Private ruling: Deductions for expenditure on environmental protection activities
Date of advice: 8 July 2021
Published: September 2021
Ruling period: 1 July 2016 - 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the entity entitled to the deduction for expenses incurred on the removal of dams under section 40-755 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Expenditure incurred to remove the existing dams is deductible under section 40-755 of ITAA 1997. | Q2: Is the entity entitled to the deduction for expenses incurred on the construction of dams under Division 43 of the ITAA 1997? | A2: Yes. Expenditure incurred to construct new dams is deductible under Division 43 of the ITAA 1997. | Q3: Is the entity entitled to the deduction for expenses incurred on the installation of clay liners under section 40-755 of the ITAA 1997? | A3: No. Expenditure incurred for the installation of clay liners is deductible under Division 43 of the ITAA 1997. | Q4: Is the entity entitled to the deduction for expenditure incurred to acquire dam aerators under section 40-755 of the ITAA 1997? | A4: No. Expenditure incurred to acquire dam aerators is deductible under Division 40 of the ITAA 1997. | Q5: Is the entity entitled to the deduction for expenses incurred on noise batters under section 40-755 of the ITAA 1997? | A5: No. Expenditure incurred in respect of noise batters is deductible under Division 40 of the ITAA 1997. | Q6: Is the entity entitled to the deduction for expenses incurred on spray system assets under 40-755 of the ITAA 1997? | A6: No. Expenditure incurred in respect of the spray system assets is deductible under Division 40 of the ITAA 1997.

Relevant facts and circumstances: The entity owns the following assets: • Land • Buildings and other capital works on the land • Facility assets • Plant and equipment, including motor vehicles Company A carries on a business on the entity's land. Company A leases the land, facility assets, buildings and plant and equipment from the entity. Following the acquisition of the land, the existing dams were not suitable to prevent pollutants caused by the business activities of Company A from entering nearby creek systems. Therefore, the entity removed the existing dams and rebuilt new dams. The dominant purpose of carrying out this activity was to protect the environmental health of nearby creeks and waterways. There are four dams (being, A, B, C and D). The dams are engineered in line with the specifications prescribed by the Department of Environment & Science ('DES'), and under the supervision of professional engineers. The configuration and geometry of each dam varies depending on the location within the site. Dam A is constructed by excavation directly into the in-situ ground. The dam is then lined with suitable clay, which is placed in layers to a depth of greater than 600mm. The dam is compacted to meet engineering specifications to limit its permeability. Dams B, C and D are engineered partially through excavation of in-situ ground and partially through the engineering of a containment structure. All three dams are lined with clay to the specification required by DES. Stormwater enters and leaves all dams via engineered swales. The clay liners (i.e. the clay liner layer in the dam) were installed for the sole purpose of preventing leachate (or pollutants) from escaping the dams and contaminating the surrounding soil and creek systems. The clay liners do not support and are not integral to any other structure on the land. That is, the dams and surrounding structures can be constructed without the clay liners. The clay liners were only installed for the purpose of preventing leachate. It is expected that the dams can be maintained indefinitely. There may be some erosion of the clay liner due to lapping of water in windy conditions and through change in level, however, this is relatively easily maintained with the application of more clay. The dams are expected to near dry out each winter, which provides an opportunity for easy access to remove any sediment that may have formed in the sump. Dam aerators were installed by the entity for the sole purpose of preventing air pollution (i.e. odours) arising from the dams on the land. The dam aerators are assets with a limited effective life Noise batters were installed by the entity for the sole purpose of mitigating noise pollution caused by the business activities of Company A. The noise batters are assets with a limited effective life. Fine spray systems (i.e. spray system assets) were installed by the entity. The spray systems spray fine water droplets around the site for the sole purpose of preventing air pollution caused by the business activities of Company A. The spray systems have a limited effective life. All expenditure incurred in respect of the removal of the existing dams, rebuilding new dams (including clay liners), dam aerators, noise batters and spray system assets was incurred under arms-length arrangements where the parties to the arrangements dealt with each other at arms-length. None of the expenditures incurred were more than the market value of what the expenditure was incurred for.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 Subdivision 40-B | Income Tax Assessment Act 1997 section 40-20 | Income Tax Assessment Act 1997 subsection 40-25(1) | Income Tax Assessment Act 1997 section 40-30 | Income Tax Assessment Act 1997 subsection 40-45(2) | Income Tax Assessment Act 1997 paragraphs 40-45(2)(a) and (b) | Income Tax Assessment Act 1997 Subdivision 40-H | Income Tax Assessment Act 1997 section 40-725 | Income Tax Assessment Act 1997 section 40-755 | Income Tax Assessment Act 1997 subsections 40-755(1) to (4) | Income Tax Assessment Act 1997 section 40-760 | Income Tax Assessment Act 1997 subsections 40-760(1) and (2) | Income Tax Assessment Act 1997 Division 43 | Income Tax Assessment Act 1997 section 43-10 | Income Tax Assessment Act 1997 subsections 43-10(1) and (2) | Income Tax Assessment Act 1997 section 43-15 | Income Tax Assessment Act 1997 section 43-20 | Income Tax Assessment Act 1997 subsections 43-20(2) to (5) | Income Tax Assessment Act 1997 section 43-30 | Income Tax Assessment Act 1997 subsections 43-70(1) and (2) | Income Tax Assessment Act 1997 paragraphs 43-70(2)(a) to (j) | Income Tax Assessment Act 1997 section 43-115

