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Ruling

Subject: Income Tax: Repairs or Capital or Environmental Protection

Question 1

Are the roof restoration costs deductible as repairs under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice/Answer: No

Question 2

If the answer to question one is no, are the roof restoration costs deductible under section 40-755 of the ITAA 1997?

Advice/Answer:

Yes, but only to the extent that the costs are incurred for the demolition of the roof and the removal of the asbestos from the site.

This ruling applies for the following period:

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The following description of the scheme is based on information provided by the applicant. The following documents, or relevant parts of them, form part of and are to be read with the description:

· Private ruling application, including attachments.

· Responses to requests for information, including attachments.

· Record of conversation with tax agent.

Scheme:

The taxpayer is a trust and has a corporate trustee.

Two individuals are the directors of the corporate trustee of the taxpayer.

The same two individuals are the trustee of a related Trust.

Both trusts are discretionary trusts.

The taxpayer has operated a business from the same premises since 2005 when it took over an existing business.

The taxpayer was aware that the roof was asbestos at the time they purchased the business and commenced operations from the premises.

The Trust purchased the premises in 2007 and has rented the premises to the taxpayer since then.

The Trust was aware that the roof was asbestos at the time that they purchased the building.

Although the asbestos problem was acknowledged when the building was purchased, the significant deterioration and problems caused during occupancy was not anticipated.

The building had been rented by the taxpayer prior to the purchase of the building by the Trust.

In early 2011 work began to restore the roof and remove the asbestos.

The taxpayer received a Commonwealth and State Government grant to partially fund the roof works in 2011. It has been included in assessable income.

All works were paid for by the taxpayer by 30 June 2011 as per the terms of the grants. The restoration work was effectively finished in early 2012.

Only a % of the roof has been restored and had asbestos removed as the remaining % is not causing health risks.

The restoration costs were paid for by the taxpayer, and include the following.

Demolition, Asbestos removal, Main structure, Electrics, Cranage, Architects, Council fees, Engineering, Air-conditioning, Scaffolding and Plumbing

The original roof was constructed from steel trusses, glass frames, purlins and asbestos roof sheeting.

The restored roof materials are galvanised steel rafters, purlins, R2 roof insulation and colour bond sheeting. The sheeting is made of galvanised iron. No glass was renewed as it created a security issue and this option was deemed to expensive.

The tax agent advised that the roof was not at a point were it required replacement when work commenced, it was due to the potential health risks to its employees that the taxpayer decided to replace the roof.

The old air-conditioning units were made redundant as they were contaminated with asbestos fibres and could not be re-installed. They were very old and needed constant repairs. Seven new air-conditioning units were installed to replace them.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 25-10

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 Division 43

Reasons for decision

Question 1

Summary

The roof restoration costs are not deductible as repairs under section 25-10 of the ITAA 1997.

Detailed reasoning

Section 8-1 of the ITAA 1997 provides for a deduction, known as a general deduction, for losses or outgoings. However, subsection 8-1 of the ITAA 1997 states that a deduction from your assessable income is only allowable to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

Certain losses or outgoings are not deductible. Specifically, subsection 8-1(2) of the ITAA 1997 states that you cannot deduct a loss or outgoing to the extent that:

(a) it is a loss or outgoing of capital, or a capital nature; or

(b) it is of a private or domestic nature; or

(c) it is incurred in gaining or producing exempt income or non-assessable non-exempt income; or

(d) a provision of this Act (ITAA 1997) prevents you from deducting it.

There are specific deductions which you can deduct from your assessable income which are outside Division 8 of the ITAA 1997. One of these specific provisions is for repairs, and this is covered by section 25-10 of the ITAA 1997. Section 25-1 of the ITAA 1997 provides a guide to the operative provisions under Division 25. It explains the following:

This Division (Division 25) sets out some amounts you can deduct. Remember that the general rules about deductions in Division 8 (which is about general deductions) apply to this Division.

Subsection 25-10(1) of the ITAA 1997 allows you to deduct expenditure you incur for repairs to premises (or part of premises) or a depreciating asset that you held or used solely for the purpose of producing assessable income.

The word 'repairs' is not defined in the ITAA 1997 and therefore takes on its ordinary meaning. 'Repair' ordinarily means the remedying or making goods of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property.

