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Can capital expenditure on structural improvements to a building on a farming property provided to employees qualify for a deduction for capital works under Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No, the expenditure on structural improvements for a building on a farming property provided to an employee would be capital expenditure on plant as defined in section 45-40 of the ITAA 1997 and would, therefore, be excluded from a deduction under Division 43 of the ITAA 1997.

The taxpayer owns a farming property which has a disused old house that is being renovated for use as accommodation for employees engaged in the farming activities.

Section 43-10 of the ITAA 1997 provides a deduction for certain 'construction expenditure' incurred in respect of the construction of capital works such as buildings or structural improvements, including any extensions, alterations, or improvements to buildings or structural improvements.

Subsection 43-70(1) of the ITAA 1997 defines 'construction expenditure' as capital expenditure incurred in respect of the construction of capital works. However, paragraph 43-70(2)(e) of the ITAA 1997 specifically excludes expenditure on 'plant' from being construction expenditure. As a result no deduction is allowed for such expenditure under Division 43.

Paragraph 45-40(1)(c) of the ITAA 1997 extends the meaning of plant to include structural improvements on land used for agricultural or pastoral operations other than those used for domestic or residential purposes. However Paragraph 45-40(1)(f) of the ITAA 1997 specifically includes those structural improvements as plant even though they are used for domestic or residential purposes if they are provided for employees engaged in or in connection with the agricultural or pastoral activities.

As the structural improvements, including the building, are for use as accommodation for employees engaged in the agricultural or pastoral operations they are plant within the definition. The expenditure on the renovations is, therefore, expenditure on plant and is excluded from deduction under Division 43 of the ITAA 1997.

Date of Amendment Part Comment 27 February 2015 Related ATO Inerpretative Decisions Included related ATO ID.

Date of Amendment | Part | Comment

27 February 2015 | Related ATO Inerpretative Decisions | Included related ATO ID.