ATO Interpretative Decision
ATO ID 2004/116
Income Tax
Capital Allowances: cost of depreciating asset - motor home construction-
This ATO ID has been amended to clarify that there may be some other second element costs in addition to the costs referred to in the ATO ID.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Do all of the taxpayer's costs of constructing a motor home form part of the first element of cost of a depreciating asset they hold under section 40-180 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The taxpayer's cost of constructing a motor home forms part of the first element of cost of a depreciating asset under section 40-180 of the ITAA 1997.
Facts
The taxpayer carries on the business of constructing motor homes and renting them on completion. To construct the motor homes the taxpayer acquires a cab chassis and employs a third party to construct the home unit. Once this is done the taxpayer then incurs electrical, mechanical, fibre glassing, lighting and plumbing costs to affix the home unit to the cab chassis.
Reasons for Decisions
The cost of a depreciating asset consists of both first and second elements (section 40-175 of the ITAA 1997).
The first element of cost is worked out as at the time you begin to hold the asset. Generally the first element of cost is the amount paid, or taken to have been paid, to hold the asset (sections 40-180 and 40-185 of the ITAA 1997).
The second element of cost is worked out after you have begun to hold the asset and includes the amount you are taken to have paid for economic benefits that have contributed to bringing the asset to its present condition and location (section 40-190 of the ITAA 1997).
The relevant depreciating asset in this case is the completed motor home. The means by which a taxpayer may hold a depreciating asset may vary. In this case the taxpayer holds the motor home through having constructed it.
The expenses that are incurred by the taxpayer to construct the motor home are first elements of cost because they are amounts that the taxpayer has paid to hold the motor home.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 25 January 2018 | Related Public Rulings (including determinations | Remove Taxation Determination TD 2002/5 as it has been withdrawn and replace with TR 2017/D1 |
Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 40-180
section 40-185
section 40-190
Related Public Rulings (including Determinations)
Taxation Ruling TR 94/11
Draft Taxation Ruling TR 2017/D1
Keywords
Cost of a depreciating asset
First element of cost
Second element of cost
Date reviewed: 15 January 2018
ISSN: 1445-2782
| Date: | Version: | |
| 22 January 2003 | Original statement | |
| You are here | 25 January 2018 | Updated statement |
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