ATO Interpretative Decision
ATO ID 2002/884
Income Tax
Division 40: Cost - transportation expenses of a depreciating assetFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 expenditure on meals, fuel and accommodation incurred by the holder of a depreciating asset in transporting the asset to the holder's place of business a second element of the asset's cost pursuant to section 40-190 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes, the expenditure is a second element cost of the depreciating asset under section 40-190 of the ITAA 1997.
Facts
The taxpayer commenced a transport business and, for the purpose of the business, ordered a transport vehicle from a supplier located in another State. The taxpayer travelled, at no cost, to the other State to take delivery of the vehicle but incurred expenditure on meals, fuel and accommodation in transporting the vehicle from the dealer's location to the taxpayer's place of business.
Reasons for Decision
The cost of a depreciating asset consists of two elements - first and second elements (section 40-175 of the ITAA 1997).
First element costs are those a taxpayer incurs to start holding the asset. This element includes the acquisition price of the asset (sections 40-180 and 40-185 of the ITAA 1997).
Second element costs are worked out after a taxpayer starts to hold the asset. This element includes additional costs incurred to bring the asset to its current condition and location (section 40-190 of the ITAA 1997).
The costs incurred by the taxpayer were wholly directed to putting the vehicle in a position where it could be used to carry on the taxpayer's business of transportation and were incurred after the taxpayer started to hold the asset. The costs in question satisfy the concept of second element costs and are not dissimilar to delivery charges that are often paid by a purchaser of goods to a supplier.
The vehicle was the first to be acquired by the taxpayer and was the substantive asset of the business. In all these circumstances, the costs are considered to be of a capital nature and, therefore, not otherwise excluded from second element costs (section 40-220 of the ITAA 1997)
Date of decision: 7 August 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 40-175
section 40-180
section 40-185
section 40-190
section 40-220
Related Public Rulings (including Determinations)
Taxation Ruling IT 2197
Keywords
Depreciating assets
Division 40
Cost of a depreciating asset
First element of cost
Second element of cost
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 7 August 2002 | Original statement |
| 21 November 2014 | Archived |