Reasons for decision: Summary: Expenditure incurred to remove the existing dams is deductible under section 40-755. | Detailed Reasoning - Detailed reasoning: Division 40 which concerns 'capital allowances', provides rules about the deductibility of capital expenditure. Division 40 specifies rules about depreciating assets for which you can deduct an amount equal to the decline in value of a depreciating asset that you hold. Division 40 also provides rules about the deductibility of other capital expenditure and includes Subdivision 40-H which provides for capital expenditure that is immediately deductible. | Detailed Reasoning - Capital expenditure that is immediately deductible: Section 40-725 explains that Subdivision 40-H provides an immediate deduction for certain capital expenditure, including capital expenditure on environmental protection activities. Subsection 40-755(1) states that you can deduct expenditure you incur in an income year for the sole or dominant purpose of carrying on environmental protection activities. Subsection 40-755(2) defines 'environmental protection activities': Environmental protection activities are any of the following activities that are carried on by or for you: (a) preventing, fighting or remedying: (i) pollution resulting, or likely to result, from *your earning activity; or (ii) pollution of or from the site of your earning activity; or (iii) pollution of or from a site where an entity was carrying on any *business that you have acquired and carry on substantially unchanged as your earning activity; (b) treating, cleaning up, removing or storing: (i) waste resulting, or likely to result, from your earning activity; or (ii) waste that is on or from the site of your earning activity; or (iii) waste that is on or from a site where an entity was carrying on any business that you have acquired and carry on substantially unchanged as your earning activity. No other activities are environmental protection activities. Subsection 40-755(3) defines the term 'your earning activity' and as is most relevant states: Your earning activity is an activity you carried on, carry on, or propose to carry on: (a) for the *purpose of producing assessable income for an income year (except a *net capital gain); or... Where your earning activity is leasing a site you own, subsection 40-755(4) states that site is the site of your earning activity. This means you can deduct your expenditure on environmental protection activities relating to the site, even if the pollution or waste is caused by another entity that uses the site. Section 40-760 provides limits on deductions for environmental protection activities and specifies expenditure for which no deduction is available under section 40-755. Subsection 40-760(1) states: You cannot deduct an amount under section 40-755 for an income year for: (a) expenditure for acquiring land; or (b) capital expenditure for constructing a building, structure or structural improvement; or (c) capital expenditure for constructing an extension, alteration or improvement to a building, structure or structural improvement; or (d) a bond or security (however described) for performing *environmental protection activities; or (e) expenditure to the extent that you can deduct an amount for it under a provision of this Act outside this Subdivision. Further, you cannot deduct expenditure incurred in carrying out an activity for an environmental impact assessment of your project under section 40-755 (subsection 40-760(2)). Taxation Ruling TR 2020/2 Income tax: deductions for expenditure on environmental protection activities (TR 2020/2) provides the Commissioner's view in respect of section 40-755, including what are 'environmental protection activities' and when expenditure is incurred for the 'sole or dominant purpose' of carrying on those activities. In part, TR 2020/2 states: 6. Pollution is contamination by the direct or indirect introduction of substances (physical or gaseous), noise (for example, vibrations) or energy (for example, radiation) which has harmful or poisonous effects on the environment. 10. The phrase 'preventing, fighting or remedying pollution' includes a range of activities undertaken to avoid, stop or minimise pollution or remedial steps taken to reverse its effects. 11. The activities must themselves amount to 'preventing, fighting or remedying' pollution. Therefore, there must be a close and direct connection between an activity and actual or likely pollution. 19. The pollution or waste must: • result, or be likely to result, from your earning activity • be of or from the site of your earning activity or • be of or from a site where an entity was carrying on a business you have acquired and you carry on the business substantially unchanged as your earning activity. 