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Edited version of your written advice
Authorisation Number: 1012864673561
Date of advice: 21 August 2015
Ruling
Subject: Decline in value deductions - aircraft
Question 1
To the extent the aircraft is used for taxable and non-taxable purposes, is an apportionment of decline in value deductions based on flight time an appropriate methodology for determining the proportion of taxable purpose to non-taxable purpose?
Answer
Yes.
Question 2
For the purposes of the definition of "days held" in subsection 40-70(1) of the Income Tax Assessment Act 1997, are the days the plane is not flown but held available for use included in the number of days held?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
The scheme commences on
1 July 2014
Relevant facts and circumstances
As part of your employment duties you are required to travel interstate.
The travel relates to visiting clients and promoting your employer's business.
You have purchased an aircraft to undertake some of this travel.
The plane will be used for both work related and private purposes.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 40-25
Income Tax Assessment Act 1997 Section 40-70
Reasons for decision
Apportionment of decline in value between taxable and non-taxable purposes
Section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) allows you to deduct an amount equal to the decline in value for an income year of a depreciating asset that you held for any time during the year.
Where the asset is used for both taxable (generally work related) purposes and non-taxable purposes, the amount of decline in value must be apportioned between the two purposes. Only the amount attributable to the taxable purpose is deductible.
Apportionment of the decline in value between taxable and non-taxable purposes must be on a fair and reasonable basis.
An aircraft is a depreciating asset. The Commissioner accepts that it is fair and reasonable to apportion the decline in value of an aircraft between taxable and non-taxable purposes using the flight time for each trip.
Calculation of number of days held
The decline in value of a depreciating asset, acquired on or after 10 May 2006, for an income year is calculated as:
Base value * (days held / 365) * (200% / asset's effective life)
Days held is defined in section 40-70 of ITAA 1997 as
the number of days you held the asset in the income year from its start time, ignoring any days in that year when you did not use the asset, or have it installed ready for use, for any purpose.
Section 40-70 of the ITAA 1997 was introduced by the New Business Tax System (Capital Allowances) Bill 2001. Paragraph 1.90 of the Explanatory Memorandum to the Bill discusses the calculation of the number of days you held the asset
1.990 The days held component of the prime cost and diminishing value formulas refers to the number of days during the income year that the taxpayer held the depreciating asset up until the time a balancing adjustment event occurs in respect of that asset … This component ensures that the total amount by which an assets value can be written-off for an income year is reduced where, for example, the asset is acquired or disposed of during the year, or where the taxpayer permanently stops using the asset but continues to hold it. These are events that end or suspend the decline of the asset, because it is neither being used nor held ready for use when they occur. The kind of use a taxpayer makes of an asset affects deductions, but not decline, and is discussed in paragraph 1.10.
The days the aircraft is not flown can be included in calculating the deduction for its decline in value provided that on those days it was available for use and you had not permanently stopped using the plane.