Deductibility of capital expenditure incurred in reinstalling an overhead powerline underground.

Is the taxpayer entitled to deduct over 10 years expenditure incurred in reinstalling an overhead powerline underground under subdivision 387E of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The taxpayer is not entitled to deduct expenditure over 10 years under subdivision 387E of the ITAA 1997 as there was no increase in the amount of electricity transmitted by the reinstalled powerline.

The taxpayer owns a rural property on which primary production activities are carried on. The taxpayer is seeking to expand the 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 single phase overhead powerline is to be replaced by a single phase underground powerline. There will be no increase in capacity in the amount of electricity that is transmitted to the property as a result of this work.

Primary Producers are entitled to deduct capital expenditure over ten years under subdivision 387E of the ITAA 1997 when: • Electricity is connected to the property for the first time. • Expenditure has been incurred to upgrade the capacity of an existing connection to the property.

The taxpayer has replaced an existing overhead powerline with an underground powerline of the same capacity. The taxpayer is not upgrading the capacity of the powerline or connecting electricity to the property for the first time.

The capital expenditure incurred in putting the powerline underground will not qualify to be deducted over 10 years under Division 387E of the ITAA 1997.