ATO Interpretative Decision
ATO ID 2004/721
Income Tax
Capital Allowances: depreciating asset - cost of connection of pipeline gasFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 payment of an amount equal to the cost of connection of pipeline gas a depreciating asset as defined in subsection 40-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. Payment of an amount equal to the cost of connection of pipeline gas is not a depreciating asset as defined in subsection 40-30(1) of the ITAA 1997.
Facts
The taxpayer leased land and a factory (the leased property) from which it conducted its business operations.
In order to service the leased property with pipeline gas, the taxpayer entered into an arrangement with a gas company to connect them to the gas company's supply network. In order to connect the taxpayer the gas company had to install gas pipelines, meters and mains (gas works) within the boundaries of the leased property and also extending beyond those boundaries. The taxpayer paid the gas company an amount equal to the cost to the gas company of extending their gas pipeline network to the leased property.
Reasons for Decision
A depreciating asset is defined in subsection 40-30(1) of the ITAA 1997 to be an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used but excludes land, trading stock, and intangible assets except for those listed in subsection 40-30(2) of the ITAA 1997.
Payment of an amount equal to the cost of connection of pipeline gas is not for a physical asset or an intangible asset. Nor can it be said to have an effective life. It is unlikely that an asset has started to be held for the purposes of Division 40 of the ITAA 1997. As such, it cannot satisfy the definition of depreciating asset in subsection 40-30(1) of the ITAA 1997.
If it were contended, in the alternative, that the asset was the right to have gas supplied to the leased property, it is also considered that such an asset is not a depreciating asset within the definition in subsection 40-30(1) of the ITAA 1997. The right to have gas supplied to the leased property is an intangible asset. However, it is not an intangible asset as listed in subsection 40-30(2) of the ITAA 1997, therefore it is not a depreciating asset for the purposes of Division 40 of the ITAA 1997.
Date of decision: 22 July 2004Year of income: Year ended 30 June 2002 Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
subsection 40-30(1)
subsection 40-30(2)
Keywords
Capital expenditure
Depreciating assets
Intangible assets
ISSN: 1445-2782