ATO Interpretative Decision

ATO ID 2004/594 (Withdrawn)

Income Tax

Capital Works: undeducted construction expenditure - reduction attributable to period of non-deductible use
FOI status: may be released

This ATO ID has been withdrawn as it has been replaced by ATO ID 2014/38 Capital Works: undeducted construction expenditure - period where no capital works deduction is available.

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

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

During a period that the capital works are not used in a deductible way, does the undeducted construction expenditure for your construction expenditure area, calculated under Subdivision 43-G of Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997), take this period into account?

Decision

Yes. During a period that the capital works are not used in a deductible way, the undeducted construction expenditure for your construction expenditure area, calculated under Subdivision 43-G of Division 43 of the ITAA 1997, takes this period into account.

Facts

During the year of income the taxpayer owned a residential rental property that was constructed after 26 February 1992. From its purchase, the property was rented to tenants, or made available for rental, for the purpose of producing assessable income through deriving rental income.

During the year of income, the property became vacant. Instead of attempting to rent the property, the taxpayer sought to sell it. At the time of attempting to sell the property, the intended use of the property to produce assessable income through deriving rental income was discontinued.

In order to sell the property, it was placed on the market. Despite having the property available for sale for a number of months, the property did not sell. At the end of that period the property was once again made available for rental.

Reasons for Decision

The undeducted construction expenditure for your construction expenditure area (your area) is the part of your construction expenditure you have left to write off (sections 43-230 and 43-235 of the ITAA 1997). Section 43-15 of the ITAA 1997 provides that the amount that you can deduct cannot exceed the amount of undeducted construction expenditure for your area.

For capital works constructed after 26 February 1992 the undeducted construction expenditure for your area is calculated under sections 43-230 and 43-235 of the ITAA 1997. The effect of the calculations required by these sections is that the undeducted construction expenditure for your area is taken into account, from the time when your area, or a part of it, was first used by an entity for any purpose after completion of the relevant construction, irrespective of whether or not an amount is deducted for the capital works for an income year.

The undeducted construction expenditure for your area is, broadly, the original construction expenditure for your area less the aggregate of amounts calculated at the rate of 2.5% per annum of that expenditure, from the time when the property, or a part of it, was first used by an entity for any purpose after completion of the relevant construction.

During the period that the property was for sale and was not available for rental it was not being used in a deductible way by the taxpayer. No deduction for the capital works is available to the taxpayer for that period under section 43-10 of the ITAA 1997. The taxpayer's undeducted construction expenditure continued to be taken into account for the whole of the income year, including during the period of non-deductible use.

Date of decision: 26 March 2004

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   Division 43
   Subdivision 43-G
   section 43-10
   section 43-15
   section 43-230
   section 43-235

Related ATO Interpretative Decisions
ATO ID 2004/593

Other References:
Rental Properties 2002-03 (NAT 1729-6.2003)

Keywords
Building depreciation
Construction expenditure area

Business Line: Private Groups and High Wealth Individuals

Date of publication: 16 July 2004

ISSN: 1445-2782

history

	Date:	Version:
	26 March 2004	Original statement
You are here	30 January 2015	Archived

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