27. Where your earning activity is the granting of rights to use a site or a similar activity in respect of a site, including leasing, that site is the site of your earning activity. In such circumstances, you do not need to occupy the site to deduct expenditure on environmental protection activities related to that site. 32. To claim a deduction, you must have incurred expenditure for the sole or dominant purpose of carrying on environmental protection activities. 38. You cannot deduct an amount under section 40-755 for: • expenditure for acquiring land • capital expenditure for constructing a building, structure or structural improvement (including an extension, alteration or improvement to any of these) • a bond or security for performing environmental protection activities • expenditure to the extent it is incurred in carrying out an activity for environmental impact assessment of your project and • expenditure to the extent that you can deduct an amount for it under a provision other than Subdivision 40-H. 39. A deduction under section 40-755 is subject to the application of other provisions of the ITAA 1997 (other than Division 8) that prevent or restrict the amount that can be deducted under that Division. 40. An amount of expenditure on environmental protection activities which is entirely excluded by section 40-760 will not be deductible under section 40-755. | Detailed Reasoning - Capital works: Subsection 43-10(1) states you can deduct an amount for capital works for an income year. However, subsection 43-10(2) states: You can only deduct the amount if: (a) the capital works have a *construction expenditure area [section 43-75]; and (b) there is a *pool of construction expenditure [section 43-85] for that area; and (c) you use *your area in the income year in a way set out in Table 43-140 (Current year use) [i.e. for the purpose of producing assessable income]. The amount that can be deducted for capital works is specified in section 43-15 which states: | Detailed Reasoning - 43-15(1): The amount you can deduct is a portion of *your construction expenditure. However, it cannot exceed the amount of *undeducted construction expenditure for *your area. | Detailed Reasoning - 43-15(2): Your deduction is calculated under section 43-210 or 43-215. For owners of an area, section 43-115 defines 'your area' as the part of the construction expenditure area that you own and 'your construction expenditure' as the portion of the pool of construction expenditure that is attributable to your area. Subsection 43-70(1) defines 'construction expenditure' as capital expenditure incurred in respect of the construction of capital works. However, subsection 43-70(1) is limited by subsection 43-70(2) which lists exclusions from the definition of construction expenditure. Paragraphs 43-70(2)(a)-(j) list a number of things which are not included in the meaning of construction expenditure, and specifically excludes (among other things) expenditure in respect of: • acquiring land, demolishing existing structures or on landscaping; or • clearing, levelling, filling, draining or otherwise preparing the construction site prior to carrying out excavation work. | Detailed Reasoning - Application to the entity: The entity leases the land, composting facility assets, buildings and plant and equipment to Company A which Company A uses to carry on its business. As provided for in subsection 40-755(4), and as discussed in paragraph 27 of TR 2020/2, the land is taken to be the site of the entity's earning activity. Therefore, where the relevant requirements of Subdivision 40-H are satisfied, the entity can deduct (under section 40-755) expenditure it incurs for the sole or dominant purpose of carrying on environmental protection activities in relation to that site. Following the acquisition of the land, the existing dams were not suitable to prevent pollutants caused by the business activities of Company A from entering nearby creek systems. The entity therefore removed the existing dams and rebuilt new dams to prevent contaminated water (caused by Company A's business operations) from entering nearby creek systems. It is considered that the activities undertaken by the entity to remove the existing dams are environmental protection activities as defined in subsection 40-755(2), undertaken for the dominant purpose of protecting the environmental health of nearby creeks and waterways. However, whilst subsection 40-755(1) states that you can deduct expenditure you incur in an income year for the sole or dominant purpose of carrying on environmental protection activities, subsection 40-760(1) specifies expenditure for which no deduction is available under section 40-755. The exclusions specified in subsection 40-760(1) require consideration of whether expenditure incurred by the entity for the removal of the existing dams is deductible under Division 43. The amount that can be deducted for capital works under section 43-10 is specified in section 43-15 which states (in part) that the amount you can deduct is a portion of your 'construction expenditure'. However, subsection 43-70(2) specifically excludes from the definition of construction expenditure, expenditure incurred for demolishing existing structures and clearing, levelling, filling, draining or otherwise preparing the construction site. Subsection 40-760(1) therefore does not prevent deduction under section 40-755 for expenditure incurred by the entity for the removal of the existing dams because the