ATO Interpretative Decision
ATO ID 2002/573 (Withdrawn)
Deductibility of rental property expenses - electricity power guarantee
FOI status: may be released
||This ATO ID is withdrawn. Guidance relating to the issue addressed in this ATO ID can be found in the Rental Property Guide (NAT 1729) published to ato.gov.au (QC 23626).
||This document has changed over time. View its history.
Status of this decision: Decision withdrawn 24 March 2017.
|CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.|
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Is the amount of the annual power guarantee the taxpayer pays in respect of their rental property an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. The annual power guarantee the taxpayer pays in respect of their rental property is an allowable deduction under section 8-1 of the ITAA 1997.
An annual power guarantee was imposed on the taxpayer's rental property when the electricity supply was connected to the property.
The power guarantee is imposed on the property because it is in a rural/remote area and is imposed for a period of ten years.
If the tenants do not consume more than or equal to the guarantee amount in electricity then the taxpayer as the landlord must supplement the difference between the amount paid by the tenant and the minimum amount under the guarantee.
If the minimum amount under the guarantee is not paid the electricity will be disconnected.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
In order for a loss or outgoing to be deductible under section 8-1 of the ITAA 1997 expenditure must have the essential character of an outgoing incurred in gaining assessable income ( Lunney v. Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166). There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income ( Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 56 ALR 785; (1949) 8 ATD 431), and the expenditure must not be capital, private or domestic in nature.
The power guarantee is imposed on the property on an annual basis and, as the owner of the property, the taxpayer must supplement any shortfall in power consumption. The power guarantee is a cost that is directly incurred by the rental property owner in the course of earning assessable income from the property. Like rates, insurance premiums and land tax payments, it is an ongoing expense of a revenue nature and not a capital expense for the purposes of section 8-1 of the ITAA 1997.
Accordingly, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997 for the amount of the power guarantee.
Date of decision: 1 February 2002
|Year of income:||Year ending 30 June 2002|
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Income Tax Assessment Act 1997
Lunney v. Commissioner of Taxation
(1958) 100 CLR 478
(1958) 11 ATD 404
(1958) 7 AITR 166
Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation
(1949) 78 CLR 47
(1949) 56 ALR 785
(1949) 8 ATD 431
Confirmed significant issues
Siebel/TDMS reference number: DW358058; 1-5T2BWDT; 1-AZZ49QO
Business line: Small Business/Individual Taxpayers
Date of publication: 31 May 2002
Date reviewed: 27 November 2014
|ATO ID 2002/573 history