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Edited version of your written advice
Authorisation Number: 1012814627711
Ruling
Subject: Aircraft deductions
Question 1
Are you entitled to a decline in value (depreciation) deduction in relation to the cost of the aircraft?
Answer
Yes.
Question 2
Are you entitled to a deduction for the ongoing expenses of the aircraft?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You operate a business at more than 10 locations throughout the state.
You use the aircraft to access country areas where you have to drive and to make areas more accessible to give better service to customers.
Prior to purchasing the aircraft you spent substantial sums per year on travel and flights for business.
The aircraft is not used for any private purposes.
You incur costs for storage, insurance, services, fuel and incidentals.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Subsection 40-25(2)
Reasons for decision
Question 1
Division 40 allows you to deduct an amount equal to the decline in value of a depreciating asset. A depreciating asset is an asset that has a limited effective life and that is reasonably expected to decline in value over the time it is used.
Subsection 40-25(2) of the ITAA 1997 further requires the deduction be limited to the extent the asset is used in the course of earning your assessable income.
In your case, the aircraft is considered to be a depreciating asset and it is accepted that the aircraft will assist you to perform your income earning activities. Consequently, you are entitled to claim a deduction for the decline in value of your aircraft.
Question 2
Section 8-1 of the ITAA 1997 allows a deduction for a loss or outgoing to the extent that it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, provided that it is not an outgoing of capital, or of a capital nature and is not private or domestic in nature.
In order for an expense to be deductible there must be a sufficient connection between the outgoing and the activities directed at gaining or producing assessable income. In Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236, the High Court stated that for an expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end.
In your case, it is accepted that there is a sufficient nexus between the on-going expenses incurred and your income earning activities so that the outgoing is incidental and relevant to the gaining of assessable income.
Therefore you are entitled to a deduction for these costs under section 8-1 of the ITAA 1997.
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