ATO Interpretative Decision

ATO ID 2003/912

Income Tax

Issue

In order to apply section 43-140 of the Income Tax Assessment 1997 (ITAA 1997), does a taxpayer use a building for the purposes of producing assessable income if no income producing activities occur in that building during part of a year of income?

Decision

Yes. Because the building was not used for any other purpose, the taxpayer intended to use it for the purpose of producing assessable income and had maintained it ready for that use, section 43-160 of the ITAA 1997 provides that it is taken to be used for the purposes of producing assessable income.

Facts

The taxpayer is a company that carries on a business which operates subject to government certifications and licences regulating its activities.

The taxpayer constructed a building from which to carry out its business operations. The construction of the building commenced in the 2001 income year and was completed 12 months later.

As soon as the building was completed, it was used for the taxpayer's business operations. The building was certified for use as intended by the taxpayer from its completion. However, shortly after the building commenced to be used in the taxpayer's business, changes in the taxpayer's business environment resulted in the taxpayer being legally unable to operate its business from the building for several months.

During this period, the building was not used for any purpose or in any manner, but was available for the taxpayer's immediate use as part of its business operations, once the legal impediment to the continuation of its business operations was removed. The building has been fully utilised in the taxpayer's business operations since June 2003.

Reasons for Decision

Section 43-10 of the ITAA 1997 provides that a deduction for capital works is available subject to several requirements. One pre-requisite for its application is that the capital works are used in a deductible way, as set out in Table 43-140 of section 43-140 of the ITAA 1997.

The building is capital works as specified in subsection 43-20(1) of the ITAA 1997.

Capital works begun after 30 June 1997 are used in a deductible way in an income year if they are used for the purpose of producing assessable income (subsection 43-140(1) of the ITAA 1997).

Section 43-160 of the ITAA 1997 provides that a part of your capital works is taken to be used for a particular purpose if:

(a)

it was maintained ready for use for that purpose or in that manner; and

(b)

it was not used or for use for any other purpose or in any other manner; and

(c)

its use or intended use for that purpose or in that manner had not been abandoned.

Prior to the period when it could not be used, the building had already been used by the taxpayer in its business operations, and its operational capacity was being preserved. Therefore, the building was 'maintained ready for use' for the purpose of producing assessable income.

Even though the building was not used for a period of time, it was intended to be used, and was actually used again later for the purpose of producing assessable income. Therefore the taxpayer's use, or intended use, of the building meets the requirements of paragraphs (b) and (c) of section 43-160 of the ITAA 1997.

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 43-10
   subsection 43-20(1)
   subsection 43-140(1)
   section 43-160

Keywords
Capital expenditure

Siebel/TDMS Reference Number:  3515868; 1-BBHIHMW

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  10 October 2003
Date reviewed:  11 May 2017

ISSN: 1445-2782