ATO Interpretative Decision

ATO ID 2004/932 (Withdrawn)

Income Tax

• This ATO ID is withdrawn. Guidance on this issue can be found in Rental properties (NAT 1729, 520KB).
  This document has changed over time. View its history.

Issue

Is the number of 'days used' in the formula in section 43-210 of the Income Tax Assessment Act 1997 (ITAA 1997) 366 if the taxpayer used their capital works in the requisite manner for the whole of the 2003-04 income year which is a leap year?

Decision

Yes. The taxpayer would use 366 for the component 'days used' in the formula in section 43-210 of the ITAA 1997 because that is the number of days in the 2003-04 income year that they used their capital works for the requisite purpose.

Facts

The taxpayer purchased a rental property in December 2002 that had been constructed in 1994. In a letter to the taxpayer, a supervising architect estimated the construction cost of the rental property for capital works deduction purposes to be $100,000.

During the whole of the 2003-04 income year the taxpayer owned and used the property solely for the purpose of producing assessable income. The 2003-04 income year was a leap year and, therefore, contained 366 calendar days.

Reasons for Decision

Subdivision 43-F of the ITAA 1997 sets out how the amount of a capital works deduction under section 43-10 of the ITAA 1997 is calculated. For capital works begun after 27 February 1992, the calculation formulas are contained in section 43-210. These formulas include a reference to 'days used'.

Section 43-210 of the ITAA 1997 sets out a number of steps for calculating an amount of capital works deduction. Step 3 applies to the circumstances of this case and defines 'days used' as the number of days in the income year that:

(a)

you owned or were the lessee of that part of your area and used it in the 2.5% manner; or

(b)

you were the holder of that part of your area under a quasi-ownership right over land granted by an exempt Australian government agency or an exempt foreign government agency, and used that part of your area in the 2.5% manner.

As the capital works were used by the taxpayer in the requisite way for 366 days in the 2003-04 income year, that is the number of 'days used' to be used in the formula. The maximum deduction for the 2003-04 income year for the taxpayer is worked out as follows:

($100,000 * 366 * 0.025) / 365 = $2506


Although the deduction available in a leap year is potentially greater than that for other years, the deduction for any particular income year is limited to the undeducted construction expenditure for the capital works (see Step 6 of section 43-210 of the ITAA 1997). Similarly, the total deduction available under Division 43 of the ITAA 1997 cannot exceed 100% of construction expenditure for the particular capital works.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 43-10
   section 43-210

Keywords
Capital Allowances CoE
Deductions & expenses

Business Line:  Small Business/Individual Taxpayers

Date of publication:  26 November 2004

ISSN: 1445-2782