ATO Interpretative Decision

ATO ID 2003/514

Income Tax

Capital allowances: travel expenses associated with modifying a depreciating asset - second element of cost
FOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Does capital expenditure incurred by the holder of a depreciating asset in travelling interstate to have a depreciating asset modified, form part of the second element of cost of the asset under subsection 40-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The capital expenditure incurred on an interstate trip to have the depreciating asset modified forms part of the second element of cost under subsection 40-190(2) of the ITAA 1997.

Facts

A taxpayer purchased a motor vehicle overseas and had it imported to Australia. The taxpayer incurred expenditure to travel interstate to have the vehicle modified to comply with Australian standards. The vehicle is used to transport heavy and bulky equipment to worksites as required in the course of the taxpayer's business.

Reasons for Decision

The cost of a depreciating asset consists of both the first and second elements (section 40-175 of the ITAA 1997).

The first element of cost is worked out at the time you begin to hold the asset. Generally the first element of cost is the amount paid, or taken to have been paid, to hold the asset (sections 40-180 and 40-185 of the ITAA 1997).

The second element of cost is worked out after the taxpayer has begun to hold the asset. This element includes capital expenditure incurred in bringing the asset to its present condition and location (section 40-190 of the ITAA 1997).

The costs incurred by the taxpayer in travelling interstate to have the motor vehicle modified are wholly directed at putting the vehicle in a position where it could be used to transport heavy and bulky equipment to work sites in the course of the taxpayer's business. The expenditure has resulted in an improvement to the vehicle's condition, and forms part of the second element of cost under subsection 40-190(2) of the ITAA 1997.

Date of decision: 19 May 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-175
   section 40-190
   subsection 40-190(2)

Related ATO Interpretative Decisions
ATO ID 2002/884
ATO ID 2002/920
ATO ID 2003/515
ATO ID 2003/516

Other References:
Guide to Depreciating Assets

Keywords
Cost of a depreciating asset
Second element of cost
Uniform capital allowances system

Siebel/TDMS Reference Number: 3472653; 1-5FDG1MA; 1-AX3FWU7

Business Line: Private Groups and High Wealth Individuals

Date of publication: 4 July 2003
Date reviewed: 10 March 2017

ISSN: 1445-2782

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