ATO ID 2004/138: Capital Works: construction expenditure - house relocation expenses
Date of decision: 2 February 2004
Year of income: Year ended 30 June 2003
Business line: Private Groups and High Wealth Individuals

Issue
Is the expenditure incurred by the taxpayer for relocation activities carried out before placing the moved house on the taxpayer's land construction expenditure as defined in section 43-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. The relocation expenditure incurred by the taxpayer is not construction expenditure as defined in section 43-70 of the ITAA 1997 because it is not expenditure in respect of the construction of capital works.

Facts
In the year ending 30 June 2003, the taxpayer was successful in a tender to purchase and remove a second hand timber house from a block of land. As part of the arrangement the taxpayer was required to pay an amount for clearing the land from which the house had been removed. The taxpayer paid a lump sum to a licensed builder to remove and relocate the house onto the taxpayer's block of land, so that it could be used as a residential rental property. Some of this amount paid was for transporting the house to the new location and police escort during the transportation. The relocated house was subsequently placed on new stumps at the new location, with construction works then carried out to improve the house to a rentable state. The house was available for rent after all of the construction activity was completed.

Reasons for decision
Summary: A deduction under Division 43 of the ITAA 1997 is dependent, among other things, on whether the capital works have construction expenditure. Construction expenditure is capital expenditure incurred in respect of the construction of capital works (subsection 43-70(1) of the ITAA 1997). Subsection 43-70(2) of the ITAA 1997 excludes certain expenditure forming part of the construction expenditure. Some capital works to which Division 43 of the ITAA 1997 applies are a building, an extension, alteration or improvement to a building (subsection 43-20(1) of the ITAA 1997), and structural improvements (subsection 43-20(2) of the ITAA 1997). The expenditure in question is capital in nature. The expenditure on relocating the house to the new location is not expenditure that is part of construction cost of a building, an extension, alteration or improvement to a building. A new building was not constructed, as the previous building still existed and retained its status as capital works to which Division 43 of the ITAA 1997 can apply. (In respect of original construction expenditure of the building, Division 43 of the ITAA 1997 applies to the extent that the requirements of the Division are otherwise met: see ATO ID 2004/137 on Capital Works: application of Division 43 - pre-1979 building - relocation). Cost attributable to the process of moving the building is not construction expenditure in respect of an improvement or alteration to the building. For the purposes of applying Division 43 of the ITAA 1997, the relocation of an existing previously constructed building can not be said to be construction expenditure, and does not result in an alteration or improvement to the building. Accordingly, the capital expenditure incurred on clearing land on which the house formerly stood, transporting the house to the new location, including police escort during the transportation, is not construction expenditure in respect of capital works as defined in section 43-70 of the ITAA 1997. However, the capital expenditure incurred on placing the relocated house on the taxpayer's land, such as constructing the concrete footings and installing new stumps, being an improvement or alteration to a building, is construction expenditure in respect of capital works, as defined in section 43-70 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 43-20(1) subsection 43-20(2) section 43-70 subsection 43-70(1) subsection 43-70(2) Division 43
Related ATO interpretative decisions: ATO ID 2004/136 (withdrawn) | ATO ID 2004/137 | ATO ID 2004/822
Subject references: Buildings Removal & relocation expenses Capital expenditure Construction expenses