ATO Interpretative Decision
ATO ID 2014/38
Income Tax
Capital Works: undeducted construction expenditure - period where no capital works deduction is availableThis 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 undeducted construction expenditure, calculated under Subdivision 43-G of Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997), affected by the period that capital works deductions are not available to the taxpayer?
Decision
No. The undeducted construction expenditure, calculated under Subdivision 43-G of Division 43 of the ITAA 1997, is not affected by the period that capital works deductions are not available to the taxpayer.
Facts
During the year of income, the taxpayer owned a residential rental property that was constructed after 26 February 1992. From its purchase, the property was rented to tenants, or made available for rental, for the purpose of producing assessable income through deriving rental income.
During the year of income, the property became vacant. Instead of attempting to rent the property, the taxpayer sought to sell it. At the time of attempting to sell the property, the intended use of the property to produce assessable income through deriving rental income was discontinued.
In order to sell the property, it was placed on the market. Despite having the property available for sale for a number of months, the property did not sell. At the end of that period the property was once again made available for rental.
Reasons for Decision
The undeducted construction expenditure calculated under Subdivision 43-G of Division 43 of the ITAA 1997 is the part of the construction expenditure that is left to write off.
For capital works constructed after 26 February 1992, the undeducted construction expenditure is calculated under sections 43-230 and 43-235 of the ITAA 1997. Broadly, the undeducted construction expenditure is the original construction expenditure less the aggregate of amounts calculated at the rate of 2.5% per annum of that expenditure, from the time the capital works, or a part of it, was first used by any entity for any purpose after completion of the relevant construction.
For the purpose of the calculation of the undeducted construction expenditure under sections 43-230 and 43-235 of the ITAA 1997, the capital works can be used by any entity for any purpose after the relevant construction is completed and, therefore, is not affected by the period that the capital works deduction is not available to the taxpayer.
During the period that the property was for sale and was not available for rental, no capital works deductions were available to the taxpayer under section 43-10 of the ITAA 1997. However, this period does not affect the taxpayer's calculation of the undeducted construction expenditure under sections 43-230 and 43-235 of the ITAA 1997.
Date of decision: 7 November 2014Year of income: Year ended 30 June 2014
Legislative References:
Income Tax Assessment Act 1997
Division 43
Subdivision 43-G
section 43-10
section 43-230
section 43-235
Keywords
Building depreciation
Capital works deduction
Construction expenditure area
ISSN: 1445-2782