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Edited version of private advice
Authorisation Number: 1052235257673
Date of advice: 22 March 2024
Ruling
Subject: Rental deductions - capital works levy
Question
Are you entitled to a deduction for the special levy paid to the capital works fund?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You have a rental property.
During the relevant financial year, the property was available for rent and rented for the full financial year.
In addition to normal body corporate fees charged, as a result of a special meeting a Special Levy for the Capital Works fund has been imposed for you to pay as an owner.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
The general deduction provisions of the tax law are contained in section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) which provides that you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing assessable income or is necessarily incurred in carrying on a business for that purpose. An outgoing that is private, domestic, or capital in nature cannot be deducted under the provisions of section 8-1 of the ITAA 1997.
The courts have previously determined that to satisfy the requirements of section 8-1 of the ITAA 1997:
• an expense must have the essential character of an outgoing incurred in gaining assessable income (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166), and
• there must be a sufficient connection (nexus) between the outgoing and the gaining of assessable income (Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236).
Generally, an outgoing that is not private or domestic will satisfy these tests if it is related to the earning of assessable income. However, if the outgoing is capital in nature, it cannot be deducted under section 8-1 of the ITAA 1997, even though it may have a connection with the activities which produce a taxpayer's assessable income.
The special levy you paid to the capital works fund is not deductable as it relates to capital works.
Therefore, you are not able to claim a deduction under section 8-1 of the ITAA 1997.