ATO Interpretative Decision
ATO ID 2004/580
Income Tax
Capital Allowances: project pools - start to deduct amountsFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can the taxpayer start to deduct, under subsection 40-830(2) of the Income Tax Assessment Act 1997 (ITAA 1997) an amount for project amounts allocated to a project pool before the project starts to operate?
Decision
No. The taxpayer cannot start to deduct an amount under subsection 40-830(2) of the ITAA 1997 for project amounts they allocate to a project pool until the project starts to operate.
Facts
The taxpayer had identified with some certainty a project they proposed to carry on for a taxable purpose over a determinate period. The taxpayer was required to lodge a development permit application with supporting material to the local government authority for approval to proceed with their project. Prior to receiving that approval, the taxpayer incurred capital expenditure that was a project amount within subsection 40-840(2) of the ITAA 1997. The amount was allocated to a project pool.
Reasons for Decision
Broadly, section 40-830 of the ITAA 1997 allows a deduction over the project life of a project for project amounts allocated to a project pool. Project life is worked out by estimating how long it will be from when the project starts to operate until it stops operating (section 40-845 of the ITAA 1997).
Some projects within the ambit of subsection 40-840(2) of the ITAA 1997 consist of two stages: a preparatory stage (a setting up stage) and an operational stage (when the taxpayer carries on activities for a taxable purpose). Such projects start at the beginning of the preparatory stage. They start to operate at the beginning of the operational stage. This means that the time when a project starts may be earlier than the time when the project starts to operate.
A deduction for project amounts allocated to a project pool is based on project life (section 40-830 of the ITAA 1997) and becomes available for the first income year when the project starts to operate (section 40-855 of the ITAA 1997). As mentioned above, project life is worked out by reference only to the period of the operational stage of the project.
As the taxpayer's project has not yet reached an operational stage, the taxpayer cannot start deducting amounts under subsection 40-830(2) of the ITAA 1997.
Date of decision: 1 June 2004Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 40-830
subsection 40-830(2)
subsection 40-840(2)
section 40-845
section 40-855
ATO ID 2004/581
ATO ID 2004/582
ATO ID 2004/583
Keywords
Capital Allowances CoE
Project amount
Project life
Project pool
Uniform capital allowances system
ISSN: 1445-2782