ATO Interpretative Decision
ATO ID 2002/929 (Withdrawn)
Rental Expenses - cost of relocating assets to a rental property
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||This ATO ID is withdrawn.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Status of this decision: Decision withdrawn 24 March 2017.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for costs incurred in relocating assets to a new rental property?
No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for costs incurred in relocating assets to a new rental property as the expenditure is capital in nature.
The taxpayer acquired a new residential property in order to establish a rental property.
The taxpayer incurred costs in relocating assets from a previous rental property.
The assets included a refrigerator, cooler, washing machine and lawn mower.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and 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.
The courts have considered what constitutes a capital outgoing. In Sun Newspapers Ltd v. Federal Commissioner of Taxation (1938) 61 CLR 337; (1938) 5 ATD 87; (1938) 1 AITR 403 Dixon J stated that:
'expenditure and outlay upon establishing, replacing and enlarging the profit yielding subject may in a general way appear to be of a nature entirely different from the continual flow of working expenses which are or ought to be supplied continually out of the returns or revenue.'
The costs associated with setting up a rental property are generally not deductible as they form part of establishing the profit-making asset. On the other hand, costs incurred in deriving rental income (for example, agent commissions to collect rents) are deductible revenue outgoings because they are incurred in deriving income from that asset.
The cost incurred by the taxpayer in relocating assets to the new rental property to ensure that it was suitably equipped to produce assessable income is an expense of a capital nature and is therefore not an allowable deduction under section 8-1 of the ITAA 1997.
Note: the cost of relocating a depreciating asset is a second element cost (section 40-190 of the ITAA 1997) of the asset that will increase the amount against which a deduction can be claimed for the decline in value or depreciation of that asset.
Date of decision: 1 July 2002
|Year of income:||Year ended 30 June 2002|
Income Tax Assessment Act 1997
Sun Newspapers Ltd v. Federal Commissioner of Taxation
(1938) 61 CLR 337
(1938) 5 ATD 87
Deductions & expenses
Removal & relocation expenses
Siebel/TDMS Reference Number: DW424860; 1-5NGBFBK; 1-AZZ4AA7
Business Line: Small Business/Individual Taxpayers
Date of publication: 26 September 2002
Date reviewed: 8 September 2014
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