Private ruling: Business deduction- environmental protection activities
Date of advice: 29 August 2017
Published: December 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is a deduction allowable for the total costs of removing asbestos materials from your business premises and the reinstatement costs to return the affected arears back to their original condition? | A1: Yes.

Relevant facts and circumstances: You operated a business as a partnership over a number of years and have now sold both the business and the freehold property associated with the business. The business was sold as a going concern. As part of the settlement process the purchaser carried out a routine building inspection. The inspection revealed that the building contained asbestos. You have been invoiced and have paid for the removal of the asbestos materials and the costs associated with the reinstatement of the affected arears to return them to their original condition.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 40-755 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 25-10

Reasons for decision: Summary: Section 40-755 of the Income Tax Assessment Act 1997 (ITAA 1997) provides a deduction for expenditure you incur for the sole or dominant purpose of carrying on environmental protection activities. Environmental protection activities are listed in subsection 40-755(2) of the ITAA 1997. One class of environment protection activities is: ● preventing pollution of or from the site of your earning activity (subparagraph 40-755(2)(a)(ii) of the ITAA 1997). The environmental protection provisions are provisions of last resort. If a deduction is allowable under another provision of the ITAA 1997, the expenditure is not deductible under section 40-755 of the ITAA 1997. In your case, the replacement of the asbestos sheeting does not constitute a repair as there was no existing defects, damage or deterioration. The expense is considered to be capital in nature as it is a one-off cost that results in a lasting advantage, that is, the removal of the pollution risk to the property. Therefore, a deduction is not allowed under section 8-1 of the ITAA 1997 or 25-10 of the ITAA 1997. It is considered that your sole or dominant purpose in replacing the undamaged sheeting was to prevent pollution of the site of your then income earning activities by asbestos. Also this work is not considered to be an extension, alteration or improvement to the building as it was merely, replacing the undamaged walls and ceilings with its modern equivalent. Therefore, you are entitled to a deduction for the total cost of removing the asbestos materials from your prior business premises and the reinstatement costs to return the affected arears back to their original condition.