ATO ID 2004/270: Capital Works: structural improvement - breakwater
Date of decision: 5 March 2004
Year of income: Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004
Business line: Public Groups and International

Issue
Is the taxpayer's breakwater a qualifying structural improvement for the purpose of subsection 43-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The breakwater is a qualifying structural improvement for the purpose of subsection 43-20(2) of the ITAA 1997.

Facts
The taxpayer provides facilities and services within the water transport industry. On 30 June 1992, the taxpayer started constructing a breakwater to improve the effectiveness and efficiency of the facilities and services that it provides. The construction of the breakwater was completed on 30 June 1993. The breakwater was constructed of multiple layers of rock and was specially designed to take into account the particular facilities and services it provides, and the natural elements in which they are provided. The infrastructure attached to the breakwater included several wharves, sand pumping equipment, power lines, a road and a conveyor system. The breakwater was specially designed to take into account particular activities within the harbour.

Reasons for decision
Summary: In Division 43 of the ITAA 1997, the term 'capital works' includes certain structural improvements (or extensions, alterations or improvements to those structural improvements) (subsection 43-20(2) of the ITAA 1997). The term 'structural improvement' is not defined, but some examples of structural improvements to which Division 43 of the ITAA 1997 applies are described in subsection 43-20(3) of the ITAA 1997. Subsection 43-20(4) of the ITAA 1997 also provides some examples of structural improvements to which Division 43 does not apply. The term 'structural' connotes some form of building or construction. The term 'improvement' is not necessarily a qualitative character in the sense that it makes something better in some sense or more valuable. It equally applies to describe an alteration in characteristics ( Case V108 88 ATC 694; AAT Case 4484 (1988) 19 ATR 3691). The design and construction of the breakwater is a complex and sophisticated engineering undertaking. It is not an earthwork of the type set out in subsection 43-20(4) of the ITAA 1997. The breakwater constitutes a structural improvement for the purposes of subsection 43-20(2) of the ITAA 1997 and is of the type described in subsection 43-20(3) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 43-20(2) subsection 43-20(3) subsection 43-20(4)
Case references: Case V108 88 ATC 694
Related ATO interpretative decisions: ATO ID 2003/669 | ATO ID 2001/78 (withdrawn) | ATO ID 2004/269 | ATO ID 2004/271 | ATO ID 2007/142 | ATO ID 2007/160
Subject references: Construction expenditure area Improvement to land Structural improvement expenses