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Can the taxpayer start to deduct, under subsection 40-830(2) of the Income Tax Assessment Act 1997 (ITAA 1997) an amount for project amounts allocated to a project pool before the project starts to operate?

No. The taxpayer cannot start to deduct an amount under subsection 40-830(2) of the ITAA 1997 for project amounts they allocate to a project pool until the project starts to operate.

The taxpayer had identified with some certainty a project they proposed to carry on for a taxable purpose over a determinate period. The taxpayer was required to lodge a development permit application with supporting material to the local government authority for approval to proceed with their project. Prior to receiving that approval, the taxpayer incurred capital expenditure that was a project amount within subsection 40-840(2) of the ITAA 1997. The amount was allocated to a project pool.

Broadly, section 40-830 of the ITAA 1997 allows a deduction over the project life of a project for project amounts allocated to a project pool. Project life is worked out by estimating how long it will be from when the project starts to operate until it stops operating (section 40-845 of the ITAA 1997).

Some projects within the ambit of subsection 40-840(2) of the ITAA 1997 consist of two stages: a preparatory stage (a setting up stage) and an operational stage (when the taxpayer carries on activities for a taxable purpose). Such projects start at the beginning of the preparatory stage. They start to operate at the beginning of the operational stage. This means that the time when a project starts may be earlier than the time when the project starts to operate.

A deduction for project amounts allocated to a project pool is based on project life (section 40-830 of the ITAA 1997) and becomes available for the first income year when the project starts to operate (section 40-855 of the ITAA 1997). As mentioned above, project life is worked out by reference only to the period of the operational stage of the project.

As the taxpayer's project has not yet reached an operational stage, the taxpayer cannot start deducting amounts under subsection 40-830(2) of the ITAA 1997.