ATO Interpretative Decision

ATO ID 2006/276 (Withdrawn)

Income Tax

Capital Allowances: environmental protection activities - cleaning up and removing waste - site rectification
FOI status: may be released
  • This ATO ID is withdrawn and has been replaced by TR 2020/2 Income tax: deductions for expenditure on environmental protection activities.
    This document has changed over time. View its history.

Status of this decision: Decision withdrawn 17 April 2019.
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Was the taxpayer's capital expenditure on cleaning up and removing waste material resulting from their former business incurred for the sole or dominant purpose of carrying on an environmental protection activity as defined in subparagraph 40-755(2)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The taxpayer's capital expenditure on cleaning up and removing waste material resulting from their former business was incurred for the sole or dominant purpose of carrying on an environmental protection activity as defined in subparagraph 40-755(2)(b)(i) of the ITAA 1997 because, objectively, the expenditure was calculated to effect that activity.

Facts

The taxpayer carried on a business, within the timber industry, for the purpose of producing assessable income. Under a voluntary governmental scheme, the taxpayer chose to cease carrying on their business.

Under the original development consent from a local council authority, the taxpayer was required to return their land to its natural state if they ceased to carry on business on the land. The scheme under which the taxpayer chose to cease carrying on their business provided reimbursement of some of the taxpayer's rectification costs.

The taxpayer incurred capital expenditure on cleaning up and removing various waste wood material from their land. The material substantially comprised the wood residue, in various forms, remaining after the raw wood material had been processed through the taxpayer's business operation.

Reasons for Decision

Section 40-755 of the ITAA 1997 provides a deduction for expenditure incurred for the sole or dominant purpose of carrying on environmental protection activities. While section 40-760 of the ITAA 1997 excludes certain types of expenditure from deduction, none of those types were incurred by the taxpayer.

Environmental protection activities are defined in subsection 40-755(2) of the ITAA 1997. One type of environmental protection activity is treating, cleaning up, removing or storing waste resulting, or likely to result, from your earning activity (subparagraph 40-755(2)(b)(i) of the ITAA 1997).

As stated in the facts, the material the taxpayer cleaned up and removed is the wood residue remaining after the raw wood material had been processed through the taxpayer's business operation - the residue is, clearly, waste that results from the taxpayer's business. The taxpayer's business also satisfies the definition of 'your earning activity' in subsection 40-755(3) of the ITAA 1997 because it was carried on for the purpose of producing assessable income. It follows that the taxpayer's activities of cleaning up and removing the wood waste constitute the carrying on of an environmental protection activity as defined in subparagraph 40-755(2)(b)(i) of the ITAA 1997.

The requirement in subsection 40-755(1) of the ITAA 1997 that the expenditure be incurred for the sole or dominant purpose of carrying on environmental protection activities is an objective test about what the expenditure is calculated to effect. In the present case, the expenditure was clearly calculated to effect the environmental protection activity. The development consent from the local council authority that required the taxpayer to rectify the land and the terms of the government scheme that provided reimbursement of some rectification costs might subjectively explain why the taxpayer undertook the clean up and removal activities but that is not the test of the section.

Accordingly, the taxpayer's capital expenditure on cleaning up and removing waste material resulting from their former business was incurred for the sole or dominant purpose of carrying on an environmental protection activity as defined in subparagraph 40-755(2)(b)(i) of the ITAA 1997.

Date of decision:  15 August 2006

Year of income:  Year ended 30 June 2006

Legislative References:
Income Tax Assessment Act 1997
   section 40-755
   subsection 40-755(1)
   paragraph 40-755(2)
   paragraph 40-755(2)(b)(i)
   subsection 40-755(3)
   paragraph 40-760

Related ATO Interpretative Decisions
ATO ID 2006/275

Keywords
Capital expenditure
Environmental protection expenses
Timber industry
Timber mill buildings
Uniform capital allowances system

Siebel/TDMS Reference Number:  5241494

Business Line:  Public Groups and International

Date of publication:  29 September 2006

ISSN: 1445-2782

history
  Date: Version:
  15 August 2006 Original statement
You are here 17 April 2019 Withdrawn