Depreciation - Installation costs of petrol storage (bowser) tank

Can a taxpayer, who incurred costs in installing a new petrol storage tank at an income producing property include those costs in the total cost of the plant and equipment upon which a depreciation deduction is calculated under section 42-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The taxpayer can include installation costs in the total cost of petrol storage tank when calculating the depreciation deduction under section 42-15 of the ITAA 1997.

The taxpayer is the part owner of an income producing property that uses a petrol storage tank (also known as a bowser tank). The income producing property is not operated as a partnership.

The taxpayer replaced the leaking petrol storage tank with a new tank because the tank could not be repaired.

The petrol storage tank is part of the petrol delivery system which included the pipes connecting the pumps and the pumps themselves. In replacing the petrol storage tank, the taxpayer incurred installation costs of: • transporting the replacement storage on to the site and installing it; • reconnecting and replacement of some of the pipeworks; and • pressure testing the new systems.

There were no structural alterations to existing buildings and plant to accommodate the replacement tank.

Section 42-15 of the ITAA 1997 allows a deduction for depreciation on plant owned and used, or installed for use, in the production of assessable income.

Taxation Ruling IT 2197 states that installation costs are part of the total cost of the plant and equipment upon which a depreciation deduction is calculated. However, costs incurred in the demolition of existing plant and generally clearing a site for the installation or erection of new plant and equipment is of a capital nature and no income tax deduction will be allowable either to an owner or to a lessee.

Taxation Ruling IT 2398 states that it is not necessary for a taxpayer to have full and complete ownership to be able to claim depreciation on an item of plant. Where depreciable plant is jointly owned or co-owned, but not used in a partnership, each co-owner is entitled to a depreciation deduction according to their respective interest in the plant and the use which is made of the plant.

Consequently, as the taxpayer owned the plant and equipment which is used to produce assessable income, the installation cost is included in the total cost of the plant and equipment upon which a depreciation deduction under section 42-15 of the ITAA 1997 is calculated. Note: Taxation Ruling TR 2000/18 provides the Commissioner's determination for the effective life of a bowser tank.