ATO ID 2002/846: Deduction for the cost of installing waste treatment system
Date of decision: 16 July 2002
Year of income: Year ended 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Is the cost of installing a waste treatment (septic) system deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. The cost of installing a waste treatment system is not deductible under section 8-1 of the ITAA 1997.

Facts
The taxpayer, an individual, is a joint owner of a property on which cattle are bred and fattened. A septic system was installed to manage effluent disposal on the property. The source of the effluent is the waste water from the toilets, kitchen, laundry and bathroom of the private residence located on the property.

Reasons for decision
Summary: Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowed to the extent that the losses or outgoings are of a capital, private or domestic nature or are incurred in gaining or producing exempt income. The test of deductibility under section 8-1 of the ITAA 1997 is that 'it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income' ( Ronpibon Tin NL and Tongkah Compound NL v. FC of T (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431). The septic system is for the treatment of effluent from the taxpayer's private residence. The expenditure is not incidental and relevant to the gaining of assessable income. Nor has the expenditure been necessarily incurred in carrying on a business. Therefore, the expenditure is not deductible under section 8-1 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 8-1
Case references: Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 4 AITR 263 (1949) ATD 432.
Subject references: Deductions & expenses Individual taxpayers Partnerships Primary production expenses