ATO Interpretative Decision

ATO ID 2003/77

Capital Allowances

Capital works: apartment buildings: short-term accommodation for travellers
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Can a taxpayer qualify for the 4% rate of deduction under section 43-145 of the Income Tax Assessment Act 1997 (ITAA 1997) if they own only one apartment in an apartment building that is used for short-term accommodation for travellers?

Decision

No. A taxpayer must own or lease at least ten apartments in the same building or complex that are used wholly to provide short-term accommodation for travellers to be eligible for the 4% rate of deduction as contained in the table in section 43-145 of the ITAA 1997.

Facts

A taxpayer acquired an apartment in an apartment building. The apartment building contains more than ten apartments and its construction commenced after 30 June 1997. The taxpayer entered into an arrangement with the managers of the apartment building to manage and let the apartment out solely to short-term travellers or holiday makers during the 2002 income year. The apartment is rented (or available for rent) on a commercial basis at all times.

Reasons for Decision

To qualify for the 4% rate of deduction, the area (apartment) must be used in the '4% manner' as specified in the table in section 43-145 of the ITAA 1997. Table 43-145 provides that the apartment must be used for the purpose of producing assessable income, and the building will need to consist of at least ten apartments designed to provide short-term accommodation for travellers. In other words, the apartments are to be used wholly for the accommodation of travellers and be intended to be available to the public for daily or weekly hire.

Where there is more than one owner of apartments in a building or complex, the 4% rate of deduction will be limited to taxpayers who own or lease at least ten such apartments that are used wholly to provide short-term accommodation for travellers.

The taxpayer purchased a single apartment in an apartment building containing more than ten apartments. The apartment is used wholly to provide short-term accommodation for travellers. However, as the taxpayer does not own or lease at least ten such apartments in the same building, they are not using the apartment in the 4% manner pursuant to section 43-145 of the ITAA 1997, and therefore do not qualify for the 4% rate of deduction.

Note: the basic rate of deduction of 2.5% is available pursuant to subsection 43-25(1) of the ITAA 1997.

Date of decision:  13 December 2002

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   subsection 43-25 (1)
   section 43-145

Keywords
Building depreciation
Capital expenditure
Construction costs
Construction expenditure area
Deductions & expenses
Traveller accommodation construction expenses
Capital Allowances

Business Line:  Finance & Investment Centre of Expertise

Date of publication:  15 March 2003

ISSN: 1445-2782

history
  Date: Version:
You are here 13 December 2002 Original statement
  6 May 2005 Archived

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