ATO Interpretative Decision
ATO ID 2003/80
Capital allowances
Capital Allowances: identical or substantially identical depreciating assetsFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Are a curtain, venetian blind and holland blind installed in a rental property identical or substantially identical depreciating assets for the purpose of paragraph 40-80(2)(d) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. A curtain, venetian blind and holland blind installed in a rental property are not identical or substantially identical depreciating assets for the purpose of paragraph 40-80(2)(d) of the ITAA 1997.
Facts
The taxpayer owns a residential property that is rented (or available for rent) on a commercial basis at all times. The taxpayer purchased and installed all of the following items in the property during the same income year:
- 1.
- A curtain for the lounge room window, which measures 2.4m X 2m. The curtain is made of white lace material, is drawn by hand and is attached to the window frame by means of a timber curtain rod. The cost of the curtain and rod is $260.
- 2.
- A venetian blind for the kitchen window, which measures 1.6m X 1.2m. The blind is made of grey plastic, is comprised of individual slats connected by string, is drawn by a plastic wand and is attached to the window frame by means of metal catchments. The cost of the blind is $250.
- 3.
- A holland blind for the bedroom window, which measures 2m X 1.4m. The blind is made of continuous yellow canvass, is drawn by hand on a spring mechanism and is attached to the window frame by means of metal catchments. The cost of the blind is $270.
Reasons for Decision
The taxpayer is entitled to deduct the decline in value of each item under section 40-25 of the ITAA 1997 because each item is a depreciating asset that the taxpayer holds and uses wholly for a taxable purpose.
Under subsection 40-80(2) of the ITAA 1997 the decline in value of a depreciating asset in an income year is the asset's cost if all of the following tests are satisfied:
- •
- The cost of the depreciating asset is $300 or less.
- •
- The asset is used predominantly for the purpose of producing assessable income that is not income from carrying on a business.
- •
- The asset is not part of a set of assets that starts to be held in the income year where the set costs more than $300.
- •
- The asset is not one of a number of identical or substantially identical assets that starts to be held in the income year that together cost more than $300.
Each of the curtain, venetian blind and holland blind is a separate depreciating asset.
The identical or substantially identical test contained in paragraph 40-80(2)(d) of the ITAA 1997 effectively denies an immediate deduction for the cost of a depreciating asset (that might otherwise be available because of subsection 40-80(2) of the ITAA 1997) if you start to hold in the same income year other depreciating assets that are identical or substantially identical and the total cost of those assets is more than $300. In this case, the decline in value of the assets is worked out by reference to their respective effective life or, if chosen, through the low-value pool mechanism.
Whether depreciating assets are identical or substantially identical is a question of fact. Assets are identical if they are the same in all respects. Assets are substantially identical if they are the same in most respects even though there may be some minor or incidental differences. Factors that need to be considered include colour, shape, function, texture, composition, operation, brand and design. The weighting of each factor may vary from asset to asset.
Broadly speaking, the curtain, venetian blind and holland blind are similar because they are forms of window coverings. In that sense, their function is also similar because they provide privacy, control the amount of light entering the window and offer aesthetic qualities. However, these similarities in this case do not make the assets identical or even substantially identical.
The assets are different in a number of ways, some of which are more significant than others. The assets are of a different construction, operation and composition, they are of a different design and colour and they are for different rooms of the house that contain different window openings. The nature and extent of these differences support the view that they are neither identical nor substantially identical depreciating assets for the purpose of paragraph 40-80(2)(d) of the ITAA 1997.
Date of decision: 18 December 2002Year of income: 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
Section 40-25.
Subsection 40-80(2)
Paragraph 40-80(2)(d)
Keywords
Decline in value methods
Depreciating assets costing $300 or less
Immediate deduction for depreciating assets
Substantially identical depreciating assets
Uniform capital allowances system
ISSN: 1445-2782