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Ruling

Subject: Fences and gates constructed for a child care activity

Question 1

Are you entitled to a 2.5% capital works deduction under Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997) for the expenses incurred in erecting all fences and gates at your residence in relation to the child care activities?

Answer

No.

Question 2

Are you entitled to a 2.5% capital works deduction under Division 43 of the ITAA 1997 for the expenses incurred in erecting fences and gates at your residence specifically for the enclosed play area?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You have commenced family day care at your residential home.

A requirement of Family Day Care is to have the property properly fenced from unsafe areas.

You incurred expenses in erecting:

· a fence, with associated gates, for a specific play area; and

· a gate/fence to prevent access to heat producing items used for your residence.

The fenced play area is used exclusively for the day care children.

The fence/gate to prevent access by the children to the heat producing items is situated between the house and the boundary fence.

Relevant legislative provisions

Income Tax Assessment Act 1997 Paragraph 43-20(3)(a).

Income Tax Assessment Act 1997 Section 43-10.

Income Tax Assessment Act 1997 Section 43-170.

Reasons for decision

Summary

You are entitled to a deduction under Division 43 of the ITAA 1997 for the fence/gates which form part of the separate and distinct area which is used exclusively for the children in child care. However, you are not entitled to a deduction under Division 43 of the ITAA 1997 for the fence/gate which is used to prevent children from accessing the heat producing items as this asset forms part of your home.

Detailed reasoning

Taxation Determination TD 93/21 discusses the issue of deductibility of fences and gates for Family Day Care providers.

It states expenditure of this kind is capital in nature and not an allowable deduction under subsection 51(1) of the Income Tax Assessment Act 1936 (ITAA 1936) (now section 8-1 of the ITAA 1997).

It further states:

· If construction of the fences and gates commenced after 26 February 1992 a deduction may be allowable under Division 10D of the ITAA 1936 (now Division 43 of the ITAA 1997)

· Fences and gates are structural improvements for the purposes of Division 10D of the ITAA 1936 (now Division 43 of the ITAA 1997) which allows the capital cost of income-producing structural improvements commenced to be constructed after 26 February 1992 to be written off over 40 years at 2.5% each year if that cost is not otherwise written off under the ITAA.

Section 43-170 of the ITAA 1997 operates to deny a deduction where the relevant property is part of a taxpayer's home. This holds irrespective of whether a care provider is required by the rules of the Family Day Care Scheme to provide a fence.

However, if the fencing relates to an area which is separate and distinct from the home and set aside for the care of children under a Family Day Care Scheme and not suitable for use by the care provider's family then a carer is entitled to a capital works deduction under Division 43 of the ITAA 1997.

You are entitled to a deduction under Division 43 of the ITAA 1997 for the fence and gates which form the separate and distinct play area which is used exclusively by the day care children.

You are not, however, entitled to a deduction under Division 43 of the ITAA 1997 for the fence/gate which prevents the children from accessing the area where the heat producing items are situated as this fence/gate merely forms part of your residence and is not separate and distinct from your residence.