Alcoa of Australia Ltd
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2008/0670)
Judgment date: 16 December 2008
Date published: 21 May 2009
Decision outcome: Decision under review set aside and remitted to Commissioner to allow objection to private ruling

Summary of decision:
Whether expenses incurred on replacement of a refrctory in an anode bake furnace were allowable deductions for repairs or were instead capital incurred on replacement of an entirety.

Overview of facts:
This case concerned expenses incurred on the replacement of the entire "refractory" (comprising all internal refractory bricks and insulating material) and the "exhaust gas manifold" in an "anode bake furnace" at the applicant's aluminium smelter. The Commissioner issued a private ruling that these expenses were for the replacement of an "entirety" and thus capital and not deductible under s.25-10 of ITAA 1997. | The applicant lodged an objection against unfavourable private ruling. | The anode bake furnace comprised a building which housed two rectangular "in ground" concrete tubs supported by extensive foundations. The "refractory", consisting of a network of refractory bricks and insulation material lining the concrete tubs, was built inside the concrete tubs, forming a network of cells into which carbon anodes were placed for baking. The exhaust gases were drawn from the furnace via underground exhaust ducting connected to the sides of the concrete tubs. | The concrete tubs and building were not replaced. The concrete tubs, however, were each extended by two cells (that is,the total number of cells was increased from 60 to 64). The cost attributable to that extension (that is, to the extra cells) was not the subject of the private ruling and was conceded to be capital (as an "addition"). | The "refractory" was expected to last for 15 years. The estimated cost of the works in question was estimated to be $47.1 million. The estimated cost of replacing the entire anode bake furnace, comprising the building, foundations and concrete tubs and other ancillary equipment, was estimated at $204 million. | Issues decided by the tribunal | 1. Replacements of the "refractory" and the waste gas ductwork were not replacements of "entireties". The relevant "entirety" was the entire anode bake furnace. Alternatively, the entirety is the concrete tubs and their foundations, the "refractory" and the waste gas ductwork. 2. The undertaking of the additional works of extending the concrete tubs and upgrading the scrubber (conceded as capital expenditure) at the same time as the above works did not make the above works capital. | 1. Replacements of the "refractory" and the waste gas ductwork were not replacements of "entireties". The relevant "entirety" was the entire anode bake furnace. Alternatively, the entirety is the concrete tubs and their foundations, the "refractory" and the waste gas ductwork. 2. The undertaking of the additional works of extending the concrete tubs and upgrading the scrubber (conceded as capital expenditure) at the same time as the above works did not make the above works capital.

Issues decided:
1. Replacements of the "refractory" and the waste gas ductwork were not replacements of "entireties". The relevant "entirety" was the entire anode bake furnace. Alternatively, the entirety is the concrete tubs and their foundations, the "refractory" and the waste gas ductwork. 2. The undertaking of the additional works of extending the concrete tubs and upgrading the scrubber (conceded as capital expenditure) at the same time as the above works did not make the above works capital. 1. Replacements of the "refractory" and the waste gas ductwork were not replacements of "entireties". The relevant "entirety" was the entire anode bake furnace. Alternatively, the entirety is the concrete tubs and their foundations, the "refractory" and the waste gas ductwork. 2. The undertaking of the additional works of extending the concrete tubs and upgrading the scrubber (conceded as capital expenditure) at the same time as the above works did not make the above works capital.

ATO view of decision:
This is a decision that was open to the Tribunal on the particular facts in this case and does not have any significant implications for other cases. The question of what is an entirety depends on the overall impression gained from a factual scenario. It is a question of "fact and degree". Public Ruling TR 97/23 contains statements of principle to this effect and it is not inconsistent with the Tribunal's decision.

Administrative treatment:
Implications on current Public Rulings & Determinations | None.

Legislative references: Income Tax Assessment Act 1997 25-10
Case references: Lindsay v FCT (1961) 106 CLR 377 [1961] HCA 93 [1961] ALR 58 Lurcott v Wakely & Wheeler [1911] 1KB 905 Rhodesia Railways Ltd v Income Tax Collector (Bechuanaland) [1933] AC 368 Samuel Jones & Co (Devonvale) Ltd v IRC (1951) 32 TC 513 Case 13 (1967) 18 CTBR (NS) W Thomas & Co Pty Ltd v FCT (1965) 115 CLR 58 [1965] HCA 54 [1966] ALR 915
Subject references: Repairs & maintenance expenses Repairs in entirety