Tax Deductions for Property Repairs

This assignment analyzes the taxation ruling 97/23 and its application to Holly's rental property repairs. It examines various repair expenses, determining their deductibility under section 25-10 of the ITAA 1997. The assignment also provides a letter of advice to Holly outlining her allowable deductions based on the Australian tax law framework.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to Part A:.......................................................................................................................2
Answer to part B:.......................................................................................................................4
Reference List:...........................................................................................................................6

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Answer to Part A:
The taxation ruling of 97/23 is concerned with claiming allowable deductions for
cost incurred in repairs on the property. The ruling evidently brings forward that expenditure
that is incurred in context of the repairs can be claimed as the allowable deductions under
section 25-10 of the ITAA 19971. As evident from the current case study it is understood
Holly incurred an expense on numerous items and an allowable deduction can be claimed by
Holly in context of the section 25-10 for the repairs performed to the premises.
Holly reported an expense on carpenter to fix the woodwork in the house. Therefore,
such repair involves restoration of the efficiency of the property that was being repaired
without changing the character of the property. In the present context cost incurred for
woodwork represents restoration of the property and an allowable deduction can be claimed
under section 25-10 for occurrence of such cost. As held in the case of BP Oil Refinery
(Bulwer Island) Ltd v. FC of T 92 making a property good from damage or deterioration
along with the renewal of parts does not represents an entire reconstruction2. Therefore, the
expenditure incurred on dishwasher repair and carpenter can be claimed as allowable
deduction under section 25-10 of the ITAA 1997.
The taxpayer in the present context incurred an expenditure on the cost relating to
electrician for installing new smoke detectors and by replacing all the missing light globes
that were not working3. The cost incurred by Holly represents an improvement that is made to
1 Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
2 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
3 Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)

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the property as the result of technical advancement. It represents an incidental improvement
that is made to the property for the overall functions of the property and such repair
expenditure remains deductible under section 25-10 of the ITAA 1997.
The taxpayer reported an expenditure on installation of new cistern. As held in the
case of Lurcott v. Wakely & Wheeler [1911] the judgement stated that renewal or
replacement of the defective parts from the defective parts or the renewal or the replacement
of the substantial part as the whole. Therefore, the occurrence of cost on the installation of the
new cistern represent an improvement and an allowable deduction cannot be claimed by
Holly in such context.
The taxpayer Holly bought forward an instance of expenditure that is incurred in
painting the entire property in order to restore the property to the original condition.
Therefore, the cost that is incurred in the present context represents that restoration of the
efficiency of the function of the property. As held in the case of W Thomas & Co Pty Ltd v.
FC of T (1965) repairs and improvement may in some circumstances represents a contrasting
concepts.
Repairs involving a restoration of the thing to the former conditions it formerly had
without making the change in the character of the property4. However, in circumstances
where restoration of the efficiency or functions instead of exact repetition of form or material
which is significant a deduction might not be available. Similarly, in the present context the
cost that is incurred in repainting can be claimed as the allowable deductions under section
4 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)

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25-10 since it was the restoration of the property to the original state and did not involve any
change in the character of the property5.
The taxpayer further bought forward the instances that cost was incurred for plumber
relating to repairs to the hot water system. These cost are considered as the permanent
fixtures that is installed in the premises for the purpose of income tax and a deduction can be
claimed under section 25-106. The cost incurred for plumbing represents that they are
incurred for replacement of the worn out unit by the new unit that ideally helps in restoring
the efficiency of the functions of the property and cannot be seen as the improvement.
An important consideration that can be bought forward in this context is that
replacement of worn out by the new unit that is identical to merely restoration of the
efficiency of functions and not an improvement to the property. On the other hand, if the
work of repair done that is beyond the entire cost of capital expenditure then no amount of
allowable deductions under section 25-10 of the ITAA 1997. Similarly, the cost that is
incurred on repairs by Holly can be considered as allowable deductions under section 25-10
of the ITAA 1997.
Answer to part B:
Letter of Advice
Dear Holly,
The current letter of advice is prepared in accordance with the transactions
reported by you relating to the repairs that is incurred for the rental property. As evident from
5 Sadiq, Kerrie et al, Principles Of Taxation Law 2014
6 Woellner, R. H, Australian Taxation Law 2012 (CCH Australia, 2013)

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the current situation that you incurred an expenditure on carpenter for woodwork and also for
dishwasher repair. In accordance with the definition provided under the section 25-10 of the
ITAA 1997 you can incur expenditure on repairs will be considered as the allowable
deductions. Similarly, the cost that is incurred by the taxpayer for the repair of dishwasher
can be claimed as the allowable deductions.
You further reported expense on technical advancement by incurring cost on
installation of smoke detectors and replacement of the missing light that did not worked.
Under such circumstances an allowable deduction can be claimed by you for expenditure that
is associated with the repairs of the property.
The cost that is incurred by you in remedying and making the property good from the
damage or deterioration to be repaired in order to contemplate the continued presence of the
property. As a result of the repairs carried out by you were for the most part occasional and
involves the restoration of damaged or deteriorated part of the property. Therefore, under
section 25-10 of the ITAA 1997 an allowable deduction can be claimed by you for the
expenses incurred.

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Reference List:
Coleman, Cynthia and Kerrie Sadiq, Principles Of Taxation Law 2013
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
Sadiq, Kerrie et al, Principles Of Taxation Law 2014
Woellner, R. H, Australian Taxation Law 2012 (CCH Australia, 2013)