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There is a taxation ruling (in draft form at the moment) that spells out when a rental or commercial property owner may be able to claim a deduction relating to expenditure incurred by activities undertaken to deal with pollution issues and other environmental protection purposes.
The ruling, TR 2019/D3, does not define “pollution”, which therefore takes on its ordinary natural meaning, but does state that merely visual or aesthetic detriments are not covered. In order to make a claim, the activities undertaken must have a sole or dominant purpose of carrying on environmental protection.
Importantly, the ruling states that “pollution” may encompass substances that were not previously considered harmful or poisonous but now are, such as asbestos and chlorofluorocarbons.
An equally important factor is the ruling’s stance with regard to existing law. The relevant legislation that deals with environmental protection activities excludes deductions for capital expenditure incurred in structural changes to a building. However TR 2019/D3 states that this exclusion does not apply “where the replacement of a pollutant material with a non-pollutant material results in a minor or incidental degree of alteration or improvement to a building, structure or structural improvement”.
The example used in the ruling to illustrate the replacement of pollutants in a building is of a commercial property that yields rental income. The roof of this property was clad with asbestos reinforced cement sheeting. While this was a widely used material in the past, and the roof in question is still in serviceable condition, the property owner wants to replace what is today considered a dangerous material with clean alloy-coated metal roofing.
The total cost is quoted at $20,000, with $9,000 of that being for a specialist subcontractor to remove and dispose of the asbestos material. According to the latest tax ruling, the $9,000 is therefore deductible.
The government’s Asbestos Safety and Eradication Agency, while being judiciously careful as the ruling is centred on tax law, says that removing asbestos and even testing for it should therefore be viewed as tax deductible on the back of the latest draft tax ruling. “If asbestos is suspected in the building and testing is required, the testing activity is considered to be integral to the undertaking of the environmental protection activity, even if asbestos is not found,” it says.
Owner-occupiers may be able to access such deductions if the residence is considered a place of business (which also brings with it capital gains considerations), however TR 2019/D3 does not explicitly refer to this.
The ruling is still in draft form, and the ongoing development to a final version may iron out more details. When a final version is issued it is proposed to apply both before and after its date of issue. Note however that the ruling states that it will not apply where there is conflict with terms of a dispute settlement.
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