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Edited version of private ruling
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Ruling
Subject: Business Expenses - Driveway
Question
Are you entitled to a deduction in relation to the cementing of your driveway?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You have operated a tuition business from your home residence for many years.
Your gain access to the premises where you conduct your tuition through the front door of the house.
You currently have XX students who are required to be dropped off and picked up from your house each week.
Your students are required to use your driveway to get to your house.
A sloping part of your driveway, which was continually eroding has been cemented.
Your driveway was originally constructed from gravel.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1 and
Income Tax Assessment Act 1997 Section 43-170.
Summary
The expense that you have incurred for cementing part of your driveway does not qualify for an outright deduction as it is capital in nature. Also, it does not qualify for a capital works deduction as the driveway is used in association with your home and is not set aside for exclusive use in relation to your business.
Detailed reasoning
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent that they are incurred in gaining or producing assessable income, or 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.
In your case, the expenditure incurred in respect of the driveway is made with a view to acquiring an asset that has an enduring benefit, that is, an improvement to your driveway to the extent that your students can safely gain access to your house for their lessons. The benefit flowing from the driveway is of a lasting and recurrent nature and the expenditure that will be incurred is a significant amount paid once off. Accordingly the repair of the driveway is considered to be capital in nature and is not deductible under section 8-1 of the ITAA 1997.
Division 43 of the ITAA 1997 provides a deduction for capital works attributable to a construction expenditure area that is owned or leased by the taxpayer and used during the income year for the purpose of producing assessable income. Eligible capital works include structural improvements such as sealed driveways begun after 26 February 1992.
However, if any part of the capital works is used mainly for, or in association with, residential accommodation, including where it constitutes the whole or part of an individual's home, section 43-170 of the ITAA 1997 provides that such capital works are taken not to be used for the purpose of producing assessable income.
Taxation Determination TD 93/21 states that a taxpayer is only entitled to a deduction for improvements at their residential home if the improvements relate to an area which is separate and distinct from the home and set aside for carrying on their business.
A driveway constructed at a taxpayer's private residence is normally considered to be part of the home. In your case, the driveway is not located away from your residential home. The driveway is not considered to be a separate and distinct area from the residential home which is set aside for the production of assessable income. Section 43-170 of the ITAA 1997 therefore applies to the capital works.
Therefore, no deduction is allowed under Division 43 of the ITAA 1997 for the construction expenditure incurred in cementing your driveway as it does not satisfy the requirement that it is used for the purpose of producing assessable income.