ATO Interpretative Decision
ATO ID 2004/136 (Withdrawn)
Income TaxCapital Works: construction expenditure - owner/builder travelling expenditure
FOI status: may be released
Status of this decision: Decision Withdrawn 15 October 2004
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the expenditure incurred in travelling between home and the construction site, where the taxpayer managed and supervised the construction of their rental property, construction expenditure in respect of capital works, as defined in section 43-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?
No. The expenditure incurred in travelling between home and the construction site, where the taxpayer managed and supervised the construction of their rental property, is not construction expenditure as defined in section 43-70 of the ITAA 1997 because the expenditure is a cost incurred in order to make a contribution to capital works.
The taxpayer possessed qualifications as a civil engineer.
The taxpayer engaged individual tradesmen and builders to carry out some construction works to improve a second hand house, which the taxpayer purchased and subsequently relocated, to a rentable state at the new location. During the construction period, the taxpayer travelled between their home and the construction site to manage and supervise the tradesmen and builders' work.
The house was available for rent after all of the construction activity was completed.
The construction works were capital works to which Division 43 of the ITAA 1997 applies.
Reasons for Decision
A deduction under Division 43 of the ITAA 1997 is dependent, among other things, on whether the capital works have construction expenditure. Construction expenditure is capital expenditure incurred in respect of the construction of capital works (subsection 43-70(1) of the ITAA 1997). Subsection 43-70(2) of the ITAA 1997 excludes certain expenditure forming part of the construction expenditure.
The travelling expenditure was capital in nature.
Taxation Ruling TR 97/25 states in part, at paragraph 10:
..in relation to an owner/builder entitled to a deduction under Division 43, the value of the owner/builder's contributions to the works (such as labour and expertise) and any notional profit element do not form part of construction expenditure....
The taxpayer's travel costs were incurred in order to apply the taxpayer's engineering expertise. An owner-builder's construction expenditure, as defined in section 43-70 of the ITAA 1997, does not include costs incurred so as to put the taxpayer in the position of being able to apply the taxpayer's labour or expertise.
Therefore, the travelling expenditure incurred was not construction expenditure in respect of the construction of capital works as defined in subsection 43-70(1) of the ITAA 1997.
Related Public Rulings (including Determination)
Taxation Ruling TR 97/25Date of decision: 2 February 2004
Year of income: Year ended 30 June 2003
ATO ID 2002/1098
ATO ID 2004/137
ATO ID 2004/138
Removal & relocation expenses