ATO ID 2004/721: Capital Allowances: depreciating asset - cost of connection of pipeline gas
Date of decision: 22 July 2004
Year of income: Year ended 30 June 2002 Year ended 30 June 2003
Business line: Public Groups and International

Issue
Is payment of an amount equal to the cost of connection of pipeline gas a depreciating asset as defined in subsection 40-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. Payment of an amount equal to the cost of connection of pipeline gas is not a depreciating asset as defined in subsection 40-30(1) of the ITAA 1997.

Facts
The taxpayer leased land and a factory (the leased property) from which it conducted its business operations. In order to service the leased property with pipeline gas, the taxpayer entered into an arrangement with a gas company to connect them to the gas company's supply network. In order to connect the taxpayer the gas company had to install gas pipelines, meters and mains (gas works) within the boundaries of the leased property and also extending beyond those boundaries. The taxpayer paid the gas company an amount equal to the cost to the gas company of extending their gas pipeline network to the leased property.

Reasons for decision
Summary: A depreciating asset is defined in subsection 40-30(1) of the ITAA 1997 to be an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used but excludes land, trading stock, and intangible assets except for those listed in subsection 40-30(2) of the ITAA 1997. Payment of an amount equal to the cost of connection of pipeline gas is not for a physical asset or an intangible asset. Nor can it be said to have an effective life. It is unlikely that an asset has started to be held for the purposes of Division 40 of the ITAA 1997. As such, it cannot satisfy the definition of depreciating asset in subsection 40-30(1) of the ITAA 1997. If it were contended, in the alternative, that the asset was the right to have gas supplied to the leased property, it is also considered that such an asset is not a depreciating asset within the definition in subsection 40-30(1) of the ITAA 1997. The right to have gas supplied to the leased property is an intangible asset. However, it is not an intangible asset as listed in subsection 40-30(2) of the ITAA 1997, therefore it is not a depreciating asset for the purposes of Division 40 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 40-30(1) subsection 40-30(2)
Subject references: Capital expenditure Depreciating assets Intangible assets