ATO Interpretative Decision

ATO ID 2001/95

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Whether the in-ground swimming pool that is permanently 'affixed' in a landscaped setting is depreciable under section 42-15 of the Income Tax Assessment Act 1997 (ITAA 1997) to the owner of a rental unit within a block of units.

Decision

No. Depreciation is not allowable in respect of the in-ground swimming pool under section 42-15 (ITAA 1997).

Facts

The taxpayer purchases a rental unit in a block that has an in-ground swimming pool. The taxpayer seeks to claim a deduction for depreciation of the pool. The swimming pool forms part of the common property of the owners' corporation (body corporate) of the unit block.

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 an in-ground swimming pool is dependent 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 swimming pool has been installed on the land as a static and permanent feature and is considered integral with the comprehensive income-producing entirety, ie the rental property. It is this package as a whole, ie the unit plus the swimming pool that is the 'setting' of the income earning activity.

Consequently, the pool is not plant but is setting and no deduction is allowable for depreciation under section 42-15 (ITAA 1997).

Legislative References:
Income Tax Assessment Act 1997
   Section 42-15
   Section 42-18
   Section 43-15
   Section 43-20

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

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

Business Line:  Small Business/Individual Taxpayers

Date of publication:  3 July 2001

ISSN: 1445-2782