Compare documents

Is a deduction for depreciation of the items listed below, which are affixed to a rental property, available under section 42-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. A depreciation deduction is not available under section 42-15 of the ITAA 1997 because none of the items are considered to be 'plant'.

The taxpayer owns a rental property within a unit complex which is rented or available for rent on a commercial basis at all times. The taxpayer wants to claim depreciation deductions in respect of certain items affixed to the property on the basis that the items are 'plant' for depreciation purposes. The items are: • Distribution and switch gear (various electrical components to distribute, meter and control the usage of power) • Aluminium letterbox (mounted to the front wall of the property and within a bank of letter boxes) • Cable tray (mounted to the building as a support system for cabling) • Fire hydrant and booster valves (water inlet and distribution entry point) • Fire hose reel (plumbed in and mounted to the building) • Fire separation doors • Light fittings and shades (mounted to the building surface including dome lights, cast aluminium bunk lights and flush mounted tungsten halogen downlights) • Emergency lighting (battery operated emergency) • Signage (various including noticeboards, location of fire safety equipment, exit areas and common facilities fixed to the building) • Bollards (steel posts set in concrete)

Section 42-15 of the ITAA 1997 allows a deduction for depreciation of a unit of plant that is owned and used for the purpose of producing assessable income.

Plant is defined in section 42-18 of the ITAA 1997 to include articles and machinery. A fundamental factor to consider in determining whether a particular item is a unit of plant is the function it performs. To be plant, the item must be more than mere setting for the taxpayer's operation ( Macquarie Worsteds Pty Ltd v. F C of T 74 ATC 4121; 4 ATR 334).

All the items form part of the 'fabric of the building' and are an integral part of the structure of the building. Their nature and degree of affixation to the building supports the view that none of the items are articles. On a functional analysis, it could not be said that any of the items' operation is sufficiently mechanical in nature for them to be viewed as machinery. They are no more than setting.

On this basis, the items are not plant and, therefore, not depreciable under section 42-15 of the ITAA 1997. However, a capital works deduction in respect of the items is available under Division 43 of the ITAA 1997.