Taxation Ruling

IT 2244

Income tax : application of division 10d to approved nursing homes

• Please note that the PDF version is the authorised version of this ruling.
  For current capital works provisions, refer to Division 43 of the Income Tax Assessment Act 1997.

FOI status:

May be releasedFOI number: I 1206139

PREAMBLE

The question has been asked whether capital expenditure on either a nursing home, or an approved nursing home, would qualify for deduction pursuant to Division 10D of the Income Tax Assessment Act 1936 ("the Act").

2. Broadly, Division 10D authorises income tax deductions for capital expenditure ("qualifying expenditure") incurred on the construction of property that is either a new building, or an extension, alteration or improvement to an existing building, and which is used for the purpose of producing assessable income. The current rate of deduction is 4 per cent per annum of the amount of the qualifying expenditure.

3. Deductions are not presently allowable under Division 10D for property that is used "wholly or principally for, or in association with, residential accommodation" (paragraphs l24ZF(4)(a) and l24ZG(2)(c) of the Act). However, the Treasurer announced, on 17 July 1985, that this restriction would be removed for residential income-producing property that commenced to be constructed after that date. Legislation to give effect to the Treasurer's announcement is expected to be enacted in the forthcoming Autumn Sittings of the Parliament.

4. A nursing home is defined for the purposes of the National Health Act 1953 as:

"premises -

(a)

that are fitted, furnished and staffed for the purpose of providing accommodation and nursing care for patients who, by reason of infirmity or illness, disease, incapacity or disability have a continuing need for nursing care; and

(b)

in which patients of that kind are received and lodged exclusively for the purpose of providing them with accommodation and nursing care ...".

5. In accordance with the provisions of Part V of the National Health Act 1953 the proprietor of a nursing home may apply to the Minister for Community Services for approval of those premises as an approved nursing home. In general terms, the only circumstances in which a nursing home would not be approved by the Minister would be where the Minister is of the opinion that, in the locality in which the nursing home is situated, there is adequate provision for nursing home care. Consequently, whether a nursing home is an approved nursing home does not affect the functions or use of that nursing home, and therefore will not affect any entitlement to Division 10D deductions that may otherwise be available.

6. The issue for determination is whether the extent to which a nursing home (as defined) is used for the purpose of providing accommodation would exclude the home from the application of Division 10D (on the basis that, in terms of paragraphs l24ZF(4)(a) and l24ZG(2)(c), the home is used primarily for, or in association with, residential accommodation).

RULING

7. While it is not possible to precisely apportion the purposes for which a nursing home is used, it is accepted that generally it is the provision of nursing care, rather than accommodation, that is the predominant feature of a nursing home's operation. Where, however, the provision of nursing care is incidental to the provision of residential accommodation there would be no entitlement to a Division 10D deduction. Factors relevant to determining the issue would include the extent to which the home is fitted, furnished and staffed for the purpose of providing nursing care, having regard to the size of the home and the number of patients.

8. Provided the provision of nursing care is the predominant feature and the other conditions for the application of Division 10D are satisfied, capital expenditure on nursing home buildings commenced to be constructed on or before 17 July 1985 would therefore qualify for the deductions available under that Division. Any nursing home commenced to be constructed after that date would, subject to legislation being enacted in terms of the Treasurer's announcement, qualify for capital expenditure deductions.

9. For the purposes of paragraphs l24ZF(4)(a) and l24ZG(2)(c), it is of course necessary to determine the use to which the particular building, extension, etc is put. Where a new building forms part of a complex of separate buildings, or an extension, etc is made to an existing building, it is not the use of the complex, or of the extended building, as a whole that decides the issue but rather the use of the structure in respect of which qualifying expenditure was incurred. If, for example, a new building were constructed as part of an existing complex and that new building were used solely as a staff residence, the relevant expenditure would not qualify for deduction under Division 10D, even where the rest of the complex was entirely non-residential.

COMMISSIONER OF TAXATION
31 January 1986

References

ATO references:
NO L82/56P4
BO Adel C75 E/1/1

Date of effect:
Immediate

Subject References:
DEDUCTIONS FOR CAPITAL EXPENDITURE ON CERTAIN INCOME PRODUCING BUILDINGS
NURSING HOMES

Legislative References:
DIVISION 10D