ATO Interpretative Decision

ATO ID 2003/671

Income Tax

Issue

Is a commercial shipping channel or any of its significant features plant within the meaning of that term in section 45-40 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. Neither the shipping channel nor any of its significant features are plant within the meaning of that term in section 45-40 of the ITAA 1997. This is because they are the setting within which income producing activities are undertaken.

Facts

The taxpayer undertook a project that was generally designed to increase the commercial capacity of a shipping channel (the channel). The significant features of the channel are a 'main channel' (a body of water that connects points of the channel to each other), a 'berthing pocket' (a section of the channel immediately adjacent to a wharf that can accommodate fully laden marine craft berthed at low tide) and a 'swing basin' (a circular facility to allow marine craft to turn 180 degrees). The project was undertaken in sections with each section involving a particular aspect (for example: deepening, widening or extending) of each channel feature and was carried out over a considerable period of time.

Reasons for Decision

The project will create various structural improvements including a main channel, a berthing pocket and a swing basin (see ATO ID 2003/669 on Capital Works: shipping channel- structural improvement). These improvements are capital works for the purposes of Division 43 of the ITAA 1997. This Division generally allows a deduction for capital expenditure incurred in respect of the construction of capital works. However, construction expenditure does not include, among other things, expenditure on plant (paragraph 43-70(2)(e) of the ITAA 1997).

'Plant' is defined in section 45-40 of the ITAA 1997 to take its ordinary meaning and to include certain other things. None of the inclusions are applicable to the capital works being considered here. This means that for the works to be excluded from being construction expenditure, they would need to be expenditure on plant within the ordinary meaning of that term. Taxation Ruling TR 1999/2 (TR 1999/2) provides the following overview of the ordinary meaning of plant:

'20. '[Plant] in its ordinary sense...includes whatever apparatus is used by a business man for carrying on his business, - not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business': Lindley LJ in Yarmouth v. France (1887) 19 QBD 647 at 658.'

Using capital works for the purpose of the taxpayer's income producing activities does not, of itself, make capital works plant. For something that is a structural improvement to constitute plant, it must not merely be a setting in which the income producing activities are carried on (J. Lyons & Co Ltd v. The Attorney-General [1944] 1 All ER 477). The distinction was drawn in that case between the setting in which a business is carried on and the apparatus used in carrying on a business. However, it was also said in Jarrold (Inspector of Taxes) v. John Good & Sons, Ltd 40 TC 681; (1963) 1 All ER 141 that the two concepts are not always necessarily mutually exclusive.

In those cases where structural improvements have been held to be plant, the improvements were significantly integrated with the income producing operations. They played an active part in an industrial process and often were physically integrated with items of machinery. For example:

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The dyehouse in Wangaratta Woollen Mills Limited v. FCT (1969) 119 CLR 1; 69 ATC 4095; (1969) 1 ATR 329

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The drydock in Inland Revenue Commissioners v. Barclay, Curle and Co Limited (1968) 45 TC 221

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The grain silo in Schofield (Inspector of Taxes) v. R & H Hall Limited 49 TC 538, and

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The tailings dams and mudlakes in Taxation Ruling TR 1999/2.

The capital works being considered here are not of the same character and do not operate in the same way as the structural improvements described above, and consequently, are not plant within the ordinary meaning of that term. The Full High Court in Goldsworthy Mining Ltd v. Federal Commissioner of Taxation (1975) 132 CLR 463; 75 ATC 4023; (1975) 5 ATR 199 further held that the dredging improvements to the sea bed in that case were not plant.

Year of income:  Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
   paragraph 43-70(2)(e)
   section 45-40

Case References:
Inland Revenue Commissioners v. Barclay Curle & Co Ltd
   [1968] TC 221

Related Public Rulings (including Determinations)
Taxation Ruling TR 1999/2

Related ATO Interpretative Decisions
ATO ID 2003/669
ATO ID 2003/670
ATO ID 2003/672
ATO ID 2003/673

Keywords
Depreciable plant
Structural improvement expenses
Capital allowances CoE

Siebel/TDMS Reference Number:  3428736

Business Line:  Public Groups and International

Date of publication:  1 August 2003

ISSN: 1445-2782