ATO Interpretative Decision
ATO ID 2004/822 (Withdrawn)
Income tax
Capital works: Construction expenditure - owner/builder travelling expenditureFOI status: may be released
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This ATO ID is withdrawn. This ATO ID no longer reflects the current ATO view.This document has changed over time. View its history.
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 expenditure incurred by an owner/builder in travelling between home and the construction site of a rental property 'construction expenditure' as defined in subsection 43-70(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The travelling expenditure is not construction expenditure as defined in subsection 43-70(1) of the ITAA 1997 as the expenditure is not incurred in respect of the construction of capital works.
Facts
The taxpayer is a qualified civil engineer who purchased a house and subsequently relocated the house.
The taxpayer engaged individual tradesmen and builders to carry out some construction works to improve the house to a rentable condition.
During the construction period, the taxpayer travelled between home and the construction site in order to manage and supervise the work of the tradesmen and builders.
The house was available for rent after all of the construction activity was completed.
The construction works are capital works to which Division 43 of the ITAA 1997 applies.
Reasons for Decision
A deduction under Division 43 of the ITAA 1997 for capital works is dependent, among other things, on whether there is construction expenditure for the capital works. Construction expenditure is defined in subsection 43-70(1) of the ITAA 1997 as 'capital expenditure incurred in respect of the construction of capital works'.
In this case, the travelling expenditure is capital in nature. However, to be construction expenditure, the expenditure must be incurred in respect of the construction of the capital works.
The context of the words 'in respect of the construction of capital works' in subsection 43-70(1) of the ITAA 1997 provides little guidance as to the intended meaning. However, the Explanatory Memoranda to the Bills (Income Tax Assessment Bill (No. 2) 1980 and Income Tax Assessment Bill 1983) which inserted former Divisions 10C and 10D into the Income Tax Assessment Act 1936, state that construction costs include such preliminary expenses as architects' fees, engineering fees and the cost of foundation excavations.
This interpretation is consistent with the discussion of construction expenditure in Taxation Ruling TR 97/25. TR 97/25 added that some portion of indirect costs, such as the cost of facilities for construction workers, may be included in construction expenditure.
The types of construction expenditure mentioned in the Explanatory Memoranda and in TR 97/25 are all costs incurred in the actual constructing of capital works.
In this case, the purpose of incurring the travelling expenditure was to enable the taxpayer to get to the construction site. While at the construction site, the taxpayer managed and supervised the work of the tradesmen and builders. However, as the expenditure was not incurred by the taxpayer in actually constructing the capital works, it was not incurred 'in respect of the construction of the capital works'.
As the travelling expenditure was not incurred in respect of the construction of capital works, the expenditure is not construction expenditure as defined in subsection 43-70(1) of the ITAA 1997.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 21 November 2014 | Reason for Decision | Insert the word "former" when referring to Division 10C or 10D. |
Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Division 43
subsection 43-70(1)
Related Public Rulings (including Determinations)
Taxation Ruling TR 97/25
ATO ID 2002/1098
ATO ID 2004/137
ATO ID 2004/138 ATO Interpretative Decisions overturned by this decision
ATO ID 2004/136
Other References:
Explanatory Memorandum to Income Tax Assessment Bill (No. 2) 1980
Explanatory Memorandum to Income Tax Assessment Bill 1983
Keywords
Buildings
Removal & relocation expenses
Construction expenses
Travelling expenses
ISSN: 1445-2782
| Date: | Version: | |
| 10 September 2004 | Original statement | |
| 21 November 2014 | Updated statement | |
| You are here | 23 February 2018 | Archived |
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