Private ruling: Depreciation, fuel and repair expenses
Published: August 2011
Ruling period: Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2009

Ruling: Q1: Are you entitled to a deduction for fuel expenses and service/repair expenses incurred on a quad bike used for work purposes? | A1: Yes. | Q2: Are you entitled to a deduction for the decline in value of the quad bike used for work purposes? | A2: Yes. | Q3: Are you entitled to a deduction for costs incurred (for example, new tyres and repairs) to maintain a trailer used for work purposes that was not owned by you? | A3: Yes.

Relevant facts and circumstances: You began employment with a company. You purchased a quad bike a couple of months after commencing to assist you in completing your duties. The locations you were required to visit were only accessible by quad bike due to the terrain. You also used the quad bike to carry equipment to your various work locations. The quad bike you purchased was used solely for work purposes. When your employer purchased a quad bike, you continued to use your quad bike solely to carry out your duties as a research assistant. You incurred servicing, repair and fuel expenses to keep the quad bike in working order. You also made use of a trailer which belonged to a family member to assist you in completing your duties for a period of 18 months. You purchased replacement tyres and incurred expenses to repair the trailer during this time. You can substantiate all expenses.

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 40-20, Income Tax Assessment Act 1997 section 40-70 and Income Tax Assessment Act 1997 section 40-75. Detailed reasoning | Fuel | Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature. | In your case your quad bike was used solely to produce assessable income. Therefore, you are entitled to a deduction for the fuel expenses you incurred in relation to the operation of your quad bike. | Repairs | Expenditure for the repair of property that is held or used for the purpose of producing assessable income is an allowable deduction under section 25-10 of the ITAA 1997. Taxation Ruling TR 97/23 provides that an amount will be deductible as a repair expense under section 25-10 if the work done to the property is a 'repair' within the meaning of that section. Paragraph 22 of the Ruling states that work will not be a repair if it changes the character of the property or does more than restore its efficiency of function. | The expenses incurred in your case will come within the meaning of repairs in section 25-10 of the ITAA 1997. This is because the repair work to the quad bike and trailer replaced a damaged part in order to restore it to the original state without changing the character or efficiency of function. | Where property being repaired was held or used only partly for the purpose of producing assessable income, subsection 25-10(2) of the ITAA 1997 allows a deduction for so much of the expenditure as is reasonable in the circumstances. Paragraph 79 of TR 97/23 states that the amount of expenditure allowable as a deduction under subsection 25-10(2) would ordinarily be calculated by reference to the extent to which the property was used for income producing purposes that year. | In your case, you have stated that you use your quad bike solely for work purposes. Accordingly, you are entitled to a deduction for the repairs expenses you incur in relation to the operation of your quad bike. You are also entitled to a deduction for the costs incurred for new tyres and repairs to the trailer as you held it to produce assessable income. | Decline in value (formerly depreciation) | Where you use a depreciating asset or hold it ready for use in producing assessable income, you can claim a deduction for the decline in the asset's value under section 40-25 of the ITAA 1997. However, if the asset is not used solely for producing income, the amount of the deduction that can be claimed is reduced to the extent that the asset is used for purposes other than producing income. | The amount of the decline in the asset's value is worked out by applying a formula using the acquisition cost of the asset and its expected effective life (sections 40-70 and 40-75 of the ITAA 1997). To work out the decline in value of a depreciating asset, you must choose between the prime cost method and the diminishing value method. Both methods are based on the effective life of the asset and work out a statutory decline in value regardless of changes to the actual market value of the asset. | The quad bike you purchased is a depreciating asset that you hold ready for use to produce assessable income. Therefore, you can claim a deduction for the decline in value of the quad bike using either the prime cost method or diminishing value method based on the effective life of the asset.


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