ATO Interpretative Decision
ATO ID 2006/257 (Withdrawn)
Income Tax
Deductions and Expenses: boat charter business - part year use of boatFOI status: may be released
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This ATO ID is withdrawn from the database due to the repeal of elements of section 26-50 of the ITAA 1997, and the issue of whether there is a business is covered in Taxation Ruling TR 2003/4.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does subsection 26-50(1) of the Income Tax Assessment Act 1997 (ITAA 1997) deny a deduction for all expenses incurred in relation to a boat used in a boat charter business at all times during part only of an income year?
Decision
No. Subsection 26-50(1) of the ITAA 1997 does not deny a deduction for so much of the expenses incurred in relation to a boat used in a boat charter business at all times during part only of an income year as is reasonable in the circumstances.
Facts
The taxpayer purchased a boat and commenced carrying on a boat charter business part way through the income year.
The boat was not used for any private purpose.
The taxpayer incurred expenses in relation to the ownership and operation of the boat including:
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- interest
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- insurance
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- maintenance
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- fuel, oil and water
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- marina fees
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- crew outgoings
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- meals and beverages for passengers and crew
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- cleaning, and
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- bed linen and towels
Reasons for Decision
Paragraph 26-50(1)(e) of the ITAA 1997 states:
You cannot deduct under this Act a loss or outgoing to the extent you incur it:
...
However, there are exceptions to the operation of subsection 26-50 (1) of the ITAA 1997. Of particular relevance here is paragraph 26-50(5)(b) of the ITAA 1997 which provides that subsection 26-50(1) of the ITAA 1997 does not stop a deduction for a loss or outgoing for a boat if at all times in the income year the taxpayer will
... use the boat (or hold it) mainly for letting it on hire in the ordinary course of a business that you carry on ...
Subsection 26-50(6) of the ITAA 1997 deals with the part year use of boats and states:
If you use a boat (or hold it) as described in subsection (5) at all times during part of the income year, then subsection (1) does not stop you deducting so much of the loss or outgoing as is reasonable in the circumstances.
In the circumstances here the taxpayer purchased the boat and commenced carrying on a business part way through the income year. At all times during that part of the year after the business commenced the boat was used as described in paragraph 26-50(5)(b) of the ITAA 1997.
As such, subsection 26-50(6) of the ITAA 1997 will apply and the amount of the deduction allowable will depend on how much of the loss or outgoing is 'reasonable in the circumstances'.
The meaning of the word 'reasonable' was considered in Opera House Investment Pty Ltd v. Devon Buildings Pty Ltd (1936) 55 CLR 110. At p116 Latham CJ said:
The word "reasonable" has often been declared to mean "reasonable in all the circumstances of the case." The real question, in my opinion, is to determine what circumstances are relevant. In determining this question regard must be paid to the nature of the transaction. A circumstance which has no relation to the property which was the subject matter of the transaction but which depended entirely upon the personal position or personal desires of the owner of the property, would not, in my opinion, be a relevant circumstance in determining what was reasonable.
In the present case, the expenses were incurred in relation to the boat which was used or held at all times for the relevant part of the year solely for letting it on hire in the ordinary course of a business carried on by the taxpayer. As such, it would be reasonable in the circumstances to allow all of the otherwise deductible expenses incurred from the time that the taxpayer commenced carrying on the boat charter business.
Accordingly, subsection 26-50(1) of the ITAA 1997 will not apply to deny a deduction for so much of the expenses incurred in relation to the boat as is reasonable in the circumstances.
Date of decision: 30 November 2005Year of income: Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
subsection 26-50(1)
paragraph 26-50(1)(e)
paragraph 26-50(5)(b)
subsection 26-50(6)
Case References:
Opera House Investment Pty Ltd v. Devon Buildings Pty Ltd
(1936) 55 CLR 110
Related Public Rulings (including Determinations)
Taxation Ruling TR 2003/4
Keywords
Leisure & recreational facility expenses
ISSN: 1445-2782
| Date: | Version: | |
| 30 November 2005 | Original statement | |
| You are here | 6 August 2010 | Archived |