Capital Allowances: capital works - construction expenditure - landscaping design

Is the capital expenditure incurred by the taxpayer on a landscaping design 'construction expenditure' as defined in section 43-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The capital expenditure incurred by the taxpayer on a landscaping design is not 'construction expenditure' as defined in section 43-70 of the ITAA 1997 because the expenditure forms part of the expenditure on landscaping which is specifically excluded from 'construction expenditure'.

A severe storm damaged the garden of the taxpayer's rental property. The taxpayer incurred capital expenditure in engaging the services of a landscaping architect to re-design the rental property's garden. The landscaping architect provided the taxpayer with a landscaping design. The taxpayer subsequently carried out the landscaping works according to the landscaping design. Some of the landscaping works carried out were capital works to which Division 43 of the ITAA 1997 applied as they constituted more than earthworks that merely created artificial landscapes.

A deduction under Division 43 of the ITAA 1997 for capital works is dependent, among other things, on whether there is construction expenditure for the capital works.

Construction expenditure is defined in subsection 43-70(1) of the ITAA 1997 as 'capital expenditure incurred in respect of the construction of capital works'.

Taxation Ruling TR 97/25 deals with the operation of Division 43 of the ITAA 1997 and provides at paragraph 9 that construction expenditure includes preliminary expenses such as architect fees, engineering fees, foundation excavation expenses and costs of building permits. These expenses are accepted as being 'in respect of' the construction of capital works.

Subsection 43-70(2) of the ITAA 1997 excludes certain expenditure from 'construction expenditure'. Expenditure on landscaping is so excluded (paragraph 43-70(2)(d)).

For expenditure to be incurred 'on' landscaping, there must be a sufficient connection and close association between the expenditure and the actual landscaping work. It is not limited to expenditure incurred directly on the actual landscaping, but does not extend to expenditure more remote in purpose ( Robe River Mining Co Pty Ltd v. Commissioner of Taxation (1989) 21 FCR 1; 89 ATC 4606; (1989) 20 ATR 768; Pine Creek Goldfields Ltd v. FC of T 99 ATC 4382; (1999) 41 ATR 471; QCT Resources Limited v. FC of T 97 ATC 4432; (1997) 36 ATR 184).

The landscaping design was prepared specifically for the taxpayer's landscaping work, and the taxpayer carried out the landscaping according to the design. The landscaping design was an integral part of the taxpayer's landscaping works. There is a sufficient connection between the expenditure incurred on the landscaping design and the actual landscaping work. Therefore, the expenditure incurred on the landscaping design is part of the expenditure 'on' landscaping. It follows that the expenditure incurred on the landscaping design is not 'construction expenditure' as defined in section 43-70 of the ITAA 1997.

Date of Amendment Part Comment 19 April 2018 Reason for Decision and Related Public Rulings (including Determinations) Remove references to Taxation Ruling TR 2002/1 (withdrawn effective from 12 April 2017). 12 December 2014 Reason for Decision Remove reference to ITAA 1997 Related Public Rulings Include reference to Taxation Ruling TR 2002/1

Date of Amendment | Part | Comment

19 April 2018 | Reason for Decision and Related Public Rulings (including Determinations) | Remove references to Taxation Ruling TR 2002/1 (withdrawn effective from 12 April 2017).

12 December 2014 | Reason for Decision | Remove reference to ITAA 1997

Related Public Rulings | Include reference to Taxation Ruling TR 2002/1