Edited version of your private ruling

Authorisation Number: 1012530355745

Ruling

Subject: security system

Question 1

Is the superfund entitled to a deduction for an alarm and CCTV system installed at the trustee's home?

Answer

No.

Question 2

Is the superfund entitled to a deduction for the repairs to the alarm?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

An entity owns some assets.

The assets are kept in a room at the trustee's home.

The entity paid for an alarm system and CCTV system to be installed at the home. The system covers the main entrance and exit of the home as well as the door and window of the room where the assets are kept. The remaining windows of the home are not covered by the security system.

The sole purpose of installing the alarm and CCTV system was for the protection of the assets.

The entity also incurred costs for repairing the alarm.

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.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or are 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, or a provision of the ITAA 1997 prevents it.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

· it must have the essential character of an outgoing incurred in gaining

assessable income or, in other words, of an income-producing expense

(Lunney v. FC of T; (1958) 100 CLR 478 (Lunney's case)),

· there must be a nexus between the outgoing and the assessable income so

that the outgoing is incidental and relevant to the gaining of assessable

income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and

· it is necessary to determine the connection between the particular outgoing

and the operations or activities by which the taxpayer most directly gains or

produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v.

FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

Section 25-10 of the ITAA 1997 allows a deduction for the cost of repairs to premises or a depreciating asset held or used for the purpose of producing assessable income, to the extent that the expenditure is not capital in nature.

Taxation Ruling TR 95/13 outlines allowable deductions for police officers. TR 95/13 states that a deduction is not allowable for the cost of installing a security system at a police officers residence, as it is both a capital and a private expense. Although this ruling relates to police officers, the principles are relevant in the entity's circumstances.

Normally, expenses associated with a person's home are private or domestic in nature, and therefore do not qualify as an allowable deduction (Handley v. FC of T 81 ATC 4165; (1981) 11 ATR 644; and FC of T v. Forsyth 81 ATC 4157; (1981) 11 ATR 657). However, where the home is used for income producing activities and has the character of a 'place of business', a deduction may be allowable for a portion of 'occupancy expenses' such as insurance and 'running expenses' such as electricity charges for lighting (Taxation Ruling TR 93/30). If the home is used in connection with the taxpayer's 'income producing activities', but does not constitute a 'place of business', only a proportion of the running expenses are allowable.

Security systems installed in a commercial building are generally an allowable deduction. However installation of such equipment in a home is generally regarded as being installed to protect the property. As such the expense is not an allowable deduction. The fact that the assets are stored in a room of the house does not mean that the deduction is allowable. There is generally insufficient connection between such expenses and the earning of assessable income.

In Case T20, 86 ATC 211, the costs incurred by a Family Court judge in improving the security of his home on the advice of the Intelligence Service were held to be capital expenditure, and also expenditure of a private or domestic nature, and thus not deductible.

The predominant purpose of a security system installed on a home is to increase home security and as such is considered private and domestic in nature. For this not to be the case there would have to be an overwhelming connection between the security system and the earning of assessable income. The entity owns some valuable assets. Although we appreciate that the security system increases the security of these assets, there is not a sufficient nexus between the earning of assessable income and the security system. Therefore the entity is not entitled to a deduction under section 8-1 of the ITAA 1997.

The repairs to the alarm system are also not an allowable deduction, as the alarm is not held or used for the purpose of producing assessable income.

Division 40 of the ITAA 1997 allows a deduction for the decline in value of a depreciating asset to the extent that the asset is used for a taxable purpose. A taxable purpose is the purpose of producing assessable income. The alarm and CCTV are regarded as depreciating assets. However, as the installation of the security system at your residence is considered a private expense and not sufficiently relating to the derivation of assessable income a deduction for the decline in value is likewise not allowable.

It is acknowledged that the entity installed the alarm and security system to protect its assets, however, as outlined above, the legislation does not allow a deduction for the associated expenses. The fact that this room may not be used for other purposes does not change the above.