ATO ID 2002/1098: Consultants fee in relation to building an investment property
Date of decision: 11 November 2002
Year of income: Year ended 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Is the taxpayer entitled to a capital works deduction under section 43-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for a consultant fee in relation to building an investment property?

Decision
Yes. The taxpayer is entitled to deduct an amount for capital works under section 43-10 of the ITAA 1997 for a consultant fee in relation to building an investment property.

Facts
The taxpayer engaged the services of a consultant in building an investment property. The consultant fee related to the services of the consultant in holding discussions and negotiations regarding the property, providing supervision during construction, reporting to and liaising with the taxpayer and ensuring the property was completed to the required standard and within budget.

Reasons for decision
Summary: Section 43-10 of the ITAA 1997 provides a deduction of an amount for capital works in respect of certain 'construction expenditure' incurred in respect of the construction of capital works. Section 43-20 of the ITAA 1997 recognises three categories of capital works: The building of the investment property qualifies as capital works under section 43-20 of the ITAA 1997. Section 43-70 of the ITAA 1997 defines 'construction expenditure' as capital expenditure in respect of the construction of capital works. Taxation Ruling TR 97/25 deals with the operation of Division 43 and provides at paragraph 9 that construction expenditure includes preliminary expenses such as architect fees, engineering fees, foundation excavation expenses and costs of building permits. These expenses are accepted as being in respect of the construction of capital works. Given the tasks that the consultant is required to perform, it is considered to be similar in character to those costs accepted as preliminary expenses forming part of the construction expenditure. The consulting service is an integral part of the taxpayer's investment property project and is sufficiently related to the actual construction of the building itself as to form part of the construction expenditure. Consequently, the taxpayer is entitled to a deduction of an amount for capital works under section 43 of the ITAA 1997 for the consultant fee in relation to building an investment property.

Legislative references: Income Tax Assessment Act 1997 Division 43 section 43-10 section 43-20 section 43-70
Related public rulings and determinations: Taxation Ruling TR 97/25
Subject references: Construction costs Consulting fee expenses Landlord expenses Rental expenses Newly constructed buildings and structures Capital Allowances