Issue
Is expenditure on meals, fuel and accommodation incurred by the holder of a depreciating asset in transporting the asset to the holder's place of business a second element of the asset's cost pursuant to section 40-190 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No, the expenditure is a first element cost of the depreciating asset under section 40-180 of the ITAA 1997.
Facts
The taxpayer commenced a transport business and, for the purpose of the business, ordered a transport vehicle from a supplier located in another State. The taxpayer travelled, at no cost, to the other State to take delivery of the vehicle but incurred expenditure on meals, fuel and accommodation in transporting the vehicle from the dealer's location to the taxpayer's place of business.
Reasons for Decision
The cost of a depreciating asset consists of two elements - first and second elements (section 40-175 of the ITAA 1997).
First element costs are those a taxpayer incurs to start holding the asset. This element includes the acquisition price of the asset (sections 40-180 and 40-185 of the ITAA 1997).
Second element costs are worked out after a taxpayer starts to hold the asset. This element includes additional costs incurred to bring the asset to its current condition and location (section 40-190 of the ITAA 1997).
The costs incurred by the taxpayer were wholly directed to putting the vehicle in a position where it could be used to carry on the taxpayer's business of transportation and were incurred by the taxpayer as he started to hold the asset. The costs in question satisfy the concept of first element costs and are not dissimilar to delivery charges that are often paid by a purchaser of goods to a supplier.
The vehicle was the first to be acquired by the taxpayer and was the substantive asset of the business. In all these circumstances, the costs are considered to be of a capital nature and, therefore, not otherwise excluded from first element costs (section 40-220 of the ITAA 1997)
Amendment History
Date of Amendment Part Comment 21 November 2014 Decision Changed decision to no, and changed legislative reference to section 40-180 of the ITAA 1997 Reasons for Decision Change reference to first element of cost and grammar used.
Date of Amendment | Part | Comment
21 November 2014 | Decision | Changed decision to no, and changed legislative reference to section 40-180 of the ITAA 1997
Reasons for Decision | Change reference to first element of cost and grammar used.