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Edited version of your written advice
Authorisation Number: 1012762842422
Ruling
Subject: Balancing charge deduction for Capital Works
Question 1
Is the balancing adjustment on a demolished swimming pool and pool fencing deductible immediately in the current year?
Answer
Yes.
Question 2
Is the cost of filling in the hole and turfing the area an immediate deduction?
Answer
No.
Question 3
Is the cost of filling in the hole and turfing the area included in the cost base of the property?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant document is:
• Private ruling application.
You have an above ground swimming pool at your rental property that was partially dug into the ground and had the necessary pool fencing safety requirements.
You have been claiming the items in the rental property under the capital works provisions at a rate of 2.5% in your tax returns.
The swimming pool had started to rust in some areas and was becoming unsafe and had to be demolished. The pool fencing has also been removed and discarded.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 43-40
Income Tax Assessment Act 1997 Section 43-140
Income Tax Assessment Act 1997 Section 43-250
Income Tax Assessment Act 1997 Subsection 110-25(5)
Reasons for decision
Section 43-40 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a taxpayer to immediately deduct, in the income year in which the capital works was destroyed, the amount of construction expenditure that has not yet been deducted, provided the conditions in section 43-40 are met.
The conditions are:
1. you have been allowed, or can claim, a deduction under this Division
2. there is an amount of undeducted construction expenditure for your area
3. you were using your area in the way that applies to it under Table 43-140 (Current year use) immediately before the destruction.
These conditions have been met in your case therefore an immediate deduction is allowable in the current year. The deduction is recorded under the area of the normal Capital Works deduction in the rental property schedule along with claims that would be being made up until the demolition.
Any costs associated with the bob cat hire, dirt and turf to fill the hole left by the demolition of the swimming pool are not deductible as they are of a capital nature. The cost is not one that the capital works deduction would apply to as, it is specifically excluded by paragraph 43-20(4)(b) of the ITAA 1997.
The expense would be included in the cost base of the property for capital gains tax purposes under the fourth element as capital expenditure incurred to increase or preserve the value of the CGT asset [subsection 110-25(5) of the ITAA 1997].