ATO Interpretative Decision

ATO ID 2001/96 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as the current ATO position on this issue is contained in Taxation Ruling TR 2004/16.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Whether depreciation on a built-in wardrobe in the taxpayer's rental property is an allowable deduction under section 42-15 of the Income Tax Assessment Act 1997?

Decision

No. Depreciation is not allowable in respect of the built-in wardrobe under section 42-15 of the Income Tax Assessment Act 1997.

Facts

The taxpayer purchases a two bedroom unit as a rental property. The bedrooms are side by side. Instead of a wall dividing the two bedrooms, a built-in wardrobe separates the rooms. The wardrobe is fixed at the floor and ceiling and has been effectively incorporated into the structure of the building. The wardrobe is divided into two sections and has a door leading into each of the bedrooms.

The taxpayer seeks to claim a deduction for depreciation.

Reasons For Decision

Section 42-15 of the Income Tax Assessment Act 1997 allows depreciation for plant owned and used, or installed for use, in the production of assessable income.

The question of whether depreciation can be claimed for a wardrobe is dependent on whether the item can be categorised as 'plant'.

Whether an item is 'plant' is not primarily a question of law, though it involves an understanding of the law, but the question is primarily one of fact and degree (Carpentaria Transport Pty Ltd v FCT (1990) 21 ATR 513; 90 ATC 4590).

Generally, when determining whether or not an item can be categorised as 'plant', consideration is given to the nature and function of the item in question ('functional test').

The concept of 'setting' is a crucial aspect of the 'functional test' in that those items which are an 'integral part' of the property as a residential unit, or which form part of the 'fabric' of such property are not 'plant'. (Case 101 (1964) 11 CTBR (NS); Case 11/97 97 ATC 173; (1997) 35 ATR 1022).

In considering whether an item is 'plant' or 'setting' for letting purposes, the questions that need to be answered are:

(i)

whether the item forms part of the 'fabric' of the property (is an integral part of the structure of the premises), and whether it is able to perform a function independent of, and isolated from, the general function of the building to which it is attached; and

(ii)

whether the function performed by the thing is so related to the taxpayer's operations or special that it warrants it being held to be plant. That is, does the item perform a function sufficiently related to the leased residence?

Relevant to this determination is the extent to which an item can be removed from its setting and put in another setting without damage to the item or the original setting.

Also relevant, is the extent to which an item is an 'integral' or 'essential' part of the 'complete' setting.

Generally, a built-in wardrobe is an integral part of the building and not plant, see for example Case Q8 (1964) 15 TBRD.

In this case, the wardrobe is an integral part of the structure of the premises, the sides of the wardrobe being the dividing wall between the two rooms. The wardrobe is incapable of being dismantled without damage to the building or itself and is unable to retain its own identity or function upon removal.

On this basis, the wardrobe is considered to be part of the 'setting' of the income earning activity and as such would not be depreciable in terms of section 42-15 of the Income Tax Assessment Act 199.

Legislative References:
Income Tax Assessment Act 1997
   sections 42-15

Case References:
Carpentaria Transport Pty Ltd v FCT
   (1990) 21 ATR 513
   90 ATC 4590

Related Public Rulings (including Determinations)
IT 242

Keywords
Deductions and expenses
Depreciation
Depreciable plant and articles
Rental property

Business Line:  Small Business/Individual Taxpayers

Date of publication:  3 July 2001

ISSN: 1445-2782