ATO Interpretative Decision

ATO ID 2003/17 (Withdrawn)

Income Tax

• This ATO ID is withdrawn and has been replaced by TR 2020/2 Income tax: deductions for expenditure on environmental protection activities.
  This document has changed over time. View its history.

Issue

Is the taxpayer entitled to a deduction under subsection 40-755(1) of the Income Tax Assessment Act 1997 (ITAA 1997) for vegetating an area used in their income earning activities for the purposes of providing a visual effect and preventing erosion?

Decision

No. The taxpayer is not entitled to a deduction for the cost of vegetating an area under subsection 40-755(1) of the ITAA 1997, as the expenditure is not in relation to an eligible environmental protection activity.

Facts

The taxpayer constructed a roadway for the purpose of using it for their income earning activities.

In the course of that construction, the taxpayer incurred expenditure in vegetating the area beside the roadway.

The dominant purpose of vegetating the area was the achievement of a visual effect. A significant other purpose was the prevention of erosion.

Reasons for Decision

Subsection 40-755(1) of the ITAA 1997 provides a deduction for expenditure incurred for the sole or dominant purpose of carrying on environmental protection activities.

'Environmental protection activities' is defined in subsection 40-755(2) of the ITAA 1997 to include preventing, fighting or remedying pollution that relates to a taxpayer's income earning activity.

The term 'pollution' is not defined in the ITAA 1997. However, the explanatory memorandum (EM) to Taxation Laws Amendment Act (No. 5) 1992, which introduced former section 82BM of the Income Tax Assessment Act 1936 (ITAA 1936) states that 'pollution has its ordinary common sense meaning'. Section 82BM of the ITAA 1936 was the predecessor to section 40-755 of the ITAA 1997.

The EM makes it clear that 'visual pollution' is not pollution for the purposes of the income tax legislation. The EM states that 'although eyesores are sometimes loosely referred to as visual pollution, pollution does not include merely presenting an unattractive or unappealing appearance'.

It is acknowledged that, in some environmental protection legislation, there are statutory definitions of pollution which extend the meaning of the term in that legislation beyond the ordinary meaning. For example, regulation 2(2) of the Clean Waters Act 1970 (NSW) prescribes what pollutants are for the purpose of the definition of pollution in that Act and includes 'inorganic matter of any description'.

It was held in both Van Son v. Forestry Commission (NSW) (1995) 86 LGERA 108; (1995) 6 BPR 13,945; [1995] Aust Torts Reports 81-333 and Environmental Protection Authority v. Taylor Woodrow (Australia) Pty Ltd (1997) 101 LGERA 226 that for the purposes of the Clean Waters Act, the washing of earth into water did constitute pollution. Also, it was held in Environmental Protection Authority v. Munters Pty Ltd (1998) 98 LGERA 279 that, for the purposes of Clean Waters Act, any change in the physical condition of water constituted pollution.

It is accepted that, for the purposes of such environmental protection legislation, the deposition of sedimentation into waterways as a result of erosion would constitute pollution. However, there is no reason to accept that the statutory definition of pollution in such non-tax related legislation should be preferred over the clear explanation of the term in the EM.

The EM further states that:

Pollution will include contamination by harmful or potentially dangerous substances such as explosive chemicals and greenhouse gases, and will include noise pollution. It will also include contamination by elements which once may not have been considered to be pollutants but which are now so considered because more is now known about their effects, for example asbestos and CFCs.

The Australian Oxford Dictionary 1999, Oxford University Press, Australia defines 'pollute' as to 'contaminate or defile (the environment)'; 'make foul or filthy'; 'destroy the purity or sanctity of'.

The ordinary meaning of pollution was considered in Palos Verdes Estates Pty Ltd v. Carbon (1991) 6 WAR 223; (1991) 72 LGRA 414, where it was held that the term pollution in section 49 of the Environmental Protection Act 1986 (WA) had its ordinary meaning, and that this was 'physically impure foul or filthy', and that this ordinary meaning did not include the mere alteration to the environment by clearing land of trees and vegetation, and cutting through sand dunes.

The conclusion from consideration of the authorities is that: (i) the ordinary meaning of 'pollution' is limited to some sort of contamination, and (ii) an adverse change to the environment not due to contamination is not pollution. It follows that the mere erosion of sediment, by water or wind, does not cause pollution as that term is used in the ITAA 1997.

The taxpayer has incurred expenditure on vegetating an area used in their income earning activities. The purpose of incurring the expenditure was to provide a visual effect and to prevent erosion. Neither of those purposes qualifies as preventing, fighting or remedying pollution and is therefore not an eligible environmental protection activity. Accordingly, the taxpayer is not entitled to a deduction under subsection 40-755(1) of the ITAA 1997 for the cost of vegetating the area.

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-755
   subsection 40-755(1)
   subsection 40-755(2)

Case References:
Van Son v. Forestry Commission (NSW)
   (1995) 86 LGERA 108
   6 BPR 13,945
    [1995] Aust Torts Reports 81-333

Other References:
Explanatory Memorandum to Taxation Laws Amendment Act No 5 1992
Australian Oxford Dictionary 1999, Oxford University Press, Australia

Keywords
Environmental protection activities
Environmental protection expenses

Siebel/TDMS Reference Number:  3288688

Business Line:  Public Groups and International

Date of publication:  14 February 2003

ISSN: 1445-2782