ATO Interpretative Decision

ATO ID 2010/31

Income Tax

Issue

Will Division 250 of the Income Tax Assessment Act 1997 (ITAA 1997) apply in respect of capital expenditure incurred by a taxpayer under Subdivision 40-I of the ITAA 1997, where the taxpayer is not otherwise entitled to a capital allowance in relation to a decline in value of an asset or expenditure in relation to an asset for the purposes of Divisions 40 and 43 of the ITAA 1997?

Decision

No.

Facts

The taxpayer is an entity which was set up to design, construct, finance, operate and maintain an asset that is being put to a tax preferred use for the purposes of section 250-60 of the ITAA 1997. The taxpayer incurs expenditure on the construction of the asset. The asset is constructed on behalf of and for the benefit of the tax preferred entity. The taxpayer is not entitled to capital allowances under Divisions 40 or 43 of the ITAA 1997 in relation to the asset.

The taxpayer also incurs other capital expenditure associated with the project as well as other business related costs which are deductible under Subdivision 40-I of the ITAA 1997.

Reasons for Decision

In accordance with section 250-10 of the ITAA 1997, Division 250 can only apply to an asset if the general test in section 250-15 of the ITAA 1997 is first satisfied.

250-15 General test

This Division applies to you and an asset at a particular time if:

(a)

the asset is being *put to a tax preferred use; and

(b)

the *arrangement period for the *tax preferred use of the asset is greater than 12 months; and

(c)

*financial benefits in relation to the tax preferred use of the asset have been, will be or can reasonably be expected to be,

*provided to you (or a *connected entity) by:

(i)

a *tax preferred end user (or a connected entity); or

(ii)

any *tax preferred entity (or a connected entity); or

(iii)

any entity that is not an Australian resident; and

(d)

disregarding this Division, you would be entitled to a *capital allowance in relation to:

(i)

a decline in the value of the asset; or

(ii)

expenditure in relation to the asset; and

(e)

you lack a *predominant economic interest in the asset at that time.

The taxpayer will not be entitled to capital allowances under Division 40 or Division 43 of the ITAA 1997 in relation to the asset which is being put to tax preferred use. It will however, be entitled to capital allowances under Subdivision 40-I of the ITAA 1997 in relation to certain other capital expenditure incurred by the taxpayer.

The expenditure by itself will not give rise to a separate asset to which Division 250 of the ITAA 1997 can apply. The expenditure will not give rise to capital allowances in relation to the decline in value of an asset for the purposes of subparagraph 250-15(d)(i) of the ITAA 1997. Further, for the purposes of subparagraph 250-15(d)(ii) of the ITAA 1997, the expenditure incurred is not in relation to an asset for which the taxpayer will be entitled to capital allowances under either Divisions 40 or 43 of the ITAA 1997.

Division 250 of the ITAA 1997 will not apply in respect of the expenditure.

Year of income:  Year ended 30 June 2010

Legislative References:
Income Tax Assessment Act 1997
   section 250-15

Keywords
Capital expenditure
Deductions & expenses
Exempt entities

Siebel/TDMS Reference Number:  6322593

Business Line:  Public Groups and International

Date of publication:  12 February 2010

ISSN: 1445 - 2782