ATO Interpretative Decision
ATO ID 2001/76 (Withdrawn)
Income Tax
Depreciation: Plant (Telephone cables and fittings for Computer System)FOI status: may be released
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This ATO ID is withdrawn from the database because it contains a view in respect of provisions of the Income Tax Assessment Act 1997 that were repealed with effect from 1 July 2001. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions relating to the former provisions.'This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 9 June 2006
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 telephone cables and fittings installed in a building on a permanent basis for the purpose of linking computers and servers to an Internet server company, are plant for the purposes of Division 42 (Income Tax Assessment Act 1997 (ITAA 1997))? If depreciable, whether the cables and fittings are separate units of plant or whether they form part of the computer system as an entirety.
Decision
The cables and fittings form separate units of plant and are depreciable under the ITAA 1997.
Facts
The taxpayer installs telephone cables and fittings for the purpose of linking their computers and servers to an Internet server company. The taxpayer uses the Internet to communicate with clients and conduct research. The taxpayer is the owner of the cables and fittings.
Reasons For Decision
A taxpayer may deduct an amount for depreciation of a unit of plant for an income year, if in that year, they are the owner or quasi-owner of the unit of plant and use it, or have it installed ready for use, for the purpose of producing assessable income (section 42-15 (ITAA 1997)).
In addition, the cables and fittings are being used for the purpose of producing assessable income. The Internet access provides the taxpayer with the opportunity to communicate with clients, access relevant web sites and research issues. These tasks are all relevant to producing assessable income.
Moreover, the cables and fittings are plant being used for the purpose of producing assessable income and are depreciable. The cables and fittings provide more than just the setting or environment in which the income-producing activities take place. The cables and fittings provide a means or apparatus by which assessable income is produced (Yarmouth v France (1887) 19 QBD 647).
In the depreciation provisions of the Income Tax Assessment Act 1936 (ITAA 1936), the expression 'unit of property' is used. In the ITAA 1997 (subdivision 42-A) this expression has been replaced with the expression 'unit of plant'. This change of wording was not intended to result in a change of meaning.
There is no statutory definition of the expression 'unit of property'. However, there is considerable case law and Taxation Ruling TR 94/11 (Income tax: general investment allowance - what is a unit of property?) considers the expression as used in the former investment allowance provisions. The case law and the Taxation Ruling indicate that whether a particular item is a unit of property is a question of fact and degree. However, the primary test of a 'unit of property' is one of functionality. If the item of plant has a separate discrete function and can be identified separately, it can be considered a unit of plant in its own right. (Tully Co-operative Sugar Milling Association Ltd v FC of T 83 ATC 4495; 14 ATR 495, Monier Colourtile Pty Ltd v FC of T 83 ATC 4399; 14 ATR 379)
The cables and fittings perform a discrete function: they link the computer system to the Internet server company. The items also vary the performance of the computer system by providing access to a product to which the system did not previously have access. The cables and fittings are separate units of property from the computer system and have a function distinct from the rest of the computer system even though the results of that function cannot be seen without the attachment of the computers.
Date of decision: 30 October 1998
Legislative References:
Income Tax Assessment Act 1936
section 55
section 82AA
section 42-15
Case References:
Yarmouth v France
(1887) 19 QBD 647
69 ATC 4038
1 ATR 123 FC of T v Tully Co-operative Sugar Milling Assoc Ltd
83 ATC 4495
14 ATR 495 Case M98
80 ATC 689 Monier Colourtile Pty Ltd v FC of T
83 ATC 4399
14 ATR 379 Wangaratta Woollen Mills Ltd v FC of T
69 ATC 4095
1 ATR 329
Related Public Rulings (including Determinations)
TR 94/11 - Income tax: general investment allowance - what is a unit of property?
Keywords
Depreciable plant and articles
Depreciation
Depreciation rates
Unit of property
ISSN: 1445-2782
| Date: | Version: | |
| 30 October 1998 | Original statement | |
| You are here → | 9 June 2006 | Archived |