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Ruling
Subject: Depreciation of air conditioner
Question 1
Is the cost of labour to install a replacement air conditioner able to be claimed immediately?
Answer
No.
Question 2
Does the cost of labour to replace an air conditioner form part of the cost of the depreciating asset?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You are the owner of a rental property.
You will be replacing an air conditioner in the rental property. The air conditioner consists of a unit inside the house, and an external unit, connected with refrigerant tubing.
You will have to pay to have the new air conditioner installed and will incur labour costs.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 40-25
Income Tax Assessment Act 1997 Subsection 40-30(1)
Reasons for decision
Decline in value
Section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) allows you to deduct from your assessable income an amount equal to the decline in value of a depreciating asset to the extent that it is used to produce assessable income or installed ready for use for that purpose.
A depreciating asset is an asset that has a limited effective life and can be expected to decline in value over the time it is used (subsection 40-30(1) of the ITAA 1997).
An air conditioner is a depreciating asset.
Of relevance in your situation is that the asset must be installed ready for use. This means that the total cost, including labour, is part of the depreciating asset. Until the air conditioner is installed ready for use it is not possible to deduct an amount for the decline in value of the air conditioner.
The cost of the air conditioner unit and the labour form part of the whole depreciating asset and a deduction is allowable for the decline in value at the rate applicable.