Private ruling: CGT - assets
Date of advice: 16 December 2024
Published: 17 February 2025
Ruling period: Year ending 30 June 20YY
Date scheme commenced: 01 July 20YY

Ruling: Q4: Are you entitled to a deduction for a portion of the insurance, registration, maintenance and repair costs for your XXXXX? Yes.

Relevant facts and circumstances: You have been employed for some time with a construction company. Your duties include travelling to regional areas of Australia where often there is no suitable accommodation and sometimes no office or power. You receive a living away from home allowance from your employer for long term travel when using your XXXXX. You purchased the XXXXX to use for a home office and for private purposes. You live alone when you work remotely. You keep a logbook detailing the use of the XXXX for work. The cooktop, appliances and air-conditioner/heater in your XXXXX are permanent fixtures and remain in the XXXXX at all times.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1. | Income Tax Assessment Act 1997 section 25-10. | Income Tax Assessment Act 1997 section 25-25. | Income Tax Assessment Act 1997 section 40-25.

Reasons for decision: Detailed Reasoning - Allowable deductions: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and 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 except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it. The cost of the XXXX is considered to be a capital expense. As the XXXX is a capital asset, the purchase cost is capital in nature and therefore no deduction is allowed under section 8-1 of the ITAA 1997 for the cost of the XXXX. However, as outlined below a depreciation deduction is allowed under Division 40 of the ITAA 1997 for the income producing use of the XXXX. | Detailed Reasoning - Depreciation: Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose. Taxable purpose is defined in paragraph 40-25(7)(a) of the ITAA 1997 to mean for the purpose of producing assessable income. Where an asset is held for a non-taxable purpose, no deduction is allowed under Division 40 of the ITAA 1997. A XXXX is regarded as a depreciating asset for Division 40 of the ITAA 1997 purposes. In your case, you use the XXXX as a mobile office and accommodation when working in regional areas of Australia where often there is no suitable accommodation and more often there is no office or power. As you are required to sleep away from home overnight for work purposes, it is considered that this use of the XXXX for work is being used fora taxable purpose. You are therefore entitled to claim a deduction for decline in value under section 40-25 of the ITAA 1997 for the XXXX. Please note that as the XXXX is also used for private purposes, the deduction is reduced to the extent that it is used for a non-taxable purpose. The relevant records need to be kept in relation to the use of the XXXX. The tires, breaks, battery, cooktop, appliances and air-conditioner/heater in the XXXX are also regarded as depreciating assets. A depreciation deduction for the work related use of these items is also an allowable deduction. Please refer to the Guide to depreciating assets 2016 for further details in relation to calculating your allowable depreciation amount. This booklet can be found on the Australian Taxation Office website ato.gov.au. | Detailed Reasoning - Maintenance, registration and insurance costs: Maintenance costs are allowed under section 8-1 of the ITAA 1997 if there is a sufficient connection between the expenses and the production of assessable income and are not capital or private in nature. Similarly, a portion of the insurance and registration costs of the XXXX is an allowable deduction where the XXXX is being used for income producing purposes. Such costs are apportioned between the income producing and other uses of the XXXX and only the income producing portion is an allowable deduction. | Detailed Reasoning - Repairs and improvements: When considering the costs incurred and subsequently any allowable deductions it is vital to distinguish between restoration of the item of property in question to its former condition (deductible) and improvement of the item (capital and thus not deductible). Section 25 of the ITAA 1997 provides that expenditure incurred by you for repairs to any premises, or part of premises, held or used by you solely for the purpose of producing assessable income is an allowable deduction. However, subsection 25-10(3) of the ITAA 1997 precludes a repair deduction if the expenditure is of a capital nature. The following are examples of expenses which are capital expenditure or of a capital nature: • Replacement of an entire structure or unit of property (for example a stove, kitchen cupboards or refrigerator). • Improvements, renovations, extensions and alterations; and • Initial repairs, for example, in remedying defects, damage or deterioration that existed at the date you acquired the property. Taxation Ruling TR 97/23 Income tax: deductions for repairs explains the principles and the circumstances in which expenditure incurred for repairs is an allowable deduction. TR 97/23 explains that 'repairs' has its ordinary meaning. It ordinarily means that remedying or making good of defects in, damage to, or deterioration of, property to be repaired and contemplates the continued existence of the property. To repair property improves to some extent the condition it was in immediately before the repair. If the work amounts to a substantial improvement, addition or alteration, it is not a repair and is not deductible under section 25-10 of the ITAA 1997. It is necessary to consider whether the work done to property constitutes repairs by considering whether the work restores the efficiency of function of the property without changing its character. Repair is distinct from renewal or reconstruction; a repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal or reconstruction, as distinguished from repair, is restoration of the entirety. Work done on part of a building, though not amounting to a replacement or reconstruction of an entirety may still be capital expenditure and not deductible, for example, because it amounts to an improvement. Paragraphs 44 to 57 of the TR 97/23 detail the distinction between a repair and an improvement. An improvement provides greater efficiency of function in the property. It involves bringing a thing or structure into a more valuable and desirable form, state or condition than a mere repair would do. Some factors that point to work done to property being an improvement include whether the work will extend the property's income producing ability, significantly enhance its saleability or market value or extend the property's expected life. The character of a repair does not necessarily change because it is carried out at the same time as an improvement. If some parts of the project can be effectively separated and considered in isolation from the rest of the project, they may still be repairs.

Question 1: Are you entitled to a deduction for a portion of the depreciation on your XXXXX? | Question 2: Are you entitled to a deduction for a portion of the depreciation of the wheel bearings, tires, breaks, battery,cooktop, appliances and air-conditioner/heater in your XXXX? | Question 3: Are you entitled to a deduction for a portion of the interest expenses incurred on the borrowed funds used to purchase the XXXX? | Reasons for decisions: These reasons for decision accompany the Notice of private ruling for XXX.