Taxation Ruling TR 97/23 Income tax: deductions for repairs (TR 97/23), explains the circumstances in which expenditure incurred by a taxpayer for repairs is an allowable deduction under section 25-10 of the ITAA 1997.

As explained at paragraph 15 of TR 97/23, a repair is on the most part, occasional and partial. It involves the restoration of the efficiency of the function of the property being repaired without changing its character.

Paragraph 17 of TR 97/23 places importance on considering whether the work undertaken restores the efficiency of function of the property without changing its character, rather than to consider whether the appearance, form, state or condition of the property is exactly restored.

At paragraph 88 of TR 97/23, reference is made to the High Court of Australia in the case of W Thomas & Co Pty Ltd v. FC of T (1965) 14 ATD 78. In this particular case, the taxpayer incurred expenditure on repairs to, amongst other things, the roof, walls and floor of a building which it had acquired. Windeyer J stated that 'repair' involves a restoration of a thing to a condition it formerly had without changing its character.

His Honour explained further that in the case of a thing considered from the point of view of its use as distinct from its appearance, "it is restoration of efficiency in function rather than exact repetition of form or material that is significant".

The efficiency of function test was applied by the Board of Review in Case R102, 84 ATC 676. The taxpayer owned a rent producing property consisting of shops and weatherboard flats. Several of the weatherboards had rotted and were replaced in one external wall. Instead of repainting the boards, the taxpayer had the whole wall covered with 'Celluform' cladding, which required little or no maintenance.

The Board held that the cladding constituted a repair. The view was taken that there was no structural alteration or improvement in the use of new cladding, and the use of the cladding restored efficiency in function rather than exact repetition of form or material. The Board found that the impact of the change to the taxpayer's building could not be equated with the impact of a new ceiling in the Western Suburbs Cinemas case.

Paragraphs 26 and 27 of TR 97/23 provide the following in relation to expenditure to control health risks from dangerous substances:

Work done to property in controlling health risks associated with the use of dangerous substances (such as asbestos, chlorofluorocarbons ('CFCs'), chromium, dioxin, cyanide, pesticides and arsenic) does not qualify as a 'repair' for the purposes of section 25-10 unless the work remedies or makes good defects in, damage to, or deterioration (in a mechanical or physical sense) of, the property.

An example of expenditure that is not deductible as a repair is the cost of removing asbestos insulation from factory walls (if the insulation is not in need of repair) and replacing it with modern insulation material. This work does not constitute the rectification of a defect in a mechanical or physical sense as envisaged by section 25-10. The asbestos insulation functions efficiently as insulation. It is being replaced because of the health risk it might pose to factory occupants, not to 'repair' the factory in the ordinary sense of the word. The costs, if incurred on or after 19 August 1992, are deductible under subsection 82BK(1) of the ITAA 1936 as allowable environmental protection expenditure.

As outlined above, an example of expenditure that is not deductible as a repair (under section 25-10 of the ITAA 1997) is the cost of removing asbestos insulation from factory walls and replacing it with modern insulation material. As the insulation was not in need of repair, then the work does not constitute rectification of a defect as contemplated by section 25-10 of the ITAA 1997. However, the costs are deductible under section 40-755 of ITAA 1997 (former subsection 82BK(1) of ITAA 1936).

Repair is distinct from renewal or reconstruction. Renewal or reconstruction, as distinct from repairs, is restoration of its entirety. The term 'entirety' is followed by the courts in determining 'repair' cases as meaning something separately identifiable as a principal item of capital equipment - see Lindsay v. FC of T (1960) 106 CLR 377 at 385: (1960) 12 ATD 197 at 201).

At paragraphs 38 to 40 of TR 97/23, examples are provided as to what may constitute an entirety as opposed to a subsidiary part. At paragraph 38, it explains that property is more likely to be an entirety if, amongst other things, the thing or structure is an integral part, but only a part, of the entire premises and is capable of providing a useful function without regard to any other part of the premises. Having regard to the taxpayer's situation, it can be argued that the roof falls within the definition of an entirety.

However, paragraph 40 is more specific. It states that something that is part of a building, e.g. a roof or wall, is just that and no more. The building itself is the entirety (meaning that the roof or wall is a subsidiary part of the entirety). At paragraph 42, it explains that work that is done to a part of a building, though not amounting to a replacement or reconstruction of an entirety, may still be capital expenditure and not deductible, for example, because it amounts to an improvement.

