ATO Interpretative Decision

ATO ID 2002/362

Income Tax

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

Issue

Is a taxpayer entitled to a deduction under section 28-12 of the Income Tax Assessment Act 1997 (ITAA 1997) for car expenses, where they are incurred in maintaining and inspecting an investment property owned by a private superannuation fund?

Decision

No. The taxpayer is not entitled to a deduction under section 28-12 of the ITAA 1997 for car expenses incurred in maintaining and inspecting an investment property owned by a private superannuation fund.

Facts

The taxpayer is a beneficiary under a private superannuation fund but was not 'presently entitled' to any income from the superannuation fund in the year of income.

The taxpayer is one of the Trustees of the superannuation fund.

The superannuation fund owns investment properties.

The taxpayer owns the car which is used to travel to the investment properties for the purpose of inspection and maintenance. The costs of maintaining the car are incurred by the taxpayer.

Reasons for Decision

Section 28-12 of the ITAA 1997 allows a deduction for car expenses using one of the two methods under Division 28 of the ITAA 1997. Subdivisions 28-C and 28-F then prescribe how to calculate the deduction referrable to each method.

Both of the methods rely on the concept of 'business kilometres' travelled during the year. A 'business kilometre' is defined in subsection 28-25(3) and 28-90(4) of the ITAA 1997 to mean:

'....the kilometres the car travelled in the course of producing your assessable income or your travel between workplaces.....'

The term 'producing your assessable income' has the same meaning as those words used in section 8-1 of the ITAA 1997.

Under section 8-1 of the ITAA 1997 a loss or outgoing will not be deductible if it is incurred in gaining or producing the assessable income of a person other than the one who incurs it (FC of T v. Munro (1926) 38 CLR 153; [1926] HCA 58). In order for a deduction to be allowable, there must be a nexus between the incurring of the outgoing and the assessable income being derived.

Private superannuation funds are constituted as trusts. The term 'present entitlement' is central to the trust provisions. The methods of taxing the income of trusts depends on whether the taxpayer is 'presently entitled' to the income of the trust or not.

In general, the term 'presently entitled' means that the beneficiary of a trust estate has a present or immediate right to demand payment of a share of the net trust income from the trustee.

The taxpayer was not presently entitled to any of the income from the superannuation fund in the income year they incurred the car expenses and did not receive any income from the superannuation fund. There was no nexus between the incurring of the car expenses to travel to the investment properties owned by the superannuation fund and any assessable income from the superannuation fund.

Accordingly, the travel does not meet the definition of 'business kilometres' travelled in subsections 28-25(3) and 28-90(4) of the ITAA 1997. Therefore, the deduction for the car expenses incurred in travelling to inspect the investment properties owned by the superannuation fund is not allowable under section 28-12 of the ITAA 1997.

Amendment History

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   section 8-1
   Division 28
   section 28-12
   Subdivision 28-C
   subsection 28-25(3)
   Subdivision 28-F
   subsection 28-90(4)

Case References:
FC of T v. Munro
   38 CLR 153
   [1926] HCA 58

Keywords
Personal superannuation funds
Rental expenses
Travel expenses
Rental property
Self-managed superannuation funds
Trust beneficiaries

Siebel/TDMS Reference Number:  DW321577; 1-62UZGOJ; 1-7T32760

Business Line:  Individual Taxpayers

Date of publication:  28 March 2002

ISSN: 1445-2782