ATO Interpretative Decision
ATO ID 2003/673
Income Tax
Capital Works: shipping channel - separate construction expenditure areasFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Are multiple construction expenditure areas created, pursuant to subsection 43-75(6) of the Income Tax Assessment Act 1997 (ITAA 1997), within a single project that is designed to increase the commercial capacity of a shipping channel?
Decision
Yes. Multiple expenditure areas are created, pursuant to subsection 43-75(6) of the ITAA 1997 because the project undertakes the construction of separate capital works.
Facts
The taxpayer undertook a project that was generally designed to increase the commercial capacity of a shipping channel (the channel). The significant features of the channel are a 'main channel' (a body of water that connects points of the channel to each other), a 'berthing pocket' (a section of the channel immediately adjacent to a wharf that can accommodate fully laden marine craft berthed at low tide) and a 'swing basin' (a circular facility to allow marine craft to turn 180 degrees). The project was undertaken in sections with each section involving a particular aspect (for example: deepening, widening or extending) of each channel feature and was carried out over a considerable period of time.
Reasons for Decision
You can deduct an amount for capital works for an income year if, among other things, the capital works have a construction expenditure area (subsection 43-10(1) and paragraph 43-10(2)(a) of the ITAA 1997).
It is accepted that the project work on the channel's significant features constitute structural improvements that are capital works (subsection 43-20(2) of the ITAA 1997) (see ATO ID 2003/669 on Capital Work:- shipping channel- structural improvement) and that construction expenditure (as defined in section 43-70 of the ITAA 1997) has been incurred in respect of the capital works.
Identifying the construction expenditure area depends on the particular facts of each case. This is of practical importance for a number of reasons, including that the construction of capital works must be complete before the construction expenditure area is determined (subsection 43-75(4) of the ITAA 1997), and a deduction is not available before the completion of construction of the capital works even though the works may be used before completion (section 43-30 of the ITAA 1997). 'Construction expenditure area', is defined in subsection 43-75(1) of the ITAA 1997. In particular, a separate construction expenditure area is created each time an entity undertakes the construction of capital works (subsection 43-75(6)).
While all of the capital works are part of a broader project, each section of the project is a separate construction expenditure area. The nature and extent of each section is different, each section is physically located at different sites; each feature of the channel, although complementary with each other, has a distinct function or operation; and each section was undertaken at a different time and for a different period.
Date of decision: 22 May 2003Year of income: Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
paragraph 43-10(2)(a)
subsection 43-20(2)
subsection 43-30
subsection 43-70
subsection 43-75(1)
subsection 43-75(4)
subsection 43-75(6)
ATO ID 2003/669
ATO ID 2003/670
ATO ID 2003/671
ATO ID 2003/672
Keywords
Structural improvement expenses
Capital allowances CoE
Construction expenditure area
ISSN: 1445-2782