Issue
Can a taxpayer claim a deduction under section 43-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for construction expenditure incurred in constructing a driveway, at their private residence, which is only used partially for work vehicles?
Decision
No. The taxpayer can not claim a deduction under section 43-10 of the ITAA 1997. In order to claim a deduction under Division 43 of the ITAA 1997 the capital works must be used in a deductible way (that is, to produce assessable income) under section 43-140. If any part of the capital works constitutes part of the home, section 43-170 provides that such capital works are taken not to be used for the purpose of producing assessable income.
Facts
A taxpayer is contracted to a company to drive their heavy duty trucks, prime movers, etc. The taxpayer parks the vehicles at their own residence.
Expenditure was incurred in reinforcing the driveway to accommodate the weight of the vehicles. The company did not contribute to paying the costs incurred in the construction of the driveway.
Prior to the construction of the reinforced driveway, the driveway was gravel which was unusable by the heavy trucks during the winter months due to water and mud and the weight of the vehicles causing bogging. Without the driveway the trucks were left on the street leaving them open to vandalism, theft and council penalties.
The only driveway at the residence runs from the single entrance to the property to the private garage alongside the house.
Reasons for Decision
Division 43 of the ITAA 1997 provides a deduction for capital works attributable to a construction expenditure area that is owned or leased by the taxpayer and used during the income year for the purposes of producing assessable income.
Eligible capital works include buildings begun in Australia after 21 August 1979, and structural improvements, such as sealed driveways, sealed car parks and retaining walls, begun after 26 February 1992 (paragraph 43-20(1)(a) and subsection 43-20(2) of the ITAA 1997).
The table in section 43-140 of the ITAA 1997 provides, that to be used in a deductible way, capital works which began after 30 June 1997 must be used for the purposes of producing assessable income. The driveway will be used to park vehicles used in the business to produce assessable income.
However, if any part of the capital works is used mainly for, or in association with, residential accommodation, including where it constitutes the whole or part of an individual's home, section 43-170 of the ITAA 1997 provides that such capital works are not taken to be used for the purpose of producing assessable income.
Taxation Determination TD 93/21 states that a taxpayer is only entitled to a deduction for improvements at their residential home if the improvements relate to an area which is separate and distinct from the home and set aside for carrying on their business.
A driveway constructed at a taxpayer's private residence is normally considered to be part of the home. In this case, the driveway is not located away from the residential home and will be used partially for private vehicles. The driveway is not considered to be a separate and distinct area from the residential home which is set aside for the production of assessable income. Section 43-170 of the ITAA 1997 therefore applies to the capital works which provides that they are taken not to be used to produce assessable income.
Therefore, no deduction is allowed under Division 43 of the ITAA 1997 for the construction expenditure incurred on these capital works as they do not satisfy the requirement to be used in a deductible way under section 43-140 of the ITAA 1997.