ATO Interpretative Decision

ATO ID 2010/58 (Withdrawn)

Income Tax

Capital Allowances: capital works - construction expenditure - preliminary expense
FOI status: may be released
  • This ATO ID is withdrawn and has been replaced by ATO ID 2014/37 Capital Allowances: capital works - construction expenditure - costs to build temporary roads and restoration costs.
    This document has changed over time. View its history.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the capital expenditure incurred to meet a condition of a building permit, for the construction of holiday cabins, 'construction expenditure' as defined in section 43-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The capital expenditure incurred to meet a condition of a building permit, for the construction of holiday cabins, is 'construction expenditure' as defined in section 43-70 of the ITAA 1997 as the expenditure is incurred in respect of the construction of capital works.

Facts

The taxpayer derived assessable income from providing short-term accommodation in cabins constructed on their land. The cabins are capital works to which Division 43 of the ITAA 1997 applies.

The taxpayer obtained a development approval from the council for the construction of the cabins.

The development approval imposed a condition that the taxpayer construct, at their expense, road access works on public land adjoining the taxpayer's land (the 'condition').

The taxpayer constructed the cabins and incurred capital expenditure on the road access works to meet the development approval condition.

Reasons for Decision

All legislative references are to the Income Tax Assessment Act 1997 unless expressed otherwise.

A deduction for capital works under Division 43 is based on the amount of construction expenditure. 'Construction expenditure' is defined in subsection 43-70(1) as capital expenditure incurred in respect of the construction of capital works. This definition is subject to the exclusions listed at subsection 43-70(2).

Taxation Ruling TR 97/25 identifies certain expenses that are included in construction expenditure. The ruling provides at paragraph 9 that construction expenditure includes preliminary expenses such as architect fees, engineering fees, foundation excavation expenses and costs of building permits. These expenses are accepted as being in respect of the construction of capital works.

In the present case, the development approval is a 'building permit' and the road access works must be completed to meet a condition of the building permit.

The capital expenditure incurred to meet a condition of a building permit is a cost of the building permit and as such is a preliminary expense as described in paragraph 9 of Taxation Ruling TR 97/25.

Date of decision:  3 November 2009

Year of income:  Year ended 30 June 2009

Legislative References:
Income Tax Assessment Act 1997
   Division 43
   section 43-70
   subsection 43-70(1)
   subsection 43-70(2)

Related Public Rulings (including Determinations)
Taxation Ruling TR 97/25

Related ATO Interpretative Decisions
ATO ID 2002/1098
ATO ID 2006/213

Keywords
Capital Allowances CoE
Capital Works Deductions
Construction expenditure area

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  12 March 2010

ISSN: 1445 - 2782

history
  Date: Version:
  3 November 2009 Original statement
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