ATO ID 2004/254: Capital Allowances: project pools - project amount - feasibility studies
Date of decision: 9 September 2003
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Is the capital expenditure incurred by the taxpayer an amount for feasibility studies for the project they proposed to carry on within subparagraph 40-840(2)(d)(iii) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The taxpayer's capital expenditure is an amount incurred for feasibility studies for the project within subparagraph 40-840(2)(d)(iii) of the ITAA 1997.

Facts
The taxpayer was unsuccessful in a tender for the development of a multimillion dollar mixed-use property. The tender was a central activity in pursuing the taxpayer's project of acquiring, developing, leasing and managing the property for a determinate project life for the purpose of producing rental and associated assessable income. On losing the tender, the taxpayer abandoned the project. The taxpayer had incurred a significant amount of expenditure in engaging external consultants to estimate the design and construction costs of the proposed development. All information provided by the consultants was specific to the property and cannot be used for any other property development.

Reasons for decision
Summary: Broadly, section 40-830 of the ITAA 1997 allows a deduction over the project life or on earlier project abandonment for project amounts allocated to a project pool. To be a 'project amount' as defined in subsection 40-840(2) of the ITAA 1997, the amount must be capital expenditure which, in addition to satisfying paragraphs 40-840(2)(a) to 40-840(2)(c), is one of the amounts specified in paragraph 40-840(2)(d). For the capital expenditure to be a project amount under subparagraph 40-840(2)(d)(iii), the amount must be incurred for feasibility studies for the project. A feasibility study is a process undertaken to gather specific information to analyse and assess technical, financial, economic, market or other viability in order to make an informed decision about the potential success of an activity or series of activities. A feasibility study has pre-determined criteria (such as level of investment, rate of return, operating costs) against which viability is assessed. A feasibility study is 'for the project' if it is commissioned or undertaken by the taxpayer for the purpose of obtaining the required data for the specific project the taxpayer is carrying on or proposes to carry on for a taxable purpose. The work commissioned by the taxpayer constitutes a feasibility study as that work was commissioned to obtain information on a specific aspect of the project the taxpayer proposed to carry on for a taxable purpose. The amount incurred is a 'project amount' under subparagraph 40-840(2)(d)(iii) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 40-830 subsection 40-840(2) paragraph 40-840(2)(d) subparagraph 40-840(2)(d)(iii)
Related ATO interpretative decisions: ATO ID 2003/728
Subject references: Capital Allowances CoE Feasibility study expenses Project amount Project pool Uniform capital allowance system