ATO Interpretative Decision

ATO ID 2003/440 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as the issue is dealt with in the publication Rental Properties 2005-06.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Can the taxpayer immediately deduct, pursuant to subsection 40-80(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the cost of their interest in a depreciating asset they started to hold jointly if the cost of their interest is $300 or less even though the cost of the asset exceeds $300?

Decision

Yes. The taxpayer can claim an immediate deduction for the cost of their interest in the depreciating asset because section 40-35 of the ITAA 1997 treats their interest in the asset as the asset for the purposes of Division 40 of the ITAA 1997.

Facts

The taxpayer jointly owns a rental property to the extent of 50%. In the 2001-02 income year, they jointly purchased for the property a new oven costing $600. In accordance with their ownership interest in the rental property, the taxpayer contributed $300 to the purchase of the new oven.

Reasons for Decision

For a depreciating asset that is a 'partnership asset', the asset is held by the partnership and not by any particular partner (item 7 of the table in section 40-40 of the ITAA 1997). In this context, the words 'partnership asset' carry their common law meaning. That is, they refer to assets of a partnership that are used for the purpose of the business carried on by the partnership. The words 'partnership asset' do not extend to assets that are merely co-owned even though their co-ownership and their employment for the purpose of receiving income jointly may be enough to recognise a partnership for income tax purposes (see definition of partnership in subsection 995-1(1) of the ITAA 1997). In the circumstances of this case, the taxpayer is not carrying on a business in partnership (Cripps v FC of T 99 ATC 2428; (1999) 43 ATR 1202) but is merely undertaking a passive investment (Taxation Ruling IT 2423).

For depreciating assets that are co-owned but are not partnership assets, section 40-35 of the ITAA 1997 applies to the asset as if your interest in the asset is the relevant asset for the purposes of Division 40 of the ITAA 1997. This leads to the result that each co-owner must treat their depreciating asset (their interest in the underlying asset) in accordance with their own tax profile. Generally, that would require the taxpayer to work out the cost, effective life and choose a method to work out the decline in value of the depreciating asset that is their interest and to claim, in their own income tax return, the appropriate deduction for that decline in value. Provided the other requirements of subsection 40-80(2) of the ITAA 1997 are satisfied, the decline in value of the taxpayer's interest in the underlying asset in the present case is the cost of their interest because its cost does not exceed $300.

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Section 40-35
   Section 40-40
   Subsection 40-80(2)
   Subsection 995-1(1)

Case References:
Cripps v FC of T
   99 ATC 2428
   43 ATR 1202

Related Public Rulings (including Determinations)
Taxation Ruling IT 2423

Keywords
Capital allowances CoE
Deduction for depreciating assets
Depreciating assets costing $300 or less
Immediate deductions
Jointly held depreciating asset
Partnership asset

Business Line:  Effective Life and Capital Allowances Centre of Expertise

Date of publication:  13 June 2003

ISSN: 1445-2782