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Edited version of private ruling
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Ruling
Subject: Capital allowances - plant - accommodation units
Question
Are accommodation units used in a holiday/caravan park depreciable assets under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following periods:
Financial year ended 30 June 2010
Financial year ended 30 June 2011
The scheme commences on:
I July 2009
Relevant facts and circumstances
You own and operate a holiday/caravan park.
As part of the development of the park, a number of self-contained accommodation units have been installed. All units were constructed off-site, then transported to site for installation.
All units have been connected to the ground for safety and security purposes - they sit on a pad, and can be bolted on and off.
All units have built in showers/bathrooms, and have been connected to mains electricity, water and sewerage services.
Decks are attached, consisting of stairs and a small sitting area.
You intend to systematically turnover the units every few years. This turnover will involve the disconnection of services, removal of the unit as a unit and selling to third parties for recoverable value. The units do not need to be dismantled to be moved. The units will then be replaced with new units on the same site.
You expect minimal disruption or injury to the land on which the units sit during this removal and replacement process.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 40-25(1)
Income Tax Assessment Act 1997 subsection 40-30(1)
Income Tax Assessment Act 1997 subsection 40-45(2)
Income Tax Assessment Act 1997 subsection 43-10(1)
Income Tax Assessment Act 1997 subsection 43-20(1)
Income Tax Assessment Act 1997 section 43-70
Income Tax Assessment Act 1997 section 45-40
Reasons for decision
Capital allowances and deductibility
Subsection 40-25(1) of the ITAA 1997 provides that you can deduct an amount for the decline in value for an income year of a depreciating asset that you have held during that year.
A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over time. Land, trading stock and certain intangible assets are excluded from being depreciating assets (subsection 40-30(1) of the ITAA 1997).
Subsection 40-45(2) of the ITAA 1997 provides that capital works expenses are not deductible under Division 40 of the ITAA 1997. The deductibility of expenditure incurred in relation to capital works is determined under Division 43 of the ITAA 1997.
Deductions for capital works
Subsection 43-10(1) allows you to deduct capital expenditure incurred in constructing capital works, including buildings and structural improvements.
Capital works is term of wide definition. Subsection 43-20(1) states that it covers three broad categories of expenditure: buildings, structural improvements and environment protection earthworks.
Section 43-70 of the ITAA 1997 defines construction expenditure as capital expenditure incurred in respect of the construction of capital works. It does not include expenditure on plant.
Section 45-40 of the ITAA 1997 defines plant as articles, machinery, tools and rolling stock.
Accommodation units
Taxation Determination TD 97/24 states that you can depreciate accommodation units used in a caravan/tourist park where those units:
§ are 'articles' (because they are chattels); and
§ are used, or held ready for use, for the purpose of producing assessable income.
An accommodation unit will be a chattel when it merely rests on land or is affixed in such a way as to facilitate easy removal. It will be a fixture when it cannot be removed or has been affixed to the land with the intention that it shall remain for a substantial period, and cannot be detached without substantial injury to the land or the unit itself.
Even when it is not possible to move a unit without the aid of a crane and some dismantling, if it is designed as a movable dwelling and is not permanently fixed to the ground, it will not be a fixture.
Your case
You own a holiday/caravan park with self-contained accommodation units which are constructed off-site and then transported to the site for installation. The units have been installed for the purpose of producing assessable income.
The units have not been attached to the land permanently, and you intend to replace the units every few years with new units. Removing the units will not cause substantial injury to the land or units themselves. Therefore, the units are articles and fall under the definition of plant. They are excluded from the definition of capital works and are depreciable assets under Division 40 of the ITAA 1997.