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ATO Interpretative Decision

ATO ID 2004/71 (Withdrawn)

Income Tax

Capital Allowances: removable ceiling batts
FOI status: may be released
  • This ATO ID is withdrawn as the issue is covered in Taxation Ruling TR 2004/16.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 deduction for the decline in value available under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) for removable ceiling batts attached to a rental property?

Decision

No. A deduction for the decline in value is not available under Division 40 of the ITAA 1997 because removable ceiling batts attached to a rental property form part of the 'fabric' of the building and section 40-45 of the ITAA 1997 precludes Division 40 of the ITAA 1997 from applying to capital works that are deductible under Division 43 of the ITAA 1997.

Facts

A taxpayer owns a rental property. Construction for the rental property was started on 5 July 1997 and was completed on 15 December 1997. It became available for renting on 20 January 1998.

On 18 July 2002, the taxpayer incorporated into the roof of the rental property removable ceiling batts to provide insulation from the weather. They are placed in between the rafters in the roof.

Reasons for Decision

Section 40-25 of the ITAA 1997 states that you can deduct an amount for the decline in value of a depreciating asset you hold to the extent that you use it for a taxable purpose.

The term 'depreciating asset' is defined in subsection 40-30(1) of the ITAA 1997. Removable ceiling batts are considered to be depreciating assets. However, subsection 40-45(2) of the ITAA 1997 provides that Division 40 of the ITAA 1997 does not apply to capital works to the extent that an amount is or could have been deductible under Division 43 of the ITAA 1997.

Ceiling batts are considered to be an integral part of a building and form part of the 'fabric' of the building. Ceiling batts would have no other function if they are not being placed or connected with the rest of the ceiling framework to form part of the ceiling which is an essential part of a building. Once installed ceiling batts become permanent fixtures to a building.

Plant is defined in section 45-40 of the ITAA 1997. A primary factor in determining whether a particular item is a unit of plant is its function. Mahoney J. in Macquarie Worsteds Pty Ltd v. Commissioner of Taxation 74 ATC 4121 at 4125; (1974) 4 ATR 334 at 338 said: 'To be plant, a thing of the kind here in question must be more than mere setting for the taxpayer's operations'.

It is considered that ceiling batts are not plant within the definition of section 45-40 of the ITAA 1997 because they do no more than provide a setting or environment within which income-producing activities are conducted.

Note: A deduction under Division 43 of the ITAA 1997 for capital works expenditure is however available at the rate of 2.5%.

Date of decision:  17 June 2003

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-25
   subsection 40-30(1)
   subsection 40-45(2)
   section 45- 40
   Division 40
   Division 43

Case References:
Macquarie Worsteds Pty Ltd v. Commissioner of Taxation
   (1974) 74 ATC 4121
   4 ATR 334

Related ATO Interpretative Decisions
ATO ID 2002/1015

Keywords
Buildings
Decline in value
Depreciating assets
Uniform capital allowances system

Business Line:  Effective Life and Capital Allowances Centre of Expertise

Date of publication:  23 January 2004

ISSN: 1445-2782

history
  Date: Version:
  17 June 2003 Original statement
You are here 11 March 2005 Archived

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