ATO Interpretative Decision
ATO ID 2003/787 (Withdrawn)
Income TaxCapital allowances: business related costs - restoration of leased premises
FOI status: may be released
This ATO ID is withdrawn as former section 40-880 of the Income Tax Assessment Act 1997 has been repealed. New section 40-880 provides deductions for a greater range of business related costs where the expenditure is incurred after 30 June 2005. Expenditure incurred after that date is deducted under new subsection 40-880(2).
Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of expenditure incurred before 1 July 2005.This document has changed over time. View its history.
Status of this decision: Decision Withdrawn 9 June 2006
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 capital expenditure incurred in restoring leased premises to the condition they were in at the beginning of the lease deductible under paragraph 40-880(1)(g) of the Income Tax Assessment Act 1997 (ITAA 1997), where the expenditure was incurred upon the cessation of the business conducted from the premises?
Yes. Capital expenditure incurred in restoring leased premises to the condition that they were in at the beginning of the lease is deductible under paragraph 40-880(1)(g) of the ITAA 1997 provided the other requirements of section 40-880 of the ITAA 1997 are satisfied.
A partnership operated a shop out of leased premises. Expenditure was incurred to fit out the shop. The fit out involved the tiling of the floor and walls.
At the end of the lease period, the taxpayer incurred further expenditure to demolish the fit out, including the removal of the tiling. This was done to return the premises to their original state as required under the lease agreement. The termination of the lease was an integral element of the cessation of the business and occurred contemporaneously with the cessation.
Reasons for Decision
Paragraph 40-880(1)(g) of the ITAA 1997 allows a deduction for amounts of capital expenditure incurred that are costs to stop carrying on your business, to the extent that the business was carried on for a taxable purpose.
The Explanatory Memorandum accompanying Taxation Law Amendment Act (No. 5) 2002 (TLAA No. 5) refers to site rectification costs and costs associated with the removal of tenant's fixtures incurred upon the cessation of business as examples of costs that may come within paragraph 40-880(1)(g) of the ITAA 1997.
The termination of the lease was an integral element in the cessation of the business and occurred contemporaneously with its cessation. Therefore the capital expenditure incurred to restore the premises to their original condition, as required by the lease, will be a cost to stop carrying on a business.
A deduction will be available for this expenditure where the other requirements of section 40-880 of the ITAA 1997 are also met. The deduction is claimed over 5 years, with 20 percent of the expenditure deductible in the year it is incurred and in each of the next 4 income years under (subsection 40-880(2) of the ITAA 1997).Date of decision: 17 July 2003
Year of income: Year ended 30 June 2002
ATO ID 2003/788
Explanatory Memorandum to Taxation Law Amendment Act (No. 5) 2002
Uniform capital allowances system
Capital Allowances CoE