Paragraphs 59 to 62 of TR 97/23 provide guidance as to whether initial repairs are of a capital nature or are immediately deductible. At paragraph 59, it explains that expenditure incurred on an initial repair after the property is acquired, is capital expenditure, and is not, therefore, deductible under section 25-10 of the ITAA 1997. Such expenditure would include work in remedying defects, damage or deterioration in existence at the date of acquisition. This is so whether the property is purchased or obtained under lease by the taxpayer.

Where repairs are carried out contemporaneously with improvements, the repair costs are deductible provided they can be segregated from the cost of improvements (paragraphs 55 to 58 of TR 97/23).

In FCT v Western Suburbs Cinemas Ltd (1952) 86 CLR 102; 5 ATD 452; 5 AITR 300, a company carrying on a business of motion picture exhibitor undertook a replacement of an old ceiling to one of its cinemas.

In the judgement by Kitto J, he commented that "the work done consisted of the replacement of the entire ceiling, a major and important part of the structure of the theatre, with a new and better ceiling. It did much more than meet a need for restoration; it provided a ceiling having considerable advantages over the old one, including the advantage that it reduced the likelihood of repair bills in the future."

In Case 31, 71 ATC 141, a boulevard arcade owned by a taxpayer was erected with a ceiling consisting of a suspended aluminium grid on which rested acoustic infills. The ceiling was subjected to significant damage and the infills were periodically replaced.

The taxpayer decided to replace the infills with asbestos sheets of a larger size. This involved removal of the infills and the grid which they rested and the installation of ceiling joints to which the asbestos was nailed. Following the decision in the Western Suburbs Cinemas Ltd case, the cost of erecting the new ceiling was not deductible, being of a capital nature.

In Case 132 (1959) 8 CTBR (NS), a department store roof, constructed of corrugated iron and wood, was replaced, as part of a modernisation of the store, with a roof of asbestos cement sheeting over steel supports. This was held to be an alteration and improvement, not a repair. The purpose of the work was not that of repairs but of modernisation.

In AAT Case 363 (1999) 42 ATR 1055; [1999] AATA 363, the taxpayer refurbished the kitchen of a rental property by removing old cupboards and installing new ones. It was determined by the AAT that although the replacement of the cupboards may have been the only practical way of effecting the repairs, the work had enlarged itself into an improvement.

In Case 39 (1958) 8 CTBR (NS), the taxpayer claimed the cost of electrical repairs to a hotel owned by it. The electrical wiring had become worn out and dangerous. The installation was replaced by a new and better system, which worked efficiently, and complied with all requirements of the electrical authority.

The Board of Review found that the new (electrical) work was not a restoration of the old system, but the substitution of a new and better system. The cost was not deductible (it was of a capital nature).

Whether, in the taxpayer's circumstances, the roof structure and associated costs are 'repairs' and therefore deductible under section 25-10 (or section 40-755) of the ITAA 1997 is a question of fact and degree, having regard to the condition of the property and its functional efficiency when the expenditure was incurred. Factors that also need to be taken into account include the condition of the property when the taxpayer commenced business in these premises.

According to the facts as set out earlier in this report, the roof that was subject to the work was not in need of immediate replacement, but a large section of the roof was replaced due to the concerns for employees at some point in the future. According to the various asbestos reports, whilst there was evidence of asbestos in the sheet roofing, the report indicated that the condition of the roof for the premises (from where the taxpayer conducts its business) was 'stable' with warning signs in place where relevant. In location 11, the condition was rated as 'friable when exposed', and warning signs were also in place.

The roof was originally made of asbestos roof sheeting, trusses, glass frames and purlins. A % of the roof was replaced with the following materials: galvanised iron sheeting (known as colour-bond sheeting), rafters and purlins. Photos of the new roof evidence the installation of roof insulation also. No glass was renewed as it created a security issue and was also deemed to expensive. The remaining % of the roof has not been replaced.

The taxpayer has advised that although the trustee of the taxpayer knew the roof was asbestos when the business was purchased by it, at that time it was not causing any health risks. It believed that the strata group was responsible for maintaining the asbestos register and therefore considered the roof structure to be in a well-managed state of repair.

However, as ongoing maintenance and repairs were carried out by the strata, the taxpayer realised that the general condition of the roof had become unstable, brittle and fibrous. On one occasion, some of the asbestos sheeting was broken by workers performing maintenance on the roof.

The health risks arose after the building was purchased by the Trust, as the roof deteriorated. Maintenance records are held (by the taxpayer) that document the deterioration of the roof during occupancy.

The taxpayer has occupied the premises since early 2005.

TR 97/23 makes it clear that where the work done restores the property to its original efficiency of function, then it is more likely that the expenditure is for 'repairs' and deductible under section 25-10 of the ITAA 1997. The Commissioner accepts that the use of a different material does not necessarily prevent the work from being a repair, provided the work merely restores a previous function to the property or restores the efficiency of the previous function.

Conclusion

TR 97/23 places significant importance on the weight of efficiency of function of the thing or things that have been worked on. Where there is a sufficient degree of improvement, the Commissioner is more inclined to characterise the expenditure as capital and therefore not deductible under section 25-10 of the ITAA 1997.

The construction work on the roof will lead to a greater efficiency of function than what is considered standard if the roof was simply repaired or restored to a condition without changing its character.

The replacement of the section of the roof with insulated galvanised sheeting and insulation is an important part of the structure (the building), will extend the property's income producing ability, significantly enhance its saleability or market value, and extend the property's expected life, all factors that point to a capital improvement rather than repairs.

The same principal applies to the costs for removal and replacement of electrical wiring. On the available facts, these costs have been incurred not to remedy it or bring it to its original character, but the wiring has been removed, replaced and relocated, thereby increasing the efficiency of function to a significant degree.

This also applies to the plumbing work involving the re-direction and extension of the water pipe suspended above the factory floor.

Replacing the air-conditioning units with a whole new system does not constitute repairs to premises (or a part of the premises or a depreciating asset). There is a significant increase in the efficiency of function, which renders the work to be of a capital nature.

Having regard to the factors in the circumstances of the taxpayer, it is considered that the roof restoration costs do not constitute repairs.

Therefore, the roof restoration costs are not deductible under section 25-10 of the ITAA 1997.

Question 2

Summary

The roof restoration costs are deductible under section 40-755 of the ITAA 1997 but only to the extent that they are incurred for the demolition of the roof and the removal of the asbestos from the site.

Detailed reasoning

Subsection 40-755(1) of the ITAA 1997 provides that you can deduct expenditure you incur in an income year for the sole or dominant purpose of carrying on environmental protection activities.

Environmental protection activities are listed in subsection 40-755(2) of the ITAA 1997. One class of environmental protection activities is:

· Preventing, fighting or remedying pollution of or from the site of your earning activity (subparagraph 40-755(2)(a)(ii) of the ITAA 1997).

The other environment protection activities for which a deduction is allowable are:

· Treating, cleaning up, removing or storing waste.

There are no other activities that qualify as environmental protection activities.

There is expenditure incurred on environmental protection activities that is not deductible. Subsection 40-760(1) of ITAA 1997 states that you cannot deduct an amount under section 40-755 of the ITAA 1997 for, amongst other things:

· capital expenditure for constructing a building, structure or structural improvements; or

· capital expenditure for constructing an extension, alteration or improvement to a building, structure or structural improvement; or

· expenditure to the extent that you can deduct an amount for it under a provision of this Act outside this Subdivision.

This last point makes it clear that deductions for environmental activities under section 40-755 of the ITAA 1997 are a provision of last resort. The Explanatory Memorandum to the Taxation Laws Amendment Bill (no.5) 1992 reinforces this aspect of the law.

'Earning activity' is, among other things, an activity the taxpayers, carried on, carry on, or propose to carry on for the purpose of producing assessable income (except a net capital gain).

Consideration has already been given to whether a deduction is available under section 25-10 of the ITAA 1997 in question 1 so it will not be considered again here.

Consideration of expenditure under Division 43 of the ITAA 1997

Division 43 of the ITAA 1997 provides a deduction for capital works. In relation to buildings, subsection 43-20(1) of the ITAA 1997 explains that Division 43 applies to capital works being a building, or an extension, alteration or improvement to a building.

Where Division 43 of the ITAA 1997 applies, the rate of deduction is determined by the date the works commenced, as set out in subsections 43-25(1) and (2) of ITAA 1997. However, section 43-30 states that you cannot deduct an amount (of a deduction for capital works) before the completion of construction of the capital works even though you use them, or part of them, before completion.

As outlined in subsection 43-120(1) of the ITAA 1997, where you incur construction expenditure on a building that you lease, your area is the part of the construction area that you lease, and that you have continuously leased or held since the construction was completed. The taxpayer has leased the premises which are the subject of the construction works for the entire construction period.

The costs incurred to replace and install the section of the roof on the premises, and for plumbing work, falls within construction expenditure as contemplated by Division 43 of the ITAA 1997. Specifically, the costs relate to the improvement of the building leased by the taxpayer to conduct its business.

Therefore, the amount for replacing and installing the section of the roof on the premises is not deductible under section 40-755 of the ITAA 1997. This also applies to the amount for plumbing work involving the re-direction and extension of the water pipe suspended above the factory floor.

Similarly, the costs related to or associated with the replacement of the affected section of the roof would also be classed as part of the construction expenditure relating to the building. These costs include: architects, council fees and engineering. These costs are considered to be for the preparation and planning of the roof replacement, and not in respect of environmental protection activities.

The same principal applies to the costs for removal and replacement of electrical wiring. On the available facts, these costs have been incurred not to remedy it or bring it to its original character, but the wiring has been removed, replaced and relocated, thereby increasing the efficiency of function to a significant degree.

The taxpayer, as lessee of the business premises, is eligible to claim the deduction under Division 43 of the ITAA 1997 (by virtue of subsection 43-120(1) of the ITAA 1997), by applying the relevant percentage rate to the costs, with reference to section 43-25 of the ITAA 1997. As the business activities of the taxpayer are conducted from the subject building, the rate of deduction is 4%, as set out in Table 43-145 of section 43-145 of the ITAA 1997.

As stated in section 43-30 of the ITAA 1997, a taxpayer is not entitled to a deduction under Division 43 of the ITAA 1997 before the completion of construction of the capital works, even though the works may have been used before completion. Therefore, these costs associated with the replacement of the section of the roof are eligible for deduction under Division 43 of the ITAA 1997 in the 2012 income year.

Consideration of expenditure under Division 40 of the ITAA 1997

As set out in Division 40 of the ITAA 1997, a deduction can be claimed for the cost of a depreciating asset.

According to the available facts, the old air-conditioning units were made redundant as they were contaminated with asbestos fibres and could not be re-installed. They were very old and needed constant repairs. Seven (7) new air-conditioning units were installed to replace them.

Initial pre-works and installation was completed by 30 June 2011, but final hook-up occurred in the December 2011/January 2012 shutdown period.

Air-conditioning units are classed as a depreciating asset by virtue of subsection 40-30(1) of ITAA 1997. It states, amongst other things, that a depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Exceptions to this type of asset include:

· land;

· trading stock; or

· an intangible asset.

Section 40-25 of the ITAA 1997 provides a deduction for a taxpayer equal to the decline in value for an income year of a depreciating asset that the taxpayer held for any time during the year.

Subsection 40-60 of the ITAA 1997 specifies when a depreciating starts to decline in value. It states that a depreciating asset you hold starts to decline in value from when its start time occurs. As stated in subsection 40-60(2) of the ITAA 1997, the start time of a depreciating asset is when you first use it, or have it installed ready for use, for any purpose.

Section 40-40 of the ITAA 1997 defines the term 'hold' to mean, amongst other things, any depreciating asset held by the owner, or the legal owner if there is both a legal and equitable owner. In this regard, the taxpayer is the owner of a depreciating asset, being the seven air-conditioning units.

Section 40-95 of the ITAA 1997 requires you to make a choice in determining the effective life for a depreciating asset.

Taxation Ruling TR 2010/2 Income tax: effective life of depreciating assets (applicable from 1 July 2010) (TR 2010/2) sets out a broad range of assets which the Commissioner has determined the effective life for in respect of the year ended 30 June 2011. Air-conditioning units are included in this list, and have varying effective life years depending on the part of the air-conditioning. For example, cooling towers are deemed to have an effective life of 15 years.

Paragraphs 113 and 114 of TR 97/23 explain that a replacement, renewal or reconstruction of the entirety of a thing or structure is an improvement rather than a deductible repair (see Lurcott v. Wakely & Wheeler [1911] KB 905 at 924).

As explained in paragraph 115 of TR 97/23, an entirety, as distinct from a subsidiary part, includes factors, amongst other things, such as the following:

· Is the property an inseparable part of an entirety?

· Is the property separately identifiable as a principal item of capital equipment?

· Is the thing or structure an integral part, but only a part, of the entire premises and is it capable of providing a useful function without regard to any other part of the premises?

· Is the thing or structure a separate and distinct item of plant in itself from the thing or structure?

· Is the property a unit of property as defined in the depreciation provisions of the income tax law?

As determined in question 1, the costs incurred in replacing the air-conditioning units are not deductible under section 25-10 of the ITAA 1997 as they do not constitute repairs to premises (or a part of the premises or a depreciating asset).

Whilst the units were made redundant, the whole thing was replaced with a new system. This will result in a significant increase in the efficiency of function, which renders the work to be of a capital nature.

As it is considered to be of a capital nature, the costs cannot be claimed under subsection 40-755(1) of the ITAA 1997, because subsection 40-760(1) of the ITAA 1997 denies you a deduction for capital expenditure incurred in relation to environmental protection activities where it relates to alteration or improvement to a building structure or structural improvement. Further, subparagraph 40-760(1)(e) of the ITAA 1997 states that you cannot deduct expenditure to the extent that you can deduct an amount for it under a provision of this Act (ITAA 1997) outside this Subdivision (i.e. Subdivision 40-H).

As the air-conditioning units are depreciating assets as defined by subsection 40-30(1) of ITAA 1997, the taxpayer is entitled to claim a deduction for the decline in value of the depreciating asset it held for any time during the income year.

However, as the air-conditioning units were not completely installed and ready for use by 30 June 2011, the taxpayer is not entitled to a deduction under Division 40 of the ITAA 1997 in respect of the air-conditioning units in the 2011 income year. The 2012 income year is the first year the taxpayer is entitled to claim a deduction in respect of these costs. The deduction is equal to the decline in value starting in the 2012 income year.

The Explanatory Memorandum to Taxation Laws Amendment Act (No.5) 1992 which introduced former section 82BM of the ITAA 1936 provides guidance in interpretation of section 40-755 of the ITAA 1997. It defines pollution as:

pollution has its ordinary common sense meaning. Pollution will include contamination by harmful or potentially dangerous substances such as explosive chemicals and greenhouse gases, and will include noise pollution. It will also include contamination by elements which once may not have been considered to be pollutants but which are now so considered because more is now known about their effects, for example asbestos…

For activities in regard to preventing, combating or rectifying pollution of the environment, the Explanatory Memorandum to Taxation Laws Amendment Act (No.5) 1992 states that:

Preventing, combating or rectifying pollution of the environment will not include merely improving the aesthetics of a site, although eyesores are sometimes loosely referred to as visual pollution. It also will not include removing a structure no longer used by the taxpayer. The removal of a redundant structure because it is unattractive or is likely to collapse will not be an environment protection activity. However, if the structure is contaminated or it is removed to enable pollution under it to be rectified, the removal may be an environment protection activity.

As discussed in question 1, the roof was not in need of immediate replacement, as evidenced by the asbestos reports provided where it indicated that the condition of the roof was 'stable'. The taxpayer advised that the only way to resolve the problem, being the health risks to its employees, was to remove the asbestos.

Therefore, in relation to the costs incurred for demolition, asbestos removal, scaffolding and cranage (to the extent that the scaffolding and cranage costs are directly related to the removal of the asbestos laden section of the roof which was replaced), these costs would fall within the expenditure incurred for the sole or dominant purpose of carrying on environmental protection activities, and are deductible under subsection 40-755(1) of the ITAA 1997 for the year ending 30 June 2011.

As the costs described above include GST, then by virtue of section 27-5 of the ITAA 1997, the taxpayer cannot deduct losses or outgoings to the extent that they include an amount relating to input tax credits to which it is entitled to.