ATO Interpretative Decision
ATO ID 2002/54
Personal Tax
Repairs - Replacement of petrol storage (bowser) tankFOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is a taxpayer who replaced a petrol storage tank entitled to claim the cost of the tank as a deduction for repairs under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The taxpayer is not entitled to claim a deduction for repairs under section 25-10 of the ITAA 1997 for the cost of replacing a petrol storage tank as it is capital expenditure.
Facts
The taxpayer is the part owner of an income producing property that uses a petrol storage tank (also known as a bowser tank).
The taxpayer replaced the leaking petrol storage tank, which could not be repaired, with a new storage tank of the same capacity and construction. The petrol storage tank is part of the petrol delivery system which included the pipes connecting the pumps and the pumps themselves.
Reasons for Decision
Section 25-10 of the ITAA 1997 provides that the cost of repairs may be deductible for plant used for income producing purposes. However, expenditure of a capital nature is not deductible.
Taxation Ruling TR 97/23 states that repairs ordinarily means remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property.
If however the work done amounts to an improvement by way of replacement rather than a repair then the cost is a capital expense and no deduction is allowable.
In Lindsay v. FC of T (1960-1961) 106 CLR 377; 12 ATD 197; 12 ATD 505; (1960) 8 AITR 99; (1961) 8 AITR 458 the High Court considered whether the replacement of a slipway was a repair or replacement of an entirety. The court held that the slipway was the relevant entirety on the ground and that it was not a subsidiary part of anything else, but was separately identifiable as a principal item of capital expenditure.
The taxpayer replaced the existing petrol storage tank with another equivalent property which is:
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- separately identifiable as a principal item of capital equipment;
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- an integral part of the fuel delivery system and is capable of providing a useful function (storage of fuel) without regard to any other part of the income producing property; and
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- a separate and distinct item of plant in itself from the thing or structure (bowser system) which it serves.
The replacement of the storage tank is not a repair of an existing part or function of the tank, rather it is replacing the entirety. The work carried out went beyond the continued existence of repairing the original tank.
The purchase and installation cost of the new petrol storage tank is not a repair but is capital expenditure. Accordingly, the taxpayer is not entitled to claim the cost of replacing the petrol storage tank under section 25-10 of the ITAA 1997.
Date of decision: 22 October 2001Year of income: Year ended 30 June 2000
Legislative References:
Income Tax Assessment Act 1997
section 25-10
section 42-15
Case References:
Lindsay v. FC of T
(1960-1961) 106 CLR 377
12 ATD 197
12 ATD 505
(1960) 8 AITR 99
(1961) 8 AITR 458
Related Public Rulings (including Determinations)
TR 97/23
TR 2000/18
ATO ID 2002/53
Keywords
Repairs & maintenance expenses
Repairs in entirety
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 22 October 2001 | Original statement |
| 18 July 2008 | Archived |