expenditure is excluded from deduction under Division 43 by subsection 43-70(2). As a result, expenditure incurred for the removal of the existing dams will be deductible under section 40-755. | Summary: Expenditure incurred to construct new dams is deductible under Division 43. | Detailed Reasoning - Detailed reasoning: In the detailed reasoning for Question 1 the various provisions and the operation of Divisions 40 and 43 were discussed. As far as that discussion is relevant, it is to be read as forming part of the detailed reasoning for Question 2. Section 40-760 specifies expenditure for which no deduction is available under section 40-755 and includes expenditure covered by Subdivision 40-B (depreciating assets) and Division 43 (capital works). | Detailed Reasoning - Depreciating assets: Section 40-20 states that Subdivision 40-B contains the rules that apply to most depreciating assets. Subdivision 40-B contains the rules for determining what a depreciating asset is, when to start deducting amounts for depreciating assets, and how to work out the deduction for depreciating assets. Subsection 40-25(1) states: You can deduct an amount equal to the decline in value for an income year (as worked out under this Division) of a *depreciating asset that you *held for any time during the year. Subject to certain qualifications, a 'depreciating asset' is defined in section 40-30 as an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. However, Division 40 does not apply to capital works for which the taxpayer can, or could in certain circumstances, deduct amounts under Division 43. Subsection 40-45(2) states: This Division does not apply to capital works for which you can deduct amounts under Division 43, or for which you could deduct amounts under that Division: (a) but for expenditure being incurred, or capital works being started, before a particular day; or (b) had they used the capital works for a purpose relevant to those capital works under section 43-140 of the ITAA 1997. Therefore, a deduction is not available pursuant to Division 40 for expenditure incurred in respect of capital works if amounts can be deducted under Division 43. In addition, Division 40 does not apply if no deduction is available under Division 43 only for the reason that either or both of the requirements referred to in paragraphs 40-45(2)(a) and (b) have not been met. | Detailed Reasoning - Capital works: Section 43-20 identifies the capital works to which Division 43 applies. These are broadly categorised under three categories, being; buildings, structural improvements and environment protection earthworks. Subsections 43-20(2) and (3) state: | Detailed Reasoning - 43-20(2): This Division also applies to capital works (other than capital works referred to in subsection (1)) begun after 26 February 1992 that are structural improvements, or extensions, alterations or improvements to structural improvements, whether they are in or outside Australia. | Detailed Reasoning - 43-20(3): Some examples of structural improvements are: (a) sealed roads, sealed driveways, sealed car parks, sealed airport runways, bridges, pipelines, lined road tunnels, retaining walls, fences, concrete or rock dams and artificial sports fields; and (b) earthworks that are integral to the construction of a structural improvement (other than a structural improvement described in subsection (4)), for example, embankments, culverts and tunnels associated with a runway, road or railway. Whilst subsection 43-20(3) provides examples of earthworks to which Division 43 applies, subsection 43-20(4) specifies earthworks to which Division 43 does not apply. Subsection 43-20(4) is however subject to subsection 43-20(5) which states that Division 43 applies to capital works that are earthworks that are a result of carrying out environmental protection activities. Subsections 43-20(4) and (5) state: | Detailed Reasoning - 43-20(4): This Division does not apply to structural improvements being: (a) earthworks that: (i) are not integral to the installation or construction of a structure; and (ii) are permanent (assuming they are maintained in reasonably good order and condition); and (iii) can be economically maintained in reasonably good order and condition for an indefinite period; for example, unlined channels, unlined basins, earth tanks and dirt tracks; or (b) earthworks that merely create artificial landscapes, for example, grass golf course fairways and greens, gardens, and grass sports fields. | Detailed Reasoning - 43-20(5): This Division also applies to capital works being earthworks, or extensions, alterations or improvements to earthworks, if: (a) they are constructed as a result of carrying out of * environmental protection activities; and (b) they can be economically maintained in reasonably good order and condition for an indefinite period; and (c) they are not integral to the construction of capital works; and (d) the expenditure on the capital works was incurred after 18 August 1992. | Detailed Reasoning - Note:: This subsection allows you to deduct an amount for some earthworks that are excluded by paragraph (4)(a) if the earthworks are constructed in carrying out an environmental protection activity. | Detailed Reasoning - Application to the entity: The activities undertaken by the entity to construct new dams are environmental protection activities undertaken for the dominant purpose of protecting the environmental health of nearby creeks and waterways. Whilst subsection 40-755(1) states that you can deduct expenditure you incur in an income year for the sole or dominant purpose of carrying on environmental protection activities, the exclusions provided for in subsection 40-760(1) must be considered. In particular, it must be considered whether expenditure incurred by the entity to build new dams is deductible under Division 40 or Division 43, so that the expenditure will not be deductible under subsection 40-755(1). Subsection 40-45(2) states that Division 40 does not apply if the taxpayer can deduct amounts under Division 43, therefore it is relevant to determine whether expenditure incurred by the entity to build new dams is deductible under Division 43. Subsection 43-20(4) excludes earthworks from Division 43 where they are not integral to the installation or construction of a structure, are permanent (assuming they are maintained in reasonably good order and condition) and can be economically maintained in reasonably good order and condition for an indefinite period, however subsection 43-20(5)allows a deduction for expenditure incurred in respect of earthworks if they are constructed in carrying out an environmental protection activity. The new dams constructed by the entity are for the sole purpose of carrying on environmental protection activities related to the site. The construction undertaken to build the new dams, will be capital works to which Division 43 applies. Expenditure incurred by the entity for constructing new dams will be deductible under Division 43, therefore subsection 40-760(1) prevents deduction of the expenditure under section 40-755. | Summary: Expenditure incurred in respect of the clay liners is deductible under Division 43, therefore a deduction is not allowed under section 40-755. | Detailed Reasoning - Detailed reasoning: In the detailed reasoning for Questions 1 and 2 the various provisions and the operation of Divisions 40 and 43 were discussed. As far as that discussion is relevant, it is to be read as forming part of the detailed reasoning for Question 3. | Detailed Reasoning - Application to the entity: The clay liners were installed by the entity for the sole purpose of preventing leachate from escaping the dams and contaminating the surrounding soil and creek systems. The clay liners do not support and are not integral to any other structure on the land. That is, the dams and surrounding structures can be constructed without the clay liners. It is considered that the installation of the clay liners is an environmental protection activity as defined in subsection 40-755(2) and that they have been installed for that sole purpose. Whilst the installation of the clay liners is for the sole purpose of carrying on environmental protection activities, subsection 40-760(1) specifies expenditure for which no deduction is available under section 40-755. Therefore, whether expenditure incurred in respect of the installation of the clay liners is deductible under section 40-755 must be considered in light of the exclusions in subsection 40-760(1). Section 43-20 identifies the capital works to which Division 43 applies. Whilst some earthworks are excluded from deduction under Division 43 by subsection 43-20(4), subsection 43-20(5) specifiestheearthworks to which Division 43 applies. The installation of the clay liners is earthworks as provided for in subsection 43-20(5) and therefore expenditure incurred to install the clay liners will be expenditure to which Division 43 applies. Expenditure incurred by the entity for the installation of the clay liners will be deductible under Division 43, therefore subsection 40-760(1) prevents deduction of the expenditure under section 40-755. | Summary: Expenditure incurred in respect of the dam aerators is deductible under Division 40, therefore a deduction is not allowed under section 40-755. | Detailed Reasoning - Detailed reasoning: In the detailed reasoning for Questions 1 and 2 the various provisions and the operation of Divisions 40 and 43 were discussed. As far as that discussion is relevant, it is to be read as forming part of the detailed reasoning for Question 4. | Detailed Reasoning - Application to the entity: The entity installed dam aerators for the sole purpose of preventing air pollution (i.e. odours) arising from the dams on the land. The dam aerators have a limited effective life. It is considered that the installation of the dam aerators is an environmental protection activity as defined in subsection 40-755(2) and that they have been installed for that sole purpose. Whilst the installation of the dam aerators is for the sole purpose of carrying on environmental protection activities, subsection 40-760(1) excludes from deduction under section 40-755 expenditure to the extent that you can deduct an amount for it under a provision outside of Subdivision 40-H. Therefore, it is necessary to consider whether expenditure incurred in respect of the dam aerators is deductible under another provision. Division 40 specifies rules about depreciating assets for which you can deduct an amount equal to the decline in value of a depreciating asset that you hold. The dam aerators are assets with a limited effective life and they can reasonably be expected to decline in value over the time they are used. The dam aerators are depreciating assets as defined in section 40-30. However, subsection 40-45(2) excludes depreciating assets from Division 40 if they are capital works for which the taxpayer can, or could in certain circumstances, deduct amounts under Division 43. The dam aerators are not capital works as described in section 43-20, therefore Division 43 does not apply and the dam aerators are not prevented from being depreciating assets under Division 40. Given that the dam aerators are depreciating assets, a deduction equal to the decline in value for an income year will be allowed in respect of the dam aerators that were held for any time during the year pursuant to subsection 40-25(1). Expenditure incurred by the entity in respect of the dam aerators is therefore not deductible under section 40-755 because the dam aerators are depreciating assets for which a deduction will be allowed under a provision outside of Subdivision 40-H. | Summary: Expenditure incurred in respect of the noise batters is deductible under Division 40, therefore a deduction is not allowed under section 40-755. | Detailed Reasoning - Detailed reasoning: In the detailed reasoning for Questions 1 and 2 the various provisions and the operation of Divisions 40 and 43 were discussed. As far as that discussion is relevant, it is to be read as forming part of the detailed reasoning for Question 5. | Detailed Reasoning - Application to the entity: The noise batters were installed by the entity for the sole purpose of mitigating noise pollution caused by the business activities of Company A. The noise batters are assets with a limited effective life. It is considered that the installation of the noise batters is an environmental protection activity as defined in subsection 40-755(2) and that they have been installed for that sole purpose. Whilst the installation of the noise batters is an environmental protection activity, subsection 40-760(1) excludes from deduction under section 40-755 expenditure to the extent that you can deduct an amount for it under a provision outside of Subdivision 40-H. Therefore, it is necessary to consider whether expenditure incurred in respect of the dam aerators is deductible under another provision. The noise batters are assets with a limited effective life and they can reasonably be expected to decline in value over the time they are used. The noise batters are depreciating assets as defined in section 40-30. However, subsection 40-45(2) excludes depreciating assets from Division 40 if they are capital works for which the taxpayer can, or could in certain circumstances, deduct amounts under Division 43. The noise batters are not capital works as described in section 43-20, therefore Division 43 does not apply and the noise batters are not prevented from being depreciating assets under Division 40. Given that the noise batters are depreciating assets, a deduction equal to the decline in value for an income year will be allowed in respect of the noise batters that were held for any time during the year pursuant to subsection 40-25(1). Expenditure incurred in respect of the noise batters will not be deductible under section 40-755 because the noise batters are depreciating assets for which a deduction will be allowed under a provision outside of Subdivision 40-H. | Summary: Expenditure incurred in respect of the spray system assets is deductible under Division 40, therefore a deduction is not allowed under section 40-755. | Detailed Reasoning - Detailed reasoning: In the detailed reasoning for Questions 1 and 2 the various provisions and the operation of Divisions 40 and 43 were discussed. As far as that discussion is relevant, it is to be read as forming part of the detailed reasoning for Question 6. | Detailed Reasoning - Application to the entity: The entity installed fine spray systems which spray fine water droplets around the site for the sole purpose of preventing air pollution from the site caused by the business activities of Company A. The spray systems have a limited effective life. It is considered that the installation of the spray systems is an environmental protection activity as defined in subsection 40-755(2) and that they have been installed for that sole purpose. Whilst the installation of the spray systems is an environmental protection activity, subsection 40-760(1) excludes from deduction under section 40-755 expenditure to the extent that you can deduct an amount for it under a provision outside of Subdivision 40-H. Therefore, it is necessary to consider whether expenditure incurred in respect of the spray systems is deductible under another provision. The spray systems are assets with a limited effective life and they can reasonably be expected to decline in value over the time they are used. The spray systems are depreciating assets as defined in section 40-30. However, subsection 40-45(2) excludes depreciating assets from Division 40 if they are capital works for which the taxpayer can, or could in certain circumstances, deduct amounts under Division 43. The spray systems are not capital works as described in section 43-20, therefore Division 43 does not apply and they are not prevented from being depreciating assets under Division 40. Given that the spray systems are depreciating assets, a deduction equal to the decline in value for an income year will be allowed in respect of the spray systems that were held for any time during the year pursuant to subsection 40-25(1). Expenditure incurred in respect of the spray systems will not be deductible under section 40-755 because the spray systems are depreciating assets for which a deduction will be allowed under a provision outside of Subdivision 40-H.

This ruling applies for the following period: | Reasons for decision: All legislative references are to the Income Tax Assessment Act 1997 unless otherwise specified .