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INCOME TAX ASSESSMENT ACT 1997 - SECT 43.75

Construction expenditure area

  (1)   The construction expenditure area of capital works begun after 30   June 1997 is the part of the capital works on which the * construction expenditure was incurred that, at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a * quasi - ownership right over land granted by an * exempt Australian government agency or an * exempt foreign government agency.

Note:   Section   43 - 80 explains when capital works begin.

  (2)   The construction expenditure area of capital works begun before 1   July 1997 is the part of the capital works on which the * construction expenditure was incurred that:

  (a)   at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a * quasi - ownership right over land granted by an * exempt Australian government agency or an * exempt foreign government agency; and

  (b)   at the time of completion of construction, was to be used in the way described in Column 3 of Table 43 - 90 (intended use at completion) for the time period when the capital works began as set out in Column 1.

  (3)   There is taken to be a construction expenditure area for capital works purchased by an entity from another entity if:

  (a)   the capital works would have had a construction expenditure area but for the fact that the other entity did not incur capital expenditure in constructing the capital works; and

  (b)   the other entity is not an * associate of the entity; and

  (c)   the other entity constructed the capital works on land that it owned or leased in the course of a business that included the construction and sale of capital works of that kind.

Note:   Subsection   (3) makes capital works purchased from a speculative builder eligible for deduction in the hands of the first and subsequent purchasers.

  (4)   The construction of the capital works must be complete before the * construction expenditure area is determined.

  (5)   Only one * construction expenditure area is created each time an entity constructs capital works.

Example:   An entity undertakes the construction of a building. During the course of construction, the entity makes 3 progress payments to the builder. There is still only one construction expenditure area.

  (6)   A separate * construction expenditure area will be created each time an entity undertakes the construction of capital works.

Example:   In the diagram below, area 1 relates to the original construction of a building which gives rise to one construction expenditure area . Area 2 is a subsequent extension of the same building which gives rise to another, while area 3 is a later renovation of the entire building which gives rise to another.

 

Diagram showing example construction expenditure areas created each time an entity undertakes the construction of capital works. Area 1 represents the original construction of a building. Area 2 represents a subsequent extension of the same building. Area 3 encircles Areas 1 and 2 and represents a later renovation of the entire building.


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