Capital Allowances: tax break – asset not part of a set

Issue

Are the computer and printer that are used together in the taxpayer’s business ‘a set of assets’ for the purpose of subparagraph 41-10(4)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The computer and printer that are used together in the taxpayer’s business are not ‘a set of assets’ for the purpose of subparagraph 41-10(4)(b)(i) of the ITAA 1997 because they are not regarded as a collection of things and they are not specifically designed to be used together for a specific purpose.

Facts

The taxpayer, a small business entity as defined in section 328-110 of the ITAA 1997, purchased a computer and a printer for use together in its business. The computer and the printer are both depreciating assets for the purposes of section 40-30 of the ITAA 1997.

The printer is compatible with, but not specifically designed to be used with, the make and model of computer purchased.

The recognised new investment amount under section 41-20 of the ITAA 1997 in relation to the computer was more than $1,000 for the year of income. The taxpayer is entitled to a deduction under section 41-10 of the ITAA 1997 in relation to the computer.

The recognised new investment amount in relation to the printer was less than $1,000 for the year of income. The taxpayer is otherwise entitled to a deduction under section 41-10 of the ITAA 1997 in relation to the printer.

Reasons for Decision

All legislative references are to the ITAA 1997.

Division 41 allows an additional deduction for certain business investment in new, tangible depreciating assets and for new expenditure on existing assets – the ‘tax break’.

To be eligible for the tax break, the total of the recognised new investment amounts for the income year in relation to the asset must equal or exceed the relevant new investment threshold (paragraph 41-10(1)(d)).

As the taxpayer is a small business entity, the new investment threshold in relation to an eligible asset of the taxpayer is $1,000 (paragraph 41-35(a)).

The general rule is that the new investment threshold is applied on an asset by asset basis, meaning that it must be met in relation to each individual asset. However, in the case of assets which form part of a set, there is an exception that allows the recognised new investment amounts to be aggregated to meet the new investment threshold (subparagraph 41-10(4)(b)(i)).

Since the recognised new investment amount in relation to the printer is less than $1,000, the new investment threshold would not be met under the general rule. However, if the printer and the computer were a set of assets, the aggregated recognised new investment amounts in relation to both assets would exceed the threshold. In these circumstances, the taxpayer would be entitled to a deduction under section 41-10 in relation to the printer as well as the computer.

The word ‘set’ is not defined for the purposes of Division 41 and will take its ordinary meaning, subject to the context in which it appears in the legislation. The Macquarie Dictionary The Macquarie Dictionary , 2001, 3rd Edn, The Macquarie Library Pty Ltd, NSW relevantly defines ‘set’ as:

a number of things customarily used together or forming a complete assortment, outfit or collection: set of dishes .

The Australian Oxford Dictionary , 1999, Oxford University Press, Melbourne relevantly defines ‘set’ as:

a collection of implements, vessels etc, regarded collectively and needed for a specified purpose ( cricket set, tea set, set of teeth ).

The Shorter Oxford Dictionary , 1973, Oxford University Press, Oxford relevantly includes in the definition of ‘set’:

a number of things grouped together according to a system of classification or conceived as forming a whole.

Guidance as to the intended meaning of the word ‘set’ in the context of Division 41 is provided in the Revised Explanatory Memorandum to the Tax Laws Amendment (Small Business and General Business Tax Break) Bill 2009 (the EM).

The EM states, at paragraph 1.84:

Whether assets form part of a set will need to be determined on a case by case basis. Items may be regarded as a set if they are dependent on each other, marketed as a set, or designed and intended to be used together.

The meaning of the word ‘set’ is further clarified in the EM by the use of two examples:

·
a lawn mower, brush cutter and leaf blower used in a landscaping business do not constitute a set, even if purchased at the same time from the same supplier or manufacturer (Example 1.11)
·
a two way radio base station and mobile handsets used in a delivery business do constitute a set as they were intended to function together (Example 1.12).
The guidance provided by the EM reflects the ordinary usage of the word ‘set’ and the examples outline the parameters of what is considered to be a set for the purposes of Division 41.

Division 41 only applies to depreciating assets. Taking into account the dictionary definitions and guidance provided by the EM, it is considered that depreciating assets will form a set if there are two or more depreciating assets which are customarily regarded as forming a complete collection of things and they are:

·
specifically designed and intended to be used together for a specific purpose (as with a dining table and chairs), or
·
grouped together according to a system of classification (as with a set of saucepans).
While each of the landscaping tools in Example 1.11 is used, broadly, for garden maintenance, each of the tools is used for a different purpose and is not specifically designed to be used with the other tools. They are not customarily regarded as a collection. They do not form a set. Example 1.12, on the other hand, describes assets that are typically regarded as a complete group of things. They are specifically designed and intended to be used together for a specific purpose.

A computer and printer, often located in the same environment and linked together, may be considered loosely as office equipment, however they are not customarily regarded collectively. That is, in general usage, they are not regarded as a collection of things. Therefore, it is considered that the taxpayer’s computer and printer do not form a collection of things.

The computer and printer are not grouped together according to a system of classification (as with a set of saucepans). Neither are they considered to be specifically designed to be used together for a specific purpose.

In this case, the computer compiles data in electronic form. The printer produces copies of some of that data in printed form. The printer receives data from the connected computer as part of the printing process. However, the printer is not designed to be used specifically with the taxpayer’s particular computer in the same sense that a radio base station and its mobile units are designed to be used together. A printer which can be used with any one of a number of makes and models of computer is not an asset that is specifically designed and intended to be used with a particular computer simply because it is compatible with the computer.

Accordingly, the computer and printer that are used together in the taxpayer’s business are not ‘a set of assets’ for the purpose of subparagraph 41-10(4)(b)(i) because they are not regarded as a collection of things and they are not specifically designed to be used together for a specific purpose.

Date of decision: 8 October 2009


KRS Accountants

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