New fence deductibility?

Question from Wendy updated on 19th February 2014:

The timber boundary fence at my rental property was badly damaged by wind and a new fence was built to replace it. Just wondering if the new block fence is tax deductible as a rental expense? Thanks.

Our expert Mark Withers responded:

Dear Wendy, the place to start with your question is to identify the asset. A boundary fence is not attached to a building so it is a distinct asset from the building. Next step is to look at the extent and degree of the work. You say the fence was damaged by wind and was replaced. There is quite a bit of case law that suggests that when an asset is completely replaced the work generally goes beyoond maintenance and would generally suggest the work is capital in nature. If you fence was being maintained simply as a result of age and did not require total replacement the work is more likely to be deductible. If a wind event caused the destruction it is also likely covered by insurance. I suggest the correct treatement is to dispose of the old fence at a sum equel to the insurance payout and claim a loss on disposal if this is less than the book value of the fence. The new fence should then be capitalised and depreciated as a new asset, remembering that because it is not attached to the building it is not a building and is therefore depreciable as a stand-alone asset.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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