: deductions for repairs states the ordinary meaning of the word 'repairs' as remedying or making good of defects in, damage to, or deterioration of property to be repaired, being in a mechanical and physical sense and contemplates the continued existence of the property. Repairs must directly relate to wear and tear or other damage that occurred while you were renting out the property. Repair for the most part is occasional and partial. Involving restoration of the efficiency of function of the property being repaired without changing its character and may include restoration to its former appearance, form, state or condition. A repair replaces a part of something or corrects something that is already there and has become worn out or dilapidated. Works can be considered repairs if they are done to make good damage or deterioration that has occurred by ordinary wear and tear, by accidental or deliberate damage or by natural causes during the passage of time.
Repairs to property improves, to some extent, the condition it was in immediately before the repair. Minor and incidental degrees of improvement, addition or alteration may be done to a property and still be a repair. However, if the work, amounts to a substantial improvement, addition or alteration it is not a repair and therefore not deductible under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Repairs to a rental property will generally be deductible if: • the property continues to be rented on an ongoing basis, or • the property remains genuinely available for rental during the period of repair, even if there is a short period where the property is unoccupied, for example all reasonable effects to attract tenants were unsuccessful. You can deduct repair expenditure if, when the expenditure occurred you held or genuinely used the property for income producing purposes. Rental expenses are deductible to the extent that they are incurred for the purpose of producing income. Repair and maintenance expenses are costs you would incur to: • keep your property in a tenable condition
• fix wear and tear or damage that occurs whilst renting out your property Before the property is genuinely available for rent you can claim expenditure such as interest on loans, local council, water and sewerage rates, land taxes and emergency services levies, you incur during renovations to a property you have the intention of renting out. Is the property genuinely available for rent? Rental expenses are deductible to the extent that you incur them for the purpose of producing rental income. Expenses may be deductible for periods when the property isn't rented, providing the property is genuinely available for rent - that being: • the property is advertised in ways which give it broad exposure to potential tenants • having regard to all circumstances, tenants are reasonably likely to rent it. If these factors are absent, it generally indicates that owner doesn't have a genuine intention to make income from the property and may have other purposes - such as using the property or reserving it for private use. Capital works
Division 43 of the ITAA 1997 provides a deduction for capital works. Capital works includes buildings and structural improvements, and also extensions, alterations or improvements to buildings and structural improvements where a residential property is used for income producing purposes. Subsection 43-25(1) of the ITAA 1997 provides that the rate of deduction for capital works which began after 26 February 1992 for a residential rental property is 2.5%. However, a deduction cannot be made prior to the completion of the capital works (section 43-30 of the ITAA 1997). Capital Allowances Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose. You purchased new underlay and carpet for the loungeroom, hallway and 3 bedrooms this is regarded as a depreciating asset for Division 40 of the ITAA 1997 purposes. A deduction for its decline in value is an allowable deduction when it is used for income producing purposes. Please note the carpets are a capital item and therefore not deductible as repairs under section 25-10 of the ITAA 1997 Application to your circumstances
In applying this to your circumstances, for the period you were preparing the house for rent you carried out some repair work. This is included exterior painting, window repairs, external tap and vent installation, installing plasterboard and cement sheeting, replacing rotting timber, painting and repairing all walls ceilings, windows, doors and skirting, and replacing the roof and associated works. Whilst you had spoken with your property manager about the work required to ready your property for rent, the repairs were completed at time when the property was either lived in by you and your spouse, or vacant. You advised the property was not advertised for rent until a later date, and then tenanted shortly afterwards. As the property was not genuinely available for rent during the period of repairs you are unable to claim these repair expenses for this period.