ATO Interpretative Decision

ATO ID 2003/125 (Withdrawn)

uniform capital allowances

• ATO ID 2003/125 is withdrawn because the ATO ID has been replaced by examples on the Australian Taxation Office website at Other travel expenses.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a taxpayer entitled to a deduction for decline in value under section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of a caravan used as accommodation while travelling in the course of the taxpayer's business?

Decision

Yes. A taxpayer is entitled to a deduction for decline in value under section 40-25 of the ITAA 1997 in respect of a caravan used as accommodation while travelling in the course of the taxpayer's business.

Facts

The taxpayer is based in a major capital city.

In order to service a number of country-based clients the taxpayer travels on average every few weeks.

The duration of these trips is approximately three days but can extend up to approximately two weeks.

The taxpayer normally stays at any given town for only one or two nights.

The caravan is used for accommodation and an office when the taxpayer travels.

The caravan is not used for private purposes.

Reasons for Decision

Section 40-25 of the ITAA1997 allows a deduction for the decline in value of a depreciating asset to the extent that it is used for a taxable purpose.

Generally expenditure incurred to provide accommodation expenses is private in nature and the use of a depreciating asset for accommodation would not be for a taxable purpose. An exception to this principle for expenses of a similar nature is where they are incurred by an employee whose work is itinerant.

Taxation Ruling TR 95/34 deals with employees carrying out itinerant work and their deductions, allowances and reimbursements for transport expenses. It is considered that the guidelines provided in that ruling may also be applied to a taxpayer carrying on a business to assist in determining when the use of an asset is private in nature and not for a taxable purpose. Paragraph 7 of TR 95/34 sets out a number of indicators of itinerancy including:

a)

travel is a fundamental part of the taxpayer's work,

b)

the existence of a 'web' of work places, and

c)

the taxpayer continually travels from one work site to another.

The taxpayer organises a number of different appointments in a particular region before undertaking the travel. That is, the taxpayer organises a circuit lasting approximately three days up to approximately two weeks. The taxpayer finishes an appointment at one site and then moves on to the next site. Therefore travel is a fundamental part of the taxpayer's income earning activities as the taxpayer travels from one site to the next to complete the appointments.

The taxpayer also has a 'web' of work places. That is, there are a number of different sites to which the taxpayer travels on a regular basis.

The taxpayer also travels continually from one site to another not stopping at only one site for the whole period away but moves between a number of sites usually staying in one site for only one or two nights.

It is considered that travel is integral to the taxpayer's business and the caravan is used for a taxable purpose. The taxpayer is therefore entitled to claim a deduction for decline in value under section 40-25 of the ITAA 1997 for the caravan.

Year of income:  Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
   section 40-25

Related Public Rulings (including Determinations)
Taxation Ruling TR 95/34

Keywords
Decline in value

Business Line:  Small Business/Individual Taxpayers

Date of publication:  15 March 2003

ISSN: 1445-2782