Issue
Is the taxpayer entitled to claim a deduction under section 40-755 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in the demolition and removal of a rental property shed constructed of asbestos?
Decision
Yes. The taxpayer is entitled to a deduction under section 40-755 of the ITAA 1997 for expenses incurred in the demolition and removal of a rental property shed constructed of asbestos as it is an eligible environmental protection activity.
Facts
The taxpayer owned a rental property.
A shed constructed of asbestos situated on the property became a potential health risk to the tenants after storm damage caused the asbestos sheeting to become friable.
The taxpayer incurred expenses in demolishing and removing the shed. The expenses were incurred on or after 30 June 2001.
Reasons for Decision
Section 8-5 of the ITAA 1997 provides that a specific deduction is allowed for an amount that is made deductible under another provision.
Section 12-5 of the ITAA 1997 lists those provisions which allow specific types of deductions. Contained in this list is section 40-755 of the ITAA 1997 which deals with deductions for environmental protection activities.
Section 40-755 of the ITAA 1997 allows a deduction for expenditure, including expenditure of a capital nature, incurred on or after 30 June 2001 by taxpayers for the sole or dominant purpose of carrying on eligible environmental protection activities.
These activities are the preventing, fighting or remedying of pollution (which includes contamination of the environment by harmful or such potentially dangerous substances as asbestos) in the circumstances specified in paragraph 40-755(2)(a) of the ITAA 1997. Also included are activities in treating, cleaning up, removing or storing of waste in the circumstances specified in paragraph 40-755(2)(b) of the ITAA 1997. The pollution or waste must be of, on or from a site on which the taxpayer carried on, carries on, or proposes to carry on an activity for the purpose of producing assessable income.
Demolishing and removing the shed which was situated on a property that is used to produce assessable income constitutes an eligible environmental protection activity.
The environmental protection provisions are provisions of last resort. Paragraph 40-760(1)(e) of the ITAA 1997 provides that if a deduction for environmental protection activities is allowable under another provision of the ITAA 1997, the expenditure is not deductible under section 40-755 of the ITAA 1997.
Non-capital expenditure incurred on repairs to plant or to premises held or used for the production of assessable income is specifically made deductible under section 25-10 of the ITAA 1997. However, the demolition and removal of the shed does not qualify as a repair for the purposes of section 25-10 of the ITAA 1997 as the work does not remedy or makes good defects in, or damage to, or deterioration (in a mechanical or physical sense) of, the rental property. A repair contemplates the continued existence of the property (paragraph 13 of Taxation Ruling 97/23).
Likewise, the expenses incurred in demolition and removal of a shed constructed of asbestos are not deductible under the general deduction provision of section 8-1 of the ITAA 1997 as the expenses are of a capital nature.
As there is no other provision of the ITAA 1997 under which a deduction for the expenses is allowable, the taxpayer is entitled to a deduction under section 40-755 of the ITAA 1997 for the costs of demolition and removal of the shed as it is an eligible environmental protection activity.