ATO ID 2003/820: Capital Allowances: bowling greens constructed from natural materials
Date of decision: 25 August 2003
Year of income: Year ended 30 June 2003
Business line: Private Groups and High Wealth Individuals

Issue
Can a taxpayer deduct an amount under either Division 43 or Subdivision 40-B of the Income Tax Assessment Act 1997 (ITAA 1997) for capital expenditure incurred in the construction of a bowling green from natural materials?

Decision
No. The taxpayer cannot deduct an amount under either Division 43 or Subdivision 40-B of the ITAA 1997 for capital expenditure incurred in the construction of a bowling green from natural materials.

Facts
The taxpayer is a sporting club and constructed a bowling green from natural materials.

Reasons for decision
Summary: In order to deduct an amount for the bowling green constructed from natural materials under Division 43 of the ITAA 1997, the bowling green must first be a capital work to which Division 43 of the ITAA 1997 applies. Subsection 43-20(2) of the ITAA 1997 provides that Division 43 of the ITAA 1997 applies to capital works being structural improvements begun after 26 February 1992. Subsection 43-20(3) of the ITAA 1997 gives some examples of those structural improvements. In particular, paragraph 43-20(3)(a) of the ITAA 1997 lists sealed roads, sealed driveways, sealed car parks, sealed airport runways, bridges, pipelines, lined road tunnels, retaining walls, fences, concrete or rock dams and artificial sports fields as examples of structural improvements. Further, subsection 43-20(4) of the ITAA 1997 provides that Division 43 of the ITAA 1997 does not apply to certain structural improvements. In particular, paragraph 43-20(4)(b) of the ITAA 1997 excludes structural improvements being earthworks that merely create artificial landscapes, for example, grass golf course fairways and greens, gardens, and grass sports fields. In the Explanatory Memorandum that accompanied the introduction of Division 10D of the Income Tax Assessment Act 1936 (ITAA 1936), an antecedent of Division 43 of the ITAA 1997, paragraph 9.21 makes the following statement: 'Also excluded are artificial landscapes such as grass golf fairways and greens, grass sports fields such as bowling greens, ovals etc. and gardens.' Hence, a bowling green constructed from natural materials would be within paragraph 43-20(4)(b) of the ITAA 1997. Therefore, a bowling green constructed from natural materials is not a capital work to which Division 43 of the ITAA 1997 applies. Consequently, an amount cannot be deducted under Division 43 of the ITAA 1997 for this type of bowling green. In order to deduct an amount for the bowling green constructed from natural materials under Subdivision 40-B of the ITAA 1997, the bowling green must first satisfy the definition of a depreciating asset in section 40-30 of the ITAA 1997. That definition requires, amongst other things, that the asset have a limited effective life and that it can reasonably be expected to decline over the time it is used. A bowling green constructed from natural materials is permanent (assuming it is maintained in reasonably good order and condition) and it can be economically maintained in reasonably good order and condition for an indefinite period. Therefore, the bowling green constructed from natural materials does not have a limited effective life and it would not reasonably be expected to decline over time. Consequently, an amount cannot be deducted under Subdivision 40-B of the ITAA 1997 for this type of bowling green because it does not satisfy the definition of a depreciating asset in section 40-30 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 Subdivision 40-B section 40-30 subsection 40-30(1) Division 43 section 43-20 subsection 43-20(2) subsection 43-20(3) subsection 43-20(4)
Related ATO interpretative decisions: ATO ID 2003/821
Subject references: Construction expenditure area Uniform capital allowances system