Cost of Replacing Roof Deductible

A private ruling that might assist those in a similar situation

Question

Are you entitled to a deduction for the cost of replacing the roof of your rental property as a repair?

Answer

Yes. Your expenses meet the requirements in Taxation Ruling TR 97/23 and are deductible. Further information about repairs can be found by searching 'QC 23635 on ato.gov.au

This ruling applies for the following period:

Year ending 30 June 2021

The scheme commences on:
1 July 2020

Relevant facts and circumstances

You purchased a rental property a number of years ago.

The property is in your name.

The property has been rented since you purchased it.

When you purchased the rental property the roof was in good condition.

Over the years the roof has deteriorated and it was identified by an engineer that it needed replacing.

The original roof was made of iron and it has been replaced with Colourbond.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-10

 

The key reasoning is that a roof is a element of a building so that the usual test for a "replacement" is not required to be met since the building isnt being replaced. Hence its not always capital expenditure.
The key exceptions:
- Initial repairs and
- The duration and use of the property since acquisition test

s25-10 considers that the cost is not capital where it is a repair and the amount deducted reflects the period and duration of time used to produce assessable income. s25-10 is the reverse of the "capital expenditure is not deductible" rule in s8-1(2)(a). Its a common rule many tax newbies take time to learn and missed by tax advisers not savvy with property issues.

I encountered a case such as this. At the time the property was acquired the P&B noted the roof has light corrosion commencin to a corrugated roof that was not suitably galvanised but was otherwise serviceable. It was in a seaside area and saltwater rapidly corroded the steel in a few years. A cyclone did the rest. Roofing cost $32K as the timbers were also found to be of concern due to age and both timbers and steel were replaced. All deductible, Client assumed it wasnt. It was me was argued to review the B&P report that satisfied me it was deductible.

So is the replacement of clear plastic roofing on a freestanding gazebo at a IP, with steel, deductible ? I have always pondered this. I need to get out more.

Can also apply to replacemnet of cladding (eg asbestos), windows etc. But adding new cladding may not always be deductible and a binding private ruling assists eg replacing weatherboards with cement sheet. Does not apply to structural works either eg adding a new level, extension etc

 

The roof on an old apartment block (1940's) has been assessed as needing entire replacement given multiple points of failure/leak. We're replacing it like-for-like. Would this satisfy the repair criteria. Given the cost, I assume if I put this down as a repair the ATO algorithm will ping me.

 

What about the gyprock? Kitchen? Bathroom etc. In 5 years you could renovate your whole house, claim it on tax. Then move in as your PPOR lol

 

Sounds very similar to the question asked on the private ruling listed by Mike.

 

The concern for an apartmnet building may be different to a house. The roof is not property of the owner. It is strata property. Owners may pay levies - These are not in themself deductible. Instead the building would have a QS report and the share of the replacement roof MAY be deductible or depreciable depending on other factors. It may be different materials or a different design etc. Replacement of asbestos for steel sheeting etc shouldnt pose a concern as you cannot replace with asbestos.

I would be seeking views of the QS and then seeking a private ruling ONCE the works are completed by the strata. Pictures before and after would assist this also.

The ATO wont "ping"anyone however these may be a review question asked and it would be wise to know the tax position for a large deduction and not reply on assumptions. The private ruling may or may not be seen by the ato reviewer and when mentioned would address their review question.