ATO ID 2004/253: Capital Allowances: project pools - project amount - feasibility studies - information
Date of decision: 15 October 2003
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Is the taxpayer's expenditure to acquire the results of a feasibility study, commissioned by another entity for that entity's project, a project amount within paragraph 40-840(2)(d) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The taxpayer's expenditure is a project amount within paragraph 40-840(2)(d) of the ITAA 1997 because it is an amount incurred to obtain information associated with the taxpayer's project within subparagraph 40-840(2)(d)(v) of the ITAA 1997.

Facts
The taxpayer proposed to carry on a project for a taxable purpose on a particular block of land. Another entity had earlier commissioned a feasibility study for the same type of project on the same land. The taxpayer incurred expenditure to obtain from that entity the results of that feasibility study. The documents obtained by the taxpayer from the other entity included a research report which indicated the suitability of the land for the taxpayer's project and financial modelling and an evaluation which could be applied for the taxpayer's project. The taxpayer used that information in carrying on their project.

Reasons for decision
Summary: Broadly speaking, section 40-830 of the ITAA 1997 allows a deduction over the project life for project amounts allocated to a project pool. To be a project amount within subsection 40-840(2) of the ITAA 1997, an 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 subparagraphs 40-840(2)(d)(i) to 40-840(2)(d)(vii). The amount specified in subparagraph 40-840(2)(d)(iii) is an amount incurred for feasibility studies for the project. The amount specified in subparagraph 40-840(2)(d)(v) is an amount incurred to obtain information associated with the project. | Detailed Reasoning - Project Amount - Feasibility Studies: For an amount incurred for a feasibility study to fall within subparagraph 40-840(2)(d)(iii) of the ITAA 1997, the feasibility study must be one specifically commissioned or undertaken by the taxpayer for the very project they are carrying on or proposing to carry on. A feasibility study commissioned or undertaken by another taxpayer for a project that entity was carrying on or proposing to carry does not meet the requirements of the subparagraph for this taxpayer. Accordingly, the capital expenditure is not a 'project amount' within subparagraph 40-840(2)(d)(iii) for this taxpayer. | Detailed Reasoning - Project Amount - Information: The taxpayer incurred the expenditure to obtain the information contained in the feasibility study and that information is directly associated with the taxpayer's project. Accordingly, the capital expenditure is a 'project amount' within subparagraph 40-840(2)(d)(v) of the ITAA 1997 for this taxpayer.

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) subparagraph 40-840(2)(d)(v)
Subject references: Capital Allowances CoE Feasibility study expenses Project amount Project pool Uniform capital allowance system