ATO Interpretative Decision

ATO ID 2003/490 (Withdrawn)

Income Tax

Capital allowances: deduction for capital works
FOI status: may be released
Status of this decision: Decision Withdrawn 15 September 2006
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.

Issue

Is a deduction under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) allowed for buildings that are capital works for which an amount could have been deducted under Division 43 of the ITAA 1997 if the buildings had been used in a deductible way?

Decision

No. A deduction is not allowed under Division 40 of the ITAA 1997 for capital works for which an amount could have been deducted under Division 43 of the ITAA 1997 if the capital works had been used in a deductible way.

Facts

The taxpayer incurred capital expenditure on constructing capital works in an income year as part of restoring two buildings it owns. The taxpayer did not carry on business or use the capital works for the purpose of producing assessable income in that income year.

Reasons for Decision

Division 43 of the ITAA 1997 sets out the rules for deductions for capital works such as buildings and extensions, alterations or improvements to buildings. You can only deduct an amount under Division 43 of the ITAA 1997 for an income year if, among other things, you use your capital works in a deductible way in the income year. Capital works are used in a deductible way in an income year if they are used for the relevant purpose under section 43-140 of the ITAA 1997.

Subsection 40-45(2) of the ITAA 1997 ensures that Divisions 40 and 43 of the ITAA 1997 interact correctly by ensuring that depreciating assets that are capital works are not deductible under both Division 40 and 43 of the ITAA 1997. It does this by excluding from Division 40 of the ITAA 1997 those capital works for which an amount can, or could be deducted under Division 43 of the ITAA 1997. It also excludes from Division 40 of the ITAA 1997 those capital works for which you could deduct an amount under Division 43 of the ITAA 1997 had you used the capital works for the purpose relevant under section 43-140 of the ITAA 1997.

The taxpayer cannot deduct an amount for the buildings under Division 43 of the ITAA 1997 because it did not use them for the purpose relevant under section 43-140 of the ITAA 1997. However it would have been able to deduct an amount under Division 43 of the ITAA 1997 had they been used for the relevant purpose.

Therefore, the taxpayer cannot deduct an amount for the capital works under Division 40 of the ITAA 1997 because of the operation of subsection 40-45(2) of the ITAA 1997.

Date of decision:  29 May 2003

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Subsection 40-45(2)
   Paragraph 40-45(2)(b)
   Section 43-140

Related ATO Interpretative Decisions
ATO ID 2003/489
ATO ID 2003/491

Keywords
Capital Allowances CoE
Capital expenditure
Construction costs
Deduction for depreciating assets
Uniform capital allowances system

Business Line:  Effective Life and Capital Allowances Centre of Expertise

Date of publication:  27 June 2003

ISSN: 1445-2782

history
  Date: Version:
  29 May 2003 Original statement
You are here 15 September 2006 Withdrawn