Rental Property Repairs after Extensive Damage

Not all repairs after extensive damage are automatically deductible!

claiming Rental Property Repairs After Extensive Damage

The ATO have recently issued a Private Ruling to a taxpayer regarding claiming rental property repairs after extensive damage caused by a cyclone.

The key take away from the Ruling is that it doesn’t matter the reason for the required repairs, the tax treatment is still determined under the tax laws, and some repairs for damage resulting from unforeseen events, may still not be deductible, or at least immediately deductible.

The Ruling confirms claiming rental property repairs after extensive damage were permitted for items including –

  • replacing cracked and damaged tiles
  • replacing water damaged light and fan fittings, powerpoints and switches
  • a complete electrical check to existing wiring
  • replacing damaged copper feed pipes, PVC pipeware, corroded pipework and waste pipes
  • replacing damaged insect screens with insect screens
  • replacing damaged security screens with security screens
  • painting and
  • replacing damaged wall panels in the kitchen.

However the following expenditures were NOT considered immediately deductible, and instead could only be claimed under the capital works provisions (meaning they are claimed over the useful life of the item which is considered to be 40 years) –

  • replacing kitchen cupboards
  • replacing the bathroom vanity
  • replacing insect screens with security screens and
  • replacing electrical wiring.

In this regard, a statement in the Ruling of note is as follows –

The kitchen cupboards and bathroom vanity are separately identifiable items with their own function. As a consequence, they are an entirety in themselves and their replacement is a renewal of the entirety. The expenditure is capital in nature (Lindsay v Federal Commissioner of Taxation (1960) 106 CLR 377; 12 ATD 197; (1960) 8 AITR 99).

Further of particular note in the Ruling, the ATO points out that were damaged “insect” screens replaced with “security” screens,¬†such work is regarded as an improvement!¬† The Ruling states “The security screens have a greater efficiency of function than insect screens. The associated costs are therefore considered a capital improvement rather than a repair …”

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