ATO Interpretative Decision
ATO ID 2004/581
Income Tax
Capital Allowances: project pools - project - abandonmentFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is the taxpayer's project abandoned for the purposes of subsection 40-830(4) of the Income Tax Assessment Act 1997 (ITAA 1997) if progress of the project is delayed?
Decision
No. The taxpayer's project is not abandoned simply because there is uncertainty about the progress of the project.
Facts
The taxpayer had identified with some certainty a project that 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 the project. The taxpayer incurred capital expenditure that constituted a project amount within subsection 40-840(2) of the ITAA 1997. The amount was allocated to a project pool.
A letter from the local government indicated that, whilst it was not issuing a formal objection to the development at that stage, it did not support the development application as presented. The taxpayer intends to address the local government's concerns in relation to the application in an attempt to obtain local government support for the development.
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. If the project is abandoned, sold or otherwise disposed of in an income year, a deduction is available under subsection 40-830(4) of the ITAA 1997 for that year in relation to the sum of the closing pool value of the pool for the previous income year and any project amounts allocated to the pool for the current income year.
According to the decision in Kallooar v. R [1964] 50 WWR 602, something is considered to be abandoned if it is given up completely and finally. On that basis, the temporary cessation of a project will not constitute abandonment: the cessation must be permanent. A project will be abandoned if it would be objectively determined that it will not proceed.
In this case, the taxpayer was informed by the local government that they did not support the development in its current form. A formal rejection of the application has not been issued by the local government. It is possible, and the taxpayer proposes to pursue this course, that a development permit will still be granted if the taxpayer can successfully address the concerns raised by the local government. In these circumstances, the taxpayer's inability to progress the project does not constitute abandonment.
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(4)
subsection 40-840(2)
Case References:
Kallooar v. R
[1964] 50 WWR 602
ATO ID 2003/728
ATO ID 2004/580
ATO ID 2004/582
ATO ID 2004/583
Keywords
Capital Allowances CoE
Project amount
Project pool
Uniform capital allowances system
ISSN: 1445-2782