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Edited version of private advice
Authorisation Number: 1012623424740
Ruling
Subject: shed costs
Question 1
Are you entitled to a capital works deduction for the shed?
Answer
No.
Question 2
Are you entitled to a deduction for a portion of the costs of repairs and maintenance for the shed?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commenced on
1 July 2010
Relevant facts
You live on a property owned by a relation.
You pay board and lodging.
On the property you have built a shed for a workshop. You paid for the materials and fees for the shed.
The shed is used to run your business.
You use a portion of the shed for business related purposes.
You incur costs for the repairs and maintenance of the shed, for example, repairing the guttering on the shed.
The shed was built by yourself and hired tradesmen.
YouS commenced using the shed for your business a few years ago.
You do not lease the shed.
You do not have any written agreement in relation to paying rent for the shed.
The amount of your board and lodging varies depending on the amount of income you earn.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 43
Income Tax Assessment Act 1997 section 25-10
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
Capital works
Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997) provides a deduction for certain capital works. Capital works includes buildings and structural improvements where the property is used for income producing purposes.
A capital works deduction is only available for taxpayers with certain proprietary rights to the capital works. Section 43-110 of the ITAA 1997 explains that a capital works deduction is only available if you own, lease or hold the capital works. No more than one person may be entitled to the deduction in relation to that part of the capital works.
You are not the legal owner of the property or shed. The arrangement you have in relation to the shed is regarded as a private arrangement between you and your relation.
As you do not own, lease or hold the shed, you are not entitled to a capital works deduction under Division 43 of the ITAA 1997.
Please note, as the construction of the shed is regarded as capital works, no deduction for depreciation is allowable under Division 40 of the ITAA 1997.
Repairs and maintenance
Section 25-10 of the ITAA 1997 allows a deduction for the cost of repairs to premises used for income producing purposes, to the extent that the expenditure is not capital in nature. Section 25-10 does not require you to be the owner of the premises to be entitled to a deduction. Fixing the guttering to the shed is regarded as a deductible repair where the shed is being used for income producing purposes.
As the shed is used partly for your business, you are entitled to the relevant portion of the repair costs to the shed. You are there entitled to a deduction for the income producing portion of the repair costs to the shed.
Section 8-1 of the 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.
Where you incur costs for maintaining the shed, you are there entitled to a deduction for the income producing portion of the maintenance costs for the shed.