Issue
Is the taxpayer's expenditure an amount paid to create or upgrade community infrastructure for a community associated with their project within subparagraph 40-840(2)(d)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The taxpayer's expenditure is an amount paid to create or upgrade community infrastructure for a community associated with their project within subparagraph 40-840(2)(d)(i) of the ITAA 1997.
Facts
The taxpayer's business is managing a transport facility that it owns. An adjacent heavily utilised public road provides access to the facility. It is estimated that most of the traffic on the road uses the road to access the facility. Due to the large number of heavy vehicles using the road and lack of regular maintenance of the road, the road surface was in poor condition.
The taxpayer considered that the road needed to be upgraded to safely service current traffic volumes accessing the facility and to adequately service increased future traffic volumes accessing the facility. As part of the taxpayer's project to improve access to their transport facility by upgrading that road, the taxpayer paid a significant amount of money to the construction group of the relevant state road authority to carry out the necessary road upgrade.
Reasons for Decision
Broadly speaking, section 40-830 of the ITAA 1997 allows a deduction over the project life for project amounts allocated to a project pool.
To be a 'project amount' within subsection 40-840(2) of the ITAA 1997, the amount must be capital expenditure which, among other things, is one of the amounts specified in paragraph 40-840(2)(d) of the ITAA 1997.
In order for the capital expenditure to be a project amount within subparagraph 40-840(2)(d)(i), the amount must be paid to create or upgrade community infrastructure for a community associated with the project.
What is meant by 'community infrastructure'?
As 'community infrastructure' is not a defined term in the ITAA 1997 and there are no extrinsic materials providing any guidance as to its meaning, reference is made to the ordinary meaning of the words.
According to The Butterworths Australian Legal Dictionary (1997), the word 'infrastructure' refers to 'the framework of key facilities which supports communities and their industrial and commercial activities'. More specifically, it states that 'infrastructure' 'comprises communications, transportation systems, electricity generation and distribution, water supply networks, sewerage, roads, housing, schools and universities, health services, entertainment facilities and community support services'. The Australian Oxford Dictionary (1999),Oxford University Press, Melbourne relevantly states that the word 'community' means 'all the people living in a specified locality', 'a specific locality, including its inhabitants', 'a body of people having a religion, a profession, etc., in common ( Melbourne's large Greek community )', and 'a monastic, socialistic, etc. body practising common ownership'.
In Hollow & Kaye v State Planning Authority (1983) 45 LGRA 39 at 45, Wells J commented that the word 'community' has a much wider significance than the word 'locality'. Wells J also commented that whilst in its widest sense the word 'community' could embrace the entire population of a particular State, it could also apply to a much smaller population such as the people residing within a particular locality.
Based on the above, the amount paid to upgrade the public road is an amount paid to create or upgrade community infrastructure.
What is meant by 'for a community associated with the project'?
These words require a broad association between the community and the project. The community may be associated with the project because the project serves that community or that community services the project.
In this case, the taxpayer upgraded a public road (adjacent to their transport facility) which is used by members of the public to access the transport facility and for other purposes.
Based on the above, the public road is community infrastructure for a community associated with the project.
Conclusion
Creating or upgrading community infrastructure for a community associated with the project may be a condition imposed for the project to proceed. However, it is not necessary that the creation or upgrade be obligatory.
In undertaking to pay an amount to upgrade the public road, the taxpayer incurred capital expenditure which is a project amount, being an amount paid to create or upgrade community infrastructure for a community associated with the project within subparagraph 40-840(2)(d)(i) of the ITAA 1997.