Public Ruling No. 6/2019 – Tax Treatment on Expenditure for Repairs and Renewals of Assets

Public Ruling No. 6/2019 – Tax Treatment on Expenditure for Repairs and Renewals of Assets

The IRB has published PR No. 6/2019: Tax Treatment on Expenditure for Repairs and Renewals of Assets, dated 26 November 2019, to explain the tax treatment of expenditure for the repair and renewal of an asset. The new 10-page PR comprises the following paragraphs and sets out 12 examples:

1.0          Objective

2.0          Relevant provisions of the law

3.0          Interpretation

4.0          Introduction

5.0          Expenses and repairs and renewals

6.0          Categories of repair expenses

7.0          Summary

8.0          Disclaimer

Generally, repair and renewal expenses are claimed as tax deductions pursuant to Section 33(1)(c) of the ITA. A deduction will be allowed for expenses wholly and exclusively incurred for:

a)    The repair of premises, plant, machinery or fixtures employed in the production of gross income; or

b)    The renewal, repair or alteration of any implement or utensil of article so employed in the production of gross income (other than those which qualify for capital allowances under Schedule 3 of the ITA)

The cost of reconstructing or rebuilding any premises, buildings, structures or works of a permanent nature and the cost of any plant or machinery or any fixtures will not be allowed as a tax deduction.

The word “repair” is not defined in the ITA. The PR provides that in general, repair is a situation where an asset is restored to its original state by renewing or replacing the parts which cannot be used or are damaged, without any element of improvement, addition or alteration. It is expenditure incurred solely to put back the asset to its original condition which will enable it to function properly at its previous efficiency.

The PR has categorized repair expenses as follows:

•       Repair to restore assets to their original condition

•       Initial repairs

•       The replacement of the entirety or part of the entirety

•       Replacement or improvement

•       Implements, utensils or articles with a life span of less than two years

A summary of tax treatment is also provided at the end of the PR:

Repairs
Revenue expenditure  (allowed as a deduction)	Capital expenditure  (not allowed as a deduction)
Repair which restores an   asset to its original condition	Repairs or replacements with an element of   improvement or renewal to the assets/altering the   original condition of the assets
Repairs which allow   businesses to continue	Initial expenditure or repairs on an asset immediately   after the asset is acquired
Replacement of part of the   entire asset	Replacement of the entire asset (entirety)
Replacements and renewals   of implements, utensils or   articles that have an     expected life span of not   more than two years