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Edited version of your private ruling
Authorisation Number: 1012513283222
Ruling
Subject: Upgrading electricity supply
Question 1
Will you be entitled to a deduction for the full cost of upgrading an electricity supply in the year in which the upgrade is performed?
Answer
No.
Question
Will you be entitled to a deduction for a portion of the cost of upgrading an electricity supply in the year ended 30 June 2014?
Answer
Yes.
This ruling applies for the following period
Year ending 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts and circumstances
You are considering purchasing a property.
You will use the property to carry on a business.
A building is currently located on the property and connected to the electricity supply.
To operate the business the electricity supply will need to be increased.
To increase the supply the electricity supplier will install a padmount transformer on the property.
The transformer will be the electricity supplier's asset but you are required to pay for its installation.
The metering point for your business will be on the building.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 40-645
Income Tax Assessment Act 1997 Section 40-655
Reasons for decision
Summary
You are entitled to a deduction for the cost of increasing the supply of electricity to the property under section 40-645 of the Income Tax Assessment Act 1997 (ITAA 1997). The deduction is to be spread over a ten year period.
Detailed reasoning
Section 40-645 of the ITAA 1997 allows you to claim a deduction for capital expenditure you incur on connecting power to land if, when you incur the expenditure,
(a) you have an interest in the land, and
(b) you or another entity intend to use some or all of the electricity to be supplied as a result of the expenditure in carrying on a business on the land or for a taxable purpose at the time when you have an interest in the land.
The deduction is spread over a period of ten income years.
To determine if you will be entitled to claim a deduction for the capital expenditure incurred in connecting power to land, we will examine each component of section 40-645 of the ITAA 1997 and its application to your situation.
Do you have an interest in the land?
You will purchase the land prior to the installation of the padmount transformer. As the owner of the land you have an interest in the land.
Are you carrying on a business on the land for a taxable purpose?
You will carry on a business with the intent to make a profit. It is accepted that this activity will be operated for a taxable purpose.
Are you connecting power to the land?
Subsection 40-655(1) of the ITAA 1997 states that each of the following operations is considered to be connecting power to land
(a) work to increase the amount of electricity that can be supplied through a mains electricity cable to a metering point on the land
(b) work to modify or replace equipment designed to measure the amount of electricity supplied through a mains electricity cable to a metering point on the land, if the modification or replacement results from increasing the amount of electricity supplied to the land, and
(c) work to modify or replace equipment for use directly in connection with the supply of electricity through a mains electricity cable to the land, if the modification or replacement results from increasing the amount of electricity supplied to the land.
A metering point on land is defined in subsection 40-655(3) of the ITAA 1997 as a point where the consumption of electricity supplied to the land through a mains electricity cable is measured.
In your case, the electricity supplier will install a padmount transformer on your land. This will result in an increase in the amount of electricity supplied to the land. The metering point will be located on your land.
As the padmount transformer and metering point will be located on your land, a deduction will be allowable, for the cost of increasing the electricity supply to the land, under section 40-645 of the ITAA 1997.
Deduction
The amount you can deduct is 10% of the expenditure for the financial year in which you incur it. You may claim 10% of the expenditure incurred in each of the next nine financial years provided you have an interest in the land in the financial year in which you claim the deduction and are using the land to carry on a business for a taxable purpose in that year.