Private ruling: Capital Allowances - Tax break - first use time
Published: January 2012
Ruling period: Year ended 30 June 2010
Date scheme commenced: 5 June 2009

Ruling: Q1: Does the Commissioner have a discretion under Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997) to treat paragraph 41-15(2)(b) of the ITAA 1997 as having been satisfied on the basis that the Depreciating Asset was not installed and ready for use by 1 July 2010 because of special circumstances beyond its control? | A1: No | Q2: If the answer to Question 1 is yes, will the Commissioner exercise his discretion under Division 41 of the ITAA 1997 to treat paragraph 41-15(2)(b) of the ITAA 1997 as having been satisfied under the special circumstances? | A2: Not necessary to answer. | Q3: If the answer to Question 1 or Question 2 is no, will the Commissioner exercise his general administration power under section 8 of the Income Tax Assessment Act 1936 (ITAA 1936) to treat paragraph 41-15(2)(b) of the ITAA 1997 as having been satisfied? | A3: No | Q4: Will the taxpayer be entitled to a deduction under subparagraph 41-15(1)(c)(i) of the ITAA 1997? | A4: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The taxpayer invested in a complex, technologically advanced Depreciating Asset. The Taxpayer entered into a contract for the creation of the Depreciating Asset before 30 June 2009. Subsequently, contracts were entered into with various other entities for the supply of auxiliary equipment for the creation of the Depreciating Asset. In 2009 a natural disaster destroyed the structure that was to be used to house the Depreciating Asset. In early 2010, the Taxpayer commenced construction of the building to house the Depreciating Asset. In or around the end of June 2010 the Depreciating Asset had been constructed and was in a workable condition, which means the power to the Depreciating Asset could be turned on and the Depreciating Asset would be capable of operating as designed. However, before the Depreciating Asset could be used for commercial production the Taxpayer had to get authority from a government department and the construction engineers. The Report from the construction engineers was signed and dated in August 2010. The authorities were obtained in or around September 2010. Therefore, the Depreciating Asset was not installed ready for use before 1 July 2010. In or around September 2010 the Depreciating Asset was used by the Taxpayer as part of its business operation. The taxpayer is not a small business entity.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 41 | Income Tax Assessment Act 1997 subparagraph 41-15(1)(c)(i) | Income Tax Assessment Act 1997 paragraph 41-15(2)(b) | Income Tax Assessment Act 1997 paragraph 41-30(a) | Income Tax Assessment Act 1997 paragraph 41-20(1)(c) | Income Tax Assessment Act 1997 paragraph 41-25(1)(a) | Income Tax Assessment Act 1936 Section 8

Reasons for decision: Summary: There is no discretion under Division 41 of the ITAA 1997 for the Commissioner to exercise to treat a condition as having been satisfied when it has not. | Detailed Reasoning - Detailed reasoning: Under paragraph 41-20(1)(c) of the ITAA 1997 to be eligible for the tax break in relation to a depreciating asset the 'first use time' for the asset must occur: (i) no later than the end of the income year, and (ii) no later than 31 December 2010… The first use time, if the amount is included in the first element of the asset's cost, is the time at which you start to use the asset, or have it installed ready for use (paragraph 41-30(a) of the ITAA 1997). For a taxpayer that is not a small business entity, subparagraph 41-15(1)(c)(i) of the ITAA 1997 allows a tax break deduction at the rate of 30% if the conditions in subsection 41-15(2) of the ITAA 1997 are satisfied. If these conditions are not satisfied, the deduction is worked out at the rate of 10%. Paragraph 41-15(2)(b) requires the depreciating asset's first use time to be before 1 July 2010. You have asked if the Commissioner has discretion under Division 41 of the ITAA 1997 to treat an asset as having satisfied the condition in paragraph 41-15(2)(b) of the ITAA 1997 because of special circumstances so as to qualify for the tax break at the 30% rate in subparagraph 41-15(1)(c)(i) of the ITAA 1997. Paragraph 41-15(2)(b) of the ITAA 1997 is quite clear that the first use time must have occurred before 1 July 2010. There is no provision in Division 41 that would allow the Commissioner to exercise a discretion to accept the asset as having met this condition. Therefore, the first use time for the asset must have occurred before 1 July 2010 for it to qualify as an asset eligible for the tax break at the 30% rate. | Summary: As the answer to question 1 was no, there is no reason to consider question 2. | Detailed Reasoning - Detailed reasoning: As the answer to question 1 was no, there is no reason to consider question 2. | Summary: The Commissioner does not have the ability under section 8 of the ITAA 1936 to extend or treat the condition in paragraph 41-15(2)(b) of the ITAA 1997 as having been satisfied. | Detailed Reasoning - Detailed reasoning: Section 8 of the ITAA 1936 states: The Commissioner shall have the general administration of this Act. The purpose of the general administration provisions is to place the day to day administration of various taxation laws in the hands of the Commissioner. Paragraph 3 of PS LA 2009/4 provides the following guidance in relation to the exercise of the Commissioner's powers of general administration: The powers of general administration assist the Commissioner to administer the taxation laws in accordance with Parliament's legislative intent. The Commissioner's powers of general administration are narrow in scope in that they can only be exercised in relation to management and administrative decisions. They do not authorise the Commissioner to administer taxation laws inconsistently with their purpose or object, whether express or implied, or their plain meaning. They support the principle that the Commissioner must interpret and administer each Act to give effect to its intention as discerned from it as a whole, not, for example, by interpreting a particular section in isolation from the rest of the Act. The provisions must be interpreted having regard to the context in which they appear. The Commissioner's powers of general administration also cannot remedy defects or omissions in the law… The meaning of the term 'first use time' in section 41-30 of the ITAA 1997 is clear and unambiguous. The intent of the legislature was to allow a deduction for the tax break at the 30% rate for assets with a first use time no later than 30 June 2010. The legislation in relation to the tax break is clear in its intent. The Commissioner cannot exercise his powers of general administration to interpret legislation inconsistently with that intent. Therefore, he does not have the ability under section 8 of the ITAA 1936 to extend or treat the condition in paragraph 41-15(2)(b) of the ITAA 1997 as having been satisfied. | Summary: As the taxpayer did not have the asset installed ready for use before 1 July 2010 it is not eligible for the tax break at the 30% rate. | Detailed Reasoning - Detailed reasoning: Subparagraph 41-15(1)(c)(i) of the ITAA 1997 provides for a deduction of 30% of the total of the recognised new investment amounts for the income year in relation to the asset provided the investment commitment time for the amount occurred before 1 July 2009 and the first use time for the amount occurred before 1 July 2010. As the taxpayer did not have the asset installed ready for use before 1 July 2010 it is not eligible for the tax break at the 30% rate.

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