Edited version of your written advice

Authorisation Number: 1051240660494

Date of advice: 10 July 2017

Ruling

Subject: Caravan expenses

Question 1

Are you entitled to a deduction for a portion of the depreciation on your caravan?

Answer

Yes.

Question 2

Are you entitled to a deduction for a portion of the depreciation of the microwave, washing machine and air-conditioner/heater in your caravan?

Answer

Yes.

Question 3

Are you entitled to a deduction for a portion of the interest expenses incurred on the borrowed funds used to purchase the caravan?

Answer

Yes.

Question 4

Are you entitled to a deduction for a portion of the loan establishment and stamp duty costs incurred on the borrowed funds used to purchase the caravan?

Answer

Yes.

Question 5

Are you entitled to a deduction for a portion of the insurance, registration, maintenance and repair costs for your caravan?

Answer

Yes.

Question 6

Are you entitled to a deduction for the cost of advertising placed on the caravan?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

The scheme commenced on

1 July 2016

Relevant facts

You purchased a caravan to use as a mobile office.

You are required to travel frequently for your position. Often there is no suitable accommodation and more often there is no office that you can use to speak privately to people.

You do not receive a travel allowance for this travel.

Your caravan has accommodation for three and an office.

You purchased the caravan second hand. The caravan and associated loan is in your name only.

No maintenance or repair costs have been incurred to date, as the caravan is under warranty.

You use the caravan for overnight work trips most weeks.

You also use the caravan in your home town when attending various shows/events and the caravan is used as a mobile office. You also use the caravan for work day trips.

You usually visit more than one town when travelling for work. There are no private purposes during these trips. Other officers accompany you on many day trips and use the caravan as a mobile office.

The microwave, washing machine and air-conditioner/heater came as permanent fixtures in the caravan and remain in the caravan at all times.

You are currently designing advertising which will be permanently affixed to the caravan.

You use the caravan for private purposes as well.

You keep a diary to show the days the caravan is used for work purposes and the days you use it for private purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 section 25-10.

Income Tax Assessment Act 1997 section 25-25.

Income Tax Assessment Act 1997 section 40-25.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it.

The cost of the caravan is considered to be a capital expense.

As the caravan is a capital asset, the purchase cost is capital in nature and therefore no deduction is allowed under section 8-1 of the ITAA 1997 for the cost of the caravan. However, as outlined below a depreciation deduction is allowed under Division 40 of the ITAA 1997 for the income producing use of the caravan.

Depreciation

Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose.

Taxable purpose is defined in paragraph 40-25(7)(a) of the ITAA 1997 to mean for the purpose of producing assessable income.

Where an asset is held for a non-taxable purpose, no deduction is allowed under Division 40 of the ITAA 1997.

A caravan is regarded as a depreciating asset for Division 40 of the ITAA 1997 purposes.

In your case, you use the caravan as a mobile office and accommodation when working away from home. As you are required to sleep away from home overnight for work purposes, it is considered that this use of the caravan for your duties is being used for a taxable purpose. You are therefore entitled to claim a deduction for decline in value under section 40-25 of the ITAA 1997 for the caravan.

Please note that as the caravan is also used for private purposes, the deduction is reduced to the extent that it is used for a non-taxable purpose. The relevant records need to be kept in relation to the use of the caravan.

The microwave, washing machine, air-conditioner/heater in the caravan are also regarded as depreciating assets. A depreciation deduction for the work related use of these items is also an allowable deduction.

Please refer to the Guide to depreciating assets 2016 for further details in relation to calculating your allowable depreciation amount. This booklet can be found on the Australian Taxation Office website ato.gov.au

Interest expenses

Taxation Ruling TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith provides the Commissioner's view regarding the deductibility of interest expenses. As outlined in TR 95/25, there must be a sufficient connection between the interest expense and the activities which produce assessable income. TR 95/25 specifies that to determine whether the associated interest expenses are deductible, it is necessary to examine the purpose of the borrowing and the use to which the borrowed funds are put.

In your case, your borrowed funds were used to purchase the caravan. As you use the caravan for work related purposes, a portion of the interest expenses incurred on the loan is an allowable deduction under section 8-1 of the ITAA 1997.

In calculating the deductible amount of your loan interest expenses, the interest must be apportioned between the income producing and non-income producing purposes. The part of the accrued interest attributable to the private use of the caravan is not deductible.

Borrowing costs

Subsection 25-25(1) of the ITAA 1997 allows a deduction for expenditure incurred 'for borrowing money to the extent that you use the money for the purpose of producing assessable income'.

Borrowing expenses include loan establishment fees and stamp duty.

The expenses are deductible over the period of the loan specified in the contract, or the actual loan period (for example if the loan is repaid early), or five years, whichever is the shorter period, beginning with the year in which they were incurred. The amount deductible each year is obtained by dividing the un-deducted expenditure by the number of days remaining in the loan period and multiplying the result by the number of days in the loan period that are in the income year. If borrowing expenses incurred in any year are $100 or less, they are deductible in that year.

Maintenance, registration and insurance costs

Maintenance costs are allowed under section 8-1 of the ITAA 1997 if there is a sufficient connection between the expenses and the production of assessable income and are not capital or private in nature.

Similarly, a portion of the insurance and registration costs of the caravan is an allowable deduction where the caravan is being used for income producing purposes.

Such costs are apportioned between the income producing and other uses of the caravan and only the income producing portion is an allowable deduction.

Repair costs

Section 25-10 of the ITAA 1997 allows a deduction for the cost of repairs to a depreciating asset used for income producing purposes, to the extent that the expenditure is not capital in nature.

Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the circumstances in which deductions for repairs are allowable. TR 97/23 states that what is a repair is a question of fact and degree in each case having regard to the appearance, form, state and condition of the particular property at the time the expenditure is incurred and to the nature and extent of the work done to the property.

TR 97/23 indicates that expenditure for repairs to property is of a capital nature and not deductible where:

● the extent of the work carried out represents a renewal or reconstruction of the entirety, or

● the works result in a greater efficiency of function in the property, therefore representing an 'improvement' rather than 'repair', or

● the work is an initial repair.

Repair costs are deductible where they are incurred during the period the property is held for income producing purposes and are attributable either to damage that occurs during your income producing use of the property or to defects that emerge suddenly during that time.

Repairs to the caravan that are not capital in nature and are attributable to damage that occurs during the income producing activities of the caravan are an allowable deduction under section 25-10 of the ITAA 1997.

Advertising costs

Advertising expenses are deductible under section 8-1 of the ITAA 1997 to the extent that the expenses are sufficiently related to the production of assessable income.

The cost of advertising displayed on the caravan is an allowable deduction under section 8-1 of the ITAA 1997.

Please note, although the signage may be on the caravan permanently, this does not mean that the caravan itself is being used entirely for income producing purposes.

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