ATO Interpretative Decision
ATO ID 2002/706
Income Tax
Rental property - Deduction for removal of shed constructed of asbestosFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 taxpayer entitled to claim a deduction under section 40-755 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in the demolition and removal of a rental property shed constructed of asbestos?
Decision
Yes. The taxpayer is entitled to a deduction under section 40-755 of the ITAA 1997 for expenses incurred in the demolition and removal of a rental property shed constructed of asbestos as it is an eligible environmental protection activity.
Facts
The taxpayer owned a rental property.
A shed constructed of asbestos situated on the property became a potential health risk to the tenants after storm damage caused the asbestos sheeting to become friable.
The taxpayer incurred expenses in demolishing and removing the shed. The expenses were incurred on or after 30 June 2001.
Reasons for Decision
Section 8-5 of the ITAA 1997 provides that a specific deduction is allowed for an amount that is made deductible under another provision.
Section 12-5 of the ITAA 1997 lists those provisions which allow specific types of deductions. Contained in this list is section 40-755 of the ITAA 1997 which deals with deductions for environmental protection activities.
Section 40-755 of the ITAA 1997 allows a deduction for expenditure, including expenditure of a capital nature, incurred on or after 30 June 2001 by taxpayers for the sole or dominant purpose of carrying on eligible environmental protection activities.
These activities are the preventing, fighting or remedying of pollution (which includes contamination of the environment by harmful or such potentially dangerous substances as asbestos) in the circumstances specified in paragraph 40-755(2)(a) of the ITAA 1997. Also included are activities in treating, cleaning up, removing or storing of waste in the circumstances specified in paragraph 40-755(2)(b) of the ITAA 1997. The pollution or waste must be of, on or from a site on which the taxpayer carried on, carries on, or proposes to carry on an activity for the purpose of producing assessable income.
Demolishing and removing the shed which was situated on a property that is used to produce assessable income constitutes an eligible environmental protection activity.
The environmental protection provisions are provisions of last resort. Paragraph 40-760(1)(e) of the ITAA 1997 provides that if a deduction for environmental protection activities is allowable under another provision of the ITAA 1997, the expenditure is not deductible under section 40-755 of the ITAA 1997.
Non-capital expenditure incurred on repairs to plant or to premises held or used for the production of assessable income is specifically made deductible under section 25-10 of the ITAA 1997. However, the demolition and removal of the shed does not qualify as a repair for the purposes of section 25-10 of the ITAA 1997 as the work does not remedy or makes good defects in, or damage to, or deterioration (in a mechanical or physical sense) of, the rental property. A repair contemplates the continued existence of the property (paragraph 13 of Taxation Ruling 97/23).
Likewise, the expenses incurred in demolition and removal of a shed constructed of asbestos are not deductible under the general deduction provision of section 8-1 of the ITAA 1997 as the expenses are of a capital nature.
As there is no other provision of the ITAA 1997 under which a deduction for the expenses is allowable, the taxpayer is entitled to a deduction under section 40-755 of the ITAA 1997 for the costs of demolition and removal of the shed as it is an eligible environmental protection activity.
Date of decision: 7 May 2002Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 8-1
section 8-5
section 12-5
section 25-10
section 40-755
paragraph 40-755(2)(a)
paragraph 40-755(2)(b)
paragraph 40-760(1)(e)
Related Public Rulings (including Determinations)
Taxation Ruling TR 97/23
Keywords
Environmental protection expenses
Rental expenses
Repairs & maintenance expenses
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 7 May 2002 | Original statement |
| 28 May 2004 | Archived |