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Is the taxpayer entitled to claim a deduction for expenditure incurred in reinstalling an overhead powerline underground under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The taxpayer is not entitled to claim a deduction for reinstalling the powerline underground as the expense is capital in nature. Capital expenses are not deductible under paragraph 8-1(2)(a) of the ITAA 1997.

The taxpayer owns a rural property on which primary production activities are carried on. The taxpayer is seeking to expand the primary production activities carried on. To do this it will be necessary to place an overhead powerline underground.

Under the arrangement with the electricity provider, if the taxpayer wants the powerline placed underground, the taxpayer will be responsible for any expenses incurred.

The electricity transmitted by the line is used partly for business and partly for private purposes.

The reinstallation of an overhead powerline underground would be regarded as capital expenditure.

According to the decision in British Insulated & Helsby Cables Ltd v. Atherton [1926] AC 205 if an enduring benefit is gained then the expenditure is to be regarded as being capital. Placing the overhead powerline underground is a once only expense and the taxpayer has gained an enduring benefit as a result of incurring this expenditure.