ATO Interpretative Decision
ATO ID 2001/49
Income Tax
Nominal RepairsFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Whether the extension of a mezzanine floor (nominal repairs issue) constitutes repairs for purposes of section 25-10 of the Income Tax Assessment Act 1997.
Decision
The extension of a mezzanine floor (nominal repairs issue) does not constitute repairs for purposes of section 25-10 of the Income Tax Assessment Act 1997.
Facts
The building in question was constructed in early 1950s. Since its acquisition by the taxpayer in the early 1980s, no significant repairs had been undertaken. The mezzanine floor was fatigued and as some termite infestation had occurred, it had been recommended that the area be demolished and rebuilt as part of an extension program intended for the building. The old mezzanine floor represented 25.17% of the total floor area involved in the project and the taxpayer proposed to claim this percentage of the total costs as relevant to repairs.
Reasons For Decision
The character of a repair does not necessarily change because it is carried out at the same time as an improvement. If an extensive renovation or restoration project is undertaken, combining repairs and improvements, it is necessary to examine separately the individual parts of the total project to determine whether any part, if considered in isolation from the entire project, is a repair.
If individual parts of the total project can be characterised as repairs, and their cost can be reasonably quantified, those items are repairs. It must be possible to segregate the cost of the repairs actually effected from the capital cost of the improvements.
No deduction can be allowed for the 'notional repairs' (the amount that the repairs would have cost if undertaken separately). The 'repair' in this case is not undertaken with the improvement, it is part of the improvement. The cost of the improvement would be of a capital nature, and as such, no deduction could be claimed under section 25-10 of the Income Tax Assessment Act 1997.
In the High Court decision FC of T v Western Suburbs Cinemas Ltd (1952) 86 CLR 102, it was held that where, in lieu of effecting repairs to part of 'an entirety', that part which is replaced with something different, and is an improvement on the original part, no deduction is allowable for the amount, which it is estimated the repair of the part would have cost if repair had, in fact, been effected.
Therefore, no part of the extension to the mezzanine floor would be allowed as a repair. The extension has gone beyond mere repair of worn out parts and constitutes an improvement to a capital asset. The extension may, however, qualify as a deduction for capital works under Division 43 of the Income Tax Assessment Act 1997.
Date of decision: 30 November 1998
Legislative References:
Income Tax Assessment Act 1997
section 25-10
Division 43
Case References:
FC of T v Western Suburbs Cinemas Ltd
(1952) 86 CLR 102
Keywords
Repairs and maintenance expenses
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 30 November 1998 | Original statement |
| 25 July 2008 | Archived |