Capital allowances: installed ready for use - unregistered heavy transport trailers

Is a B-double tipper that has been acquired to undertake a particular haulage contract used or installed ready for use for the purpose of establishing the asset's start time under subsection 40-60(2) of the Income Tax Assessment Act 1997 (ITAA 1997) if it is modified in readiness for the contract work but has not been either registered or used to haul freight?

No. A B-double tipper that has been acquired to undertake a particular haulage contract is not used or installed ready for use for the purpose of establishing the asset's start time under subsection 40-60(2) of the ITAA-1997 if it has been modified in readiness for the contract work but has not been registered or used to haul freight.

The taxpayer carries on a freight haulage business. The taxpayer specifically purchased a B-double tipper (consisting of two trailers) to undertake a particular interstate haulage contract. The taxpayer took delivery of the trailers using temporary plates.

The taxpayer modified the trailers in readiness for the contract work but had not registered the trailers, when the haulage contract was terminated. The taxpayer subsequently sold the trailers and never used them to haul freight.

The Interstate Road Transport Act 1985 (IRTA 1985) prescribes that a trailer such as a B-double tipper used for the carriage of passengers or goods between prescribed places or for any purpose that is incidental to carriage of that kind shall not be driven, or left standing, on a road unless the trailer is registered under the IRTA 1985 or a law of a State.

Broadly, section 40-25 of the ITAA 1997 provides that you can deduct an amount equal to the decline in value for an income year of a depreciating asset that you held for any time during the year. A depreciating asset starts to decline in value from when its start time occurs (subsection 40-60(1) of the ITAA 1997). Subsection 40-60(2) of the ITAA 1997 provides that the start time of a depreciating asset occurs when it is first used, or installed ready for use, for any purpose.

'Used' is a word of wide import and its meaning in any particular case will depend on the context in which the word is employed and the purpose for which the thing in question has been acquired or created (Newcastle City Council v. Royal Newcastle Hospital (1956) 96 CLR 493). In the context of Division 40 of the ITAA 1997, the use of a tangible depreciating asset requires the actual use or employment of the asset in such a way that it can reasonably be expected to decline in value through and over the time of that use (see Taxation Determination TD 2007/5). Putting a depreciating asset in readiness for use for a purpose is not itself to use the depreciating asset for that purpose (Bert Needham Automotive Company Pty Ltd v. FCT (1976) 6 ATR 469; 76 ATC 4249).

In this case, the trailers were acquired for the only purpose of undertaking interstate haulage in accordance with the relevant contract. However, they have not in fact been used for that purpose or for carrying any other freight. While some modifications have been made to make the trailers suitable for carrying the particular freight the taxpayer had contracted to carry, the modifications were only putting the trailers in readiness for use in hauling the particular freight and this of itself does not constitute actual use of the trailers for that purpose. Accordingly, the trailers were not used for the purposes of subsection 40-60(2) of the ITAA 1997.

'Installed ready for use' is defined in section 995-1 of the ITAA 1997 to mean installed ready for use and held in reserve. A depreciating asset is installed ready for use 'when it is on hand and in such a state that it is ready to perform its function'. It is held in reserve 'if it is set aside for future use, upon the happening of some contingency occurring, in the taxpayer's existing income producing activities. In other words to keep back or save for future use in those present income-producing operations' (AAT Case 5877 (1990) 21 ATR 3411; Case X46 90 ATC 378). The taxpayer's only purpose in acquiring the trailers was for a use that requires registration. Therefore until the trailers were registered under the relevant legislation they are not in the state required for them to be ready to perform their function and would not be installed ready for use for the purposes of subsection 40-60(2) of the ITAA 1997.

Therefore, a B-double tipper that has been acquired specifically to undertake a particular interstate haulage contract but has not been either registered or used to haul freight is not used or installed ready for use for the purpose of establishing the asset's start time under subsection 40-60(2) of the ITAA 1997. [Note: The registration of the unused trailers under the relevant legislation in order to affect their sale will not be sufficient to establish that the trailers were installed ready for use for the purposes of paragraph 40-60(2) as the trailers would not be held in reserve (or set aside for future use in the taxpayer's haulage business)].