ATO Interpretative Decision

ATO ID 2001/94 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it does not accurately reflect the ATO view.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Whether depreciation on the wardrobe in the taxpayer's rental property is an allowable deduction under section 42-15 of the Income Tax Assessment Act 1997 (ITAA 1997).

Decision

Yes. Depreciation on the wardrobe is an allowable deduction under section 42-15 (ITAA 1997).

Facts

The taxpayer purchases a home unit as a rental property. The taxpayer seeks to claim a deduction for depreciation of the wardrobe situated in the bedroom. The wardrobe is secured to a wall but could be dismantled quickly and easily without damage to it or the wall.

Reasons For Decision

Section 42-15 (ITAA 1997) allows depreciation for plant owned and used, or installed for use, in the production of assessable income.

The question of whether depreciation can be claimed for a wardrobe is dependant on whether the item can be categorised as 'plant'.

Whether an item is 'plant' is not primarily a question of law, though it involves an understanding of the law, but the question is primarily one of fact and degree (Carpentaria Transport Pty Ltd v FCT (1990) 21 ATR 513; 90 ATC 4590).

Generally, when determining whether or not an item can be categorised as 'plant', consideration is given to the nature and function of the item in question ('functional test').

The concept of 'setting' is a crucial aspect of the 'functional test' in that those items which are an 'integral part' of the property as a residential unit, or which form part of the 'fabric' of such property are not 'plant' (Case 101 (1964) 11 CTBR (NS); Case 11/97 97 ATC 173; (1997) 35 ATR 1022).

In considering whether an item is 'plant' or 'setting' for letting purposes, the questions that need to be answered are:

(i)

whether the item forms part of the 'fabric' of the property (is an integral part of the structure of the premises), and whether it is able to perform a function independent of, and isolated from, the general function of the building to which it is attached; and

(ii)

whether the function performed by the thing is so related to the taxpayer's operations or special that it warrants it being held to be plant. That is, does the item perform a function sufficiently related to the leased residence?

Relevant to this determination is the extent to which an item can be removed from its setting and put in another setting without damage to the item or the original setting.

Also relevant, is the extent to which an item is an 'integral' or 'essential' part of the 'complete' setting.

In this case, the wardrobe can be detached from the building with the removal of a few screws. The damage to both the wardrobe and property are minimal. The wardrobe is able to retain its own identity after removal and is not considered to be an essential part of the rental property.

However, the wardrobe does fulfil a function sufficiently related to the rental scenario to be considered plant, as it provides a designated space for storage, which bears the necessary relationship to the income earning operations.

Consequently a deduction for depreciation of the wardrobe is allowable under section 45-15 (ITAA 1997).

Legislative References:
Income Tax Assessment Act 1997
   Section 42-15

Case References:
Carpentaria Transport Pty Ltd v FCT
   (1990) 21 ATR 513
   90 ATC 4590

Related Public Rulings (including Determinations)
IT 242

Keywords
Deductions and expenses
Depreciation
Depreciable plant and articles
Rental expenses
Rental property

Business Line:  Small Business/Individual Taxpayers

Date of publication:  3 July 2001

ISSN: 1445-2782