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    From Uncertainty to Objectivity: Reforming Tax Deductions for Repair Costs in Australia

    84278.pdf (625.1Kb)
    Access Status
    Open access
    Authors
    Allen, Christina
    Date
    2020
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Allen, C. 2020. From Uncertainty to Objectivity: Reforming Tax Deductions for Repair Costs in Australia. Australian Tax Forum: a journal of taxation policy, law and reform. 35 (4): pp. 496-520.
    Source Title
    Australian Tax Forum: a journal of taxation policy, law and reform
    ISSN
    0812-695X
    Faculty
    Faculty of Business and Law
    School
    Curtin Law School
    Remarks

    First published with The Tax Institute.

    URI
    http://hdl.handle.net/20.500.11937/84394
    Collection
    • Curtin Research Publications
    Abstract

    In Australia, the cost of repairing an asset used to produce assessable income is immediately deductible under s 25-10 of the Income Tax Assessment Act 1997. To claim this deduction, the repairs must not be of a capital nature. The courts have developed three tests to distinguish repair costs from capital expenses. The first test, the ‘initial repair test’ is fairly sound. However, the other two tests, which focus on replacing and improving assets, are far less reliable. This article begins with a general discussion on repairs and critiques the three tests used for characterising repair costs. It explores the rationale for allowing immediate tax deductions for repair costs and the significant difficulty involved in producing coherent and consistent tax outcomes in practice. Next, the article demonstrates this difficulty through a survey of case law, arguing that the current rules need to be clarified. Lastly, the article recommends that new tax rules be adopted to deal with repair costs, to complement the existing regimes governing depreciating assets and capital works, simplify tax administration and reduce compliance costs.

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