ATO Interpretative Decision

ATO ID 2003/592

Income Tax

Capital Allowances: holder of common property depreciating assets - NSW
FOI status: may be released
  • This document has changed over time. View its history.

Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Does a unit owner hold, under section 40-40 of the Income Tax Assessment Act 1997 (ITAA 1997), a depreciating asset that forms part of the common property of a residential unit complex on freehold land in New South Wales (NSW)?

Decision

Yes. The taxpayer does hold, under section 40-40 of the ITAA 1997, a depreciating asset that forms part of the common property of a residential unit complex on freehold land in NSW.

Facts

The taxpayer owns a unit in a residential unit complex in NSW on freehold land. The unit is rented (or available for rent) on a commercial basis at all times. There are ten units in the complex which features a swimming pool, tennis court and change rooms.

During the income year the body corporate has acquired a number of door closers that are identical in colour, size and function. They have been purchased individually. The total cost of the door closers is $500.

These door closers form part of the common property of the residential unit complex and the portion of the cost of these door closers attributable to each unit owner's interest is $50.

Reasons for Decision

Broadly speaking, section 40-25 of the ITAA 1997 allows a holder of a depreciating asset an annual deduction for the decline in value of the asset.

The table in section 40-40 of the ITAA 1997 identifies the holder of a depreciating asset in any particular circumstance. In broad terms a holder of a depreciating asset is its economic owner. In most cases the economic owner will also be the legal owner.

The legal ownership of common property varies according to different State strata titles legislation. Income Tax Ruling IT 2505, entitled Bodies Corporate Constituted Under Strata Title Legislation, explains that ownership of common property in NSW is vested in the body corporate as agent for the proprietors (section 20 of the Strata Schemes (Freehold Development) Act 1973 (NSW)). Therefore the unit owners in NSW are the holders of depreciating assets that form part of the common property under item 10 of the table in section 40-40 of the ITAA 1997.

Subsection 40-35(1) of the ITAA 1997 applies to a depreciating asset that is held by more than one entity. It treats each entity's interest in the underlying asset as if the interest were itself the underlying asset. This means that the taxpayer's interest in a depreciating asset that forms part of the common property is treated as if their interest is the underlying asset.

Therefore, the taxpayer does hold a depreciating asset that forms part of the common property of a residential unit complex on freehold land under section 40-40 of the ITAA 1997.

Date of decision:  25 June 2003

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-25
   subsection 40-35(1)
   section 40-40

Strata Schemes (Freehold Development) Act 1973 (NSW)
   section 20

Related Public Rulings (including Determinations)
Taxation Ruling IT 2505

Related ATO Interpretative Decisions
ATO ID 2003/591

Keywords
Decline in value
Freehold
Hold a depreciating asset
Legal owner

Business Line:  Public Groups and International

Date of publication:  18 July 2003

ISSN: 1445-2782

history
  Date: Version:
You are here 25 June 2003 Original statement
  25 March 2015 Withdrawn