The purpose of the new ruling is to assist taxpayers in understanding the meaning of the phrase ‘alteration, extension or improvement’ in the context of Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997) to enable a taxpayer to determine whether there is an extension, alteration or improvement for the purposes of the capital works deductions.
This in turn may have implications for the deductibility of those expenses under another provision of the ITAA 1997. For instance, the ruling is intended to provide a seamless explanation to complement the ATO view on the meaning of repairs as set out in Taxation Ruling TR 97/23 Income tax: deductions for repairs.
The issues we are in the process of considering include:
- the meaning of the phrase ‘alteration, extension or improvement’ for the purposes of Division 43 of the ITAA 1997.
- the interaction between this aspect of Division 43 of the ITAA 1997 and:
- subsection 40-45(2) of the ITAA 1997, which excludes from Division 40 of the ITAA 1997 those capital works for which an amount can or could be deducted under Division 43 of the ITAA 1997, or
- section 40-760 of the ITAA 1997, which provides that a deduction for environmental protection expenditure is not available under section 40-755 for capital expenditure for constructing an extension, alteration or improvement to a building, structure or structural improvement or expenditure to the extent it can be deducted under a provision other than subdivision 40-H of the ITAA 1997.
- the difference between a ‘repair’ for the purposes of sections 8-1 and 25-10, and an ‘alteration, extension or improvement’ for the purposes of Division 43 of the ITAA 1997.
We are seeking your views
At this early stage, we are scoping the proposed new tax ruling and seek your views on:
- Whether the ruling (and any other alternative product) should cover any additional circumstances.
- Potential consequential impacts on other ATO views that may need to be considered
- From a practical point of view, what factors make it difficult to apportion costs between a repair and an alteration, extension or improvement, where the work undertaken encompasses both aspects?
Forward your comments by cob 15 April 2016
[ATO website] [LTN 32, 18/2/16]