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Sub-section 51(1) precludes from allowing as a deduction expenditure on items, inter alia, of capital or of a capital nature ( Sun Newspapers v FC of T (1939) 61 CLR 337, 1 AITR 403). Plant would normally be included in this category of expenses and therefore any underlying expenditure is not deductible under the section.

Sub-section 54(1) allows depreciation on any property, being plant or articles owned by the taxpayer which during the year of income has been either: a) used by the taxpayer for the purpose of producing assessable income; or b) installed ready for use for that purpose and held in reserve.

From 1 July 1991, section 54A allows the taxpayer to make an estimate of the effective life of depreciable property acquired after 12 March 1991. Furthermore, under subsection 55(2), if the effective life of the property is less than 3 years, or the initial cost does not exceed $300, the depreciation rate is 100% for plant acquired after 1 July 1991, unless the taxpayer nominates a depreciation rate of less than 100%. (The new depreciation provisions, including factors pertinent to the issue of determining the effective life of a unit of property, applicable to the 1991/92 and subsequent financial years are discussed in detail in IT 2685).

Subsection 59(2A) provides for adjustment to assessable income on the disposal, loss or destruction of depreciable property by way of balancing charge. The section is complementary to the operation of section 54 and applies only to the property (plant or articles) to which section 54 has been applied.

Subsection 59(1) provides that where depreciable property is disposed of, lost or destroyed any time in the year of income the amount by which the consideration receivable is less than the property's depreciated value shall be an allowable deduction in that year of income. In effect, in some circumstances (see Example 1), the taxpayer can claim as an allowable deduction 100% of the cost of plant in the year of income. One part of this deduction would be deductible under section 54 (i.e. depreciation) and the other under section 59 (i.e. balancing charge).

For the plant to be disposed of or destroyed there must be a physical disposal which demonstrates that use of that plant in the future is not possible ( Henty House Pty Ltd v FC of T (1953) 88 CLR 141, 10 ATD 231; 14 CTBR (NS) Case 71, (1968) 18 TBRD Case No T63 ). If plant purchased for a specific project is held by the taxpayer after the project has been completed and is able to be used again, the requirements of section 59 are not met and section 54 could still apply.

The fact that the cost of depreciable property had been charged to the client and included in the taxable income of the taxpayer is irrelevant for deciding the deductibility of the expense incurred on acquisition of that property. An expenditure can only be allowed as a tax deduction when it conforms to the provisions of the Act governing its deductibility. The character of the expenditure should never be confused with the character of the receipt associated with that expenditure ( GP International Pipecoaters Pty Ltd v FC of T 90 ATC 4413, 21 ATR 1).