ATO ID 2003/514: Capital allowances: travel expenses associated with modifying a depreciating asset - second element of cost
Date of decision: 19 May 2003
Year of income: Year ended 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Does capital expenditure incurred by the holder of a depreciating asset in travelling interstate to have a depreciating asset modified, form part of the second element of cost of the asset under subsection 40-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The capital expenditure incurred on an interstate trip to have the depreciating asset modified forms part of the second element of cost under subsection 40-190(2) of the ITAA 1997.

Facts
A taxpayer purchased a motor vehicle overseas and had it imported to Australia. The taxpayer incurred expenditure to travel interstate to have the vehicle modified to comply with Australian standards. The vehicle is used to transport heavy and bulky equipment to worksites as required in the course of the taxpayer's business.

Reasons for decision
Summary: The cost of a depreciating asset consists of both the first and second elements (section 40-175 of the ITAA 1997). The first element of cost is worked out at the time you begin to hold the asset. Generally the first element of cost is the amount paid, or taken to have been paid, to hold the asset (sections 40-180 and 40-185 of the ITAA 1997). The second element of cost is worked out after the taxpayer has begun to hold the asset. This element includes capital expenditure incurred in bringing the asset to its present condition and location (section 40-190 of the ITAA 1997). The costs incurred by the taxpayer in travelling interstate to have the motor vehicle modified are wholly directed at putting the vehicle in a position where it could be used to transport heavy and bulky equipment to work sites in the course of the taxpayer's business. The expenditure has resulted in an improvement to the vehicle's condition, and forms part of the second element of cost under subsection 40-190(2) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 40-175 section 40-190 subsection 40-190(2)
Related ATO interpretative decisions: ATO ID 2002/884 | ATO ID 2002/920 | ATO ID 2003/515 | ATO ID 2003/516
Other references: Guide to Depreciating Assets
Subject references: Cost of a depreciating asset Second element of cost Uniform capital allowances system