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Edited version of your written advice
Authorisation Number: 1051324279604
Date of advice: 4 January 2018
Ruling
Subject: Income Tax – Instant Asset Write-off
Question
Can the instant asset write-off be claimed in relation to the farm shed?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2018
The scheme commences on:
1 July 2017
Relevant facts and circumstances
You own a property on which you carry on a farming business.
Your aggregated turnover for the 2018 income year will be less than $10 million.
The shed will be built on the farm during the 2018 income year.
The shed will be used in carrying on the farming business. It will not be used for domestic or residential purposes.
The shed will cost less than $20,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 328-180
Income Tax Assessment Act 1997 Subsection 328-175(2)
Income Tax Assessment Act 1997 Section 40-45
Income Tax Assessment Act 1997 Section 43-10
Income Tax Assessment Act 1997 Section 43-70
Income Tax Assessment Act 1997 Paragraph 45-40(1)(c)
Reasons for decision
All the legislative references that follow are to the Income Tax Assessment Act 1997.
A Small Business Entity (SBE) can choose to deduct amounts for its depreciating assets under Subdivision 328-D rather than the general depreciation provisions contained in Division 40.
You are a SBE as you carry on a business and have an aggregated turnover of less than $10 million. Therefore, you may be able to claim amounts for depreciating assets under Subdivision 328-D.
Subdivision 328-D contains section 328-180 which allows for an immediate deduction for the business portion of assets that cost less than a certain threshold. For the 2018 income year the threshold is $20,000.
Subsection 328-175(2) states that Subdivision 328-D will not apply where section 40-45 operates to make a capital work deductible under Division 43 rather than under Division 40.
Subsection 40-45(2) ensures that depreciating assets that are capital works are not deductible under both Division 40 and 43. It does this by excluding from Division 40 those capital works for which an amount can, or could be deducted under Division 43.
Section 43-10 of the ITAA 1997 provides a deduction for certain 'construction expenditure' incurred in respect of the construction of capital works such as buildings or structural improvements, including any extensions, alterations, or improvements to buildings or structural improvements.
Subsection 43-70(1) of the ITAA 1997 defines 'construction expenditure' as capital expenditure incurred in respect of the construction of capital works. However, paragraph 43-70(2)(e) specifically excludes expenditure on 'plant' from being construction expenditure. As a result no deduction is allowed for such expenditure under Division 43.
Paragraph 45-40(1)(c) extends the meaning of 'plant' to include structural improvements on land used for agricultural or pastoral operations other than those used for domestic or residential purposes.
In this case the farm shed is a structural improvement according to ordinary concepts and is constructed on land used for agricultural or pastoral operations, but not for domestic and residential purposes. The farm shed meets the extended definition of 'plant' in paragraph 45-40(1)(c) of the ITAA 1997 (see Willeroo & Manbulloo Ltd v. Federal Commissioner of Taxation (1964) 111 CLR 336; 13 ATD 356; (1964) 9 AITR 424). As this is the case, the expenditure on constructing the farm shed will be excluded from the definition of construction expenditure for the purposes of Division 43.
It follows that the farm shed is not a capital work to which Division 43 applies. This means section 40-45 of the ITAA 1997 does not apply to the expense on a farm shed, and the decline in value of the depreciating asset (the farm shed) is deductible under Division 40.
However, as you are a SBE, you can choose to claim amounts for depreciating assets under Subdivision 328-D. As the farm shed will start to be used, or will be installed ready for use, for a taxable purpose during the 2018 income year and will cost less than $20,000, you can claim the taxable purpose proportion of the cost of the farm shed. That is, if the farm shed will be used solely to carry on the farming business, an immediate deduction is allowable for the entire cost of the shed.