Edited version of your private ruling

Authorisation Number: 1012561764236

Ruling

Subject: Depreciation deduction

Question 1

Are you able to use values for items from a quantity surveyor's report to claim depreciation expenses?

Answer

Yes

Question 2

If you are able to use the values from the quantity surveyor's report, are you able to claim depreciation on items which have a market value of more than the price which was paid for the items?

Answer

No

This ruling applies for the following period

Year ending 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts

You purchased one large asset and a number of smaller assets.

You were able to purchase the assets at a price lower than market value due to the financial circumstances of the seller.

The seller provided no information which was of use to prepare a depreciation schedule of purchased equipment.

You obtained a quantity surveyor's report on all depreciable items purchased.

The report was based on the market value of all items at the time of the purchase not on the purchase price.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 40-175

Income Tax Assessment Act 1997 Subsection 40-180(1)

Reasons for decision

Question 1

Taxation Ruling TR 97/25 outlines deductions for capital expenditure on construction of income producing capital works, including buildings and structural improvements.

Paragraph 16 states where it is not possible to ascertain the actual construction expenditure incurred on capital works, we accept an estimate provided by an appropriately qualified person.

Paragraph 25 states that we consider that an appropriately qualified person has the expertise in the calculation of building construction costs and is likely to be accepted by a court or tribunal as an expert witness on the issue of calculating the cost of construction of the particular building. That expertise may have been acquired through a course of study or through relevant experience in providing building cost estimates over a significant period of time.

In your case when you purchased the assets you weren't able to obtain any information which was of use to prepare a depreciation schedule for assets. As we accept the use of a qualified person to provide an estimate of construction costs we will also accept an estimate of the market value of individual depreciable items.

Question 2

Section 40-175 of the ITAA 1997 states the cost of a depreciating asset you hold consists of 2 elements.

The first element is outlined under subsection 40-180(1) and in part states the first element is worked out as at the time when you began to hold the depreciating asset. It is in part the amount you are taken to have paid to hold the asset under section 40-185.

In your case the total price paid for the assets does not reflect the market value of the items as you paid a lower amount due to the financial circumstances of the seller. You paid a total amount which was under the market value for all depreciable items. You are able to claim an amount of depreciation based on what you paid for each item and not the market value. For example if you paid $80,000 for all the depreciable items and the market value of the items was $100,000, you would be entitled to claim 80% of the market value of each depreciable item as a deduction.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).