2013 amendment to Income Tax Act ensures that capital expenditure on an item of commercial fit-out is not deductible as repairs and maintenance expenditure.

Section DA 5 of the Income Tax Act 2007

The amendment ensures that capital expenditure on an item of commercial fit-out is not deductible as repairs and maintenance expenditure.

Background

Following Budget 2010, the decision was made to allow commercial building fit-out to be treated as depreciable property. This change introduced a new definition of building which conflicted with an existing, related definition. This produced an unintended policy outcome that may have allowed capital expenditure on work done to an item of commercial fit-out to be deductible as repairs and maintenance to the building. This oversight could have been exploited to claim immediate deductions for expenditure on commercial fit-out that should be capitalised and depreciated over its estimated useful life. The amendment ensures the correct outcome.

Key features

Section DA 5 provides that any capital expenditure that is incurred during work done on an item of commercial fit-out, such as the item's replacement or improvement, is not immediately deductible as expenditure on repairs and maintenance to the building.

Repairs and maintenance expenditure of a revenue nature on an item of commercial fit-out will remain immediately deductible.

Application date

The change applies for the 2011-12 and later income years. The application date is retrospective to ensure that the unintended policy outcome cannot be exploited.