BIM67515 - Waste disposal: Site preparation expenditure - Tax Bulletin article February 2001
The following is the text of an article published in Tax Bulletin 51 in February 2001.
Waste Site Preparation Expenditure: Section 91B, ICTA 1988
Summary
The cost of engineering the base and sides of a waste disposal site to receive waste is capital expenditure, even though they may be constructed in sections that also form part of internal cells with an economic life of less than two years.
Background
Tax Bulletin Issue 34G (April 1998, page 533) looks at the question of what constitutes waste site preparation expenditure. The article details a number of the capital costs of site preparation, including engineering a site to the point where waste can be deposited. It also explains our view that the application of the capital/revenue divide to cell construction within a site is essentially one of economic effect. That is, we accept that the cost of constructing the honeycomb of internal cells within a waste disposal site is revenue expenditure, provided the cells are filled and sealed within two years.
As a result of that article, we have received a number of enquiries concerning the distinction between the capital costs of engineering a site to receive waste and the revenue costs of creating internal cells. The purpose of this article is to clarify that distinction.
Preparation Expenditure
Engineering a modern waste disposal site to the point where waste can be deposited often includes constructing an impermeable clay layer, or laying an artificial lining, across the base and sides of the site. When the site has eventually been filled these elements, together with the final capping, create a containment structure for the whole site that is likely to fulfil that function for decades. We view the costs of creating such a containment structure as capital expenditure.
Internal Earthworks
For practical and financial reasons, the base and sides of site containment structures are often built in sections, with internal barriers, or ‘bunds’, on the open sides to create the first level of internal cells (see schematic). Provided these internal cells are filled and sealed within two years, we accept that the costs of the internal earthworks, i.e. the bunds and any internal caps, are