ATO Interpretative Decision
ATO ID 2009/35
Income TaxCapital Allowances: project pools - project amount - ornamental trees or shrubs
FOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 taxpayer's capital expenditure on acquiring and planting trees and shrubs an amount incurred for ornamental trees or shrubs for the purpose of subparagraph 40-840(2)(d)(vii) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. The taxpayer's capital expenditure on acquiring and planting trees and shrubs is an amount incurred for ornamental trees or shrubs for the purpose of subparagraph 40-840(2)(d)(vii) of the ITAA 1997 because the primary purpose of their acquisition and planting was for decorative purposes.
The taxpayer carries on their business on land they lease from the land owner.
The taxpayer constructed on the land that they lease a new building from which they carry on their business. The construction included landscaping works annexed to the land on the new building site. The capital expenditure incurred by the taxpayer on landscaping works included the cost of purchasing and planting trees and shrubs and the cost of purchasing and laying turf and mulch.
As the taxpayer's business is permitted to be carried on from the new building for a finite period only, the taxpayer's business is also a project for the purposes of the project pool provisions in Subdivision 40-I of the ITAA 1997.
The contract for the construction of the new building included capital expenditure on landscaping works on the building site. The acquisition and planting of trees and shrubs was part of the decorative and aesthetic theme on the new building site.
The expenditure was incurred on or after 1 July 2005.
Reasons for Decision
Broadly speaking, section 40-830 of the ITAA 1997 allows a deduction over the project life for project amounts allocated to a project pool.
To be a 'project amount' within subsection 40-840(2) of the ITAA 1997, the amount must be capital expenditure which, in addition to satisfying paragraphs 40-840(2)(a) to 40-840(2)(c) of the ITAA 1997 is one of the amounts specified in paragraph 40-840(2)(d) of the ITAA 1997.
In order for the capital expenditure to be a project amount within subparagraph 40-840(2)(d)(vii) of the ITAA 1997, the amount must be incurred for ornamental trees or shrubs.
The expression 'ornamental trees or shrubs' is not defined for the purposes of the project pool provisions of Subdivision 40-I of the ITAA 1997 and therefore, it will take its ordinary meaning shaped by the context in which it is found.
The Australian Oxford Dictionary, 1999, Oxford University Press, Melbourne, relevantly defines the word 'ornamental' as:
- adj. serving as an ornament; decorative.
- n. a thing considered to be ornamental, especially a cultivated plant.
Similarly, The Macquarie Dictionary, 2005, 4th edn, The Macquarie Library Pty Ltd, NSW, defines the word 'ornamental' as:
used for ornament: ornamental plants.
such as to ornament; decorative.
of or relating to ornament.
a plant cultivated for decorative purposes.
In light of these dictionary definitions, we consider that an ornamental tree or shrub is, for the purposes of the project pool provisions, one where its primary purpose is decorative. That is, its primary purpose is to add to the visual and aesthetic effect of the project; for example, by beautifying the appearance of the project or by decorating the surroundings of the project.
As such, a tree or shrub which is generally used in horticulture, for example a fruit tree or plantation tree, may be an ornamental tree or shrub where its primary purpose was decorative. For example a nut tree that is planted primarily to beautify the surroundings will be ornamental.
A tree or shrub will also be an ornamental tree or shrub if its primary purpose is decorative but it also has another lesser purpose of providing a practical function. For example, trees planted for the primary purpose of beautifying a garden may also have the benefit of being a privacy screen, a windbreak or used to delineate a boundary
Only the direct costs of acquiring and planting ornamental trees or shrubs are amounts incurred for ornamental trees or shrubs. These direct costs include the purchasing of the tree or shrub, initial fertilising and top soil enhancement and other costs attributable to the establishment of the tree or shrub into its long term growing medium. Ongoing maintenance costs incurred, for example, to water the trees or shrubs on an on-going basis do not form part of amounts incurred for ornamental trees or shrubs.
In this case, the taxpayer has incurred capital expenditure on acquiring and planting trees and shrubs as part of the landscaping works on the new building site. The trees and shrubs are included as part of the new building site's decorative or aesthetic theme and are for those purposes only.
As such, the taxpayer has incurred capital expenditure for ornamental trees or shrubs for the purpose of subparagraph 40-840(2)(d)(vii) of the ITAA 1997 because the ornamental trees and shrubs were acquired and planted primarily for decorative purposes.Date of decision: 24 April 2009
Year of income: Year ended 30 June 2006 Year ended 30 June 2007 Year ended 30 June 2008 Year ended 30 June 2009 Year ended 30 June 2010
Income Tax Assessment Act 1997
ATO ID 2009/36
ATO ID 2009/37
The Australian Oxford Dictionary, 2004, Oxford University Press, Melbourne
The Macquarie Dictionary, 2005, 4th edn, The Macquarie Library Pty Ltd, NSW
Australian Taxation Office
Capital Allowances CoE
Capital Works Deductions
Centres of Expertise
Deductions & expenses
Date reviewed: 28 October 2014