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Edited version of your written advice
Authorisation Number: 1012804777919
Ruling
Subject: Environmental site assessment
Question
Are you entitled to a deduction for the cost of an environmental site assessment under section 40-755 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2015
The scheme commenced on
1 July 2014
Relevant facts
You operate a business.
The business is buying land to build a building that will be the business premises.
The property will be in your name only.
The building site is vacant land that has an Environmental Protection Authority Clean-Up Notice issued on it as it is a site that is known to have some level of contamination.
The potential contamination needs to be assessed and cleaned up before any planning permits can be issued for building works.
The first stage of dealing with the clean-up notice is to get an Environmental Site Assessment undertaken by a suitably qualified environmental professional.
The assessment is sampling of soil and water to establish the level of contamination.
The purchase of the land is not subject to results of the assessment.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 40-755
Income Tax Assessment Act 1997 Section 40-760
Reasons for decision
Environmental protection activities
Section 40-755 of the ITAA 1997 deals specifically with deductions for environmental protection activities.
You can deduct expenditure you incur in an income year for the sole or dominant purpose of carrying on environmental protection activities.
Environmental protection activities are any of the following activities that are carried on by you or for you:
(a) preventing, fighting or remedying:
(i) pollution resulting, or likely to result, from your earning activity, or
(ii) pollution of or from the site of your earning activity, or
(iii) pollution of or from a site where an entity was carrying on any business that you have acquired and carry on substantially unchanged as your earning activity,
(b) treating, cleaning up, removing or storing:
(i) waste resulting, or likely to result, from your earning activity, or
(ii) waste that is on or from the site of your earning activity, or
(iii) waste that is on or from a site where an entity was carrying on any business that you have acquired and carry on substantially unchanged as your earning activity.
No other activities are environmental protection activities.
The term 'your earning activity' is defined in subsection 40-755(3) of the ITAA 1997 to be an activity you carried on, carry on or propose to carry on:
(a) for the purpose of producing assessable income for an income year (except a net capital gain), or
(b) for the purpose of exploration or prospecting, or
(c) for the purpose of mining site rehabilitation, or
(d) for purposes that include one or more of those purposes.
The term 'your earning activity' has been extended to include situations where your activity consists of leasing a site you own, or granting a right to use a site you own or control, or a similar activity involving a site. This means you can deduct your expenditure on environmental protection activities relating to the site, even if the pollution or waste is caused by another entity that uses the site.
No deduction is allowable under section 40-755 of the ITAA 1997 for:
(a) expenditure for acquiring land, or
(b) capital expenditure for constructing a building, structure or structural improvement, or
(c) capital expenditure for constructing an extension, alteration or improvement to a building, structure or structural improvement, or
(d) a bond or security (however described) for performing environmental protection activities, or
(e) expenditure to the extent that you can deduct an amount for it under another provision of the taxation legislation, or
(f) expenditure incurred in carrying out an activity for an environmental impact assessment of your project.
In your case you are purchasing land. As a result of the previous business activity on the land, the site has become contaminated.
Your proposed earning activity is to build and operate a business. As your activity is for the purpose of producing assessable income you may be eligible for a deduction for the cost of environmental protection activities undertaken.
You are having an environmental site assessment to establish the level of contamination and what treatment or cleaning is required.
It is considered that the expenditure is incurred "for the sole or dominant purpose" of carrying on environmental protection activities.
The cost of testing for contaminants is considered to be part of cleaning up the waste that is on your land. As the activities you have undertaken fall within the definition of environmental protection activities for the purposes of the taxation legislation you are entitled to claim a deduction for the cost of the environmental site assessment in the year in which they are incurred.
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