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ATO Interpretative Decision

ATO ID 2010/41 (Withdrawn)

Income Tax
Capital works: plant - improvements partly used for accommodation of employees

Attention This ATO ID is withdrawn. Guidance on this issue can be found in Taxation Ruling TR 97/25
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 5 July 2017.

CautionCAUTION: 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.


Issue

Does some part of the capital expenditure incurred on structural improvements to a building, on a farming property provided for the accommodation of both employees and the owner of the property, qualify for a capital works deduction under Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. No part of the capital expenditure incurred on structural improvements to a building, on a farming property provided for the accommodation of both employees and the owner of the property, qualifies for a capital works deduction under Division 43 of the ITAA 1997, because the expenditure was incurred to provide an asset qualifying as plant as defined in section 45-40 of the ITAA 1997. The whole of the capital expenditure was therefore 'expenditure on plant' which is specifically excluded from a deduction under Division 43 of the ITAA 1997.

Facts

The taxpayer maintains a residence in a city.

The taxpayer carries on a farming business as a sole trader on farming property he owns. The property contains a cottage that is used for the accommodation of employees who work on the property. The taxpayer also occupies the cottage, at times when employees are present and also on his own, when working on the property.

The taxpayer incurred expenditure to renovate and extend the cottage.

Reasons for Decision

(All legislative references are to the ITAA 1997)

Section 43-10 provides a deduction for certain 'construction expenditure' incurred in respect of the construction of capital works such as buildings or structural improvements, including any extensions, alterations, or improvements to buildings or structural improvements.

Subsection 43-70(1) defines 'construction expenditure' as capital expenditure incurred in respect of the construction of capital works. However, paragraph 43-70(2)(e) specifically excludes expenditure on 'plant' from being construction expenditure. As a result no deduction is allowed for such expenditure under Division 43.

Paragraph 45-40(1)(c) extends the meaning of plant to include structural improvements on land used for agricultural or pastoral operations other than those used for domestic or residential purposes. However Paragraph 45-40(1)(f) specifically includes those structural improvements as plant even though they are used for domestic or residential purposes if they are provided for employees, tenants or sharefarmers engaged in or in connection with the agricultural or pastoral activities.

There is no requirement in paragraph 45-40(1)(f) that the structural improvements be used solely for the accommodation of employees, tenants or sharefarmers. Therefore, the concurrent use of the structural improvements for another purpose does not exclude them from the definition of plant in paragraph 45-40(1)(f).

As the structural improvements, including the building, are provided for use as accommodation for employees engaged in the agricultural or pastoral operations they are plant within the definition. The whole of the expenditure on the renovations is, therefore, expenditure on plant and is specifically excluded from deduction under Division 43.

Date of decision: 27 January 2010

Year of income:Year ended 30 June 2009

Legislative References:
Income Tax Assessment Act 1997
   section 43-10
   subsection 43-70(1)
   paragraph 43-70(2)(e)
   paragraph 45-40(1)(c)
   paragraph 45-40(1)(f)

Related Public Rulings (including Determinations)
Taxation Ruling TR 97/25

Related ATO Interpretative Decisions
ATO ID 2002/626

Keywords
Building alteration & renovation expenses
Construction expenditure area
Depreciable plant

Business Line: Public Groups and International

Date of publication: 19 February 2010

ISSN: 1445-2782

ATO ID 2010/41 (Withdrawn) history   Top  
   Date   Version 
   27 January 2010   Original statement   
 You are here ®   5 July 2017   Withdrawn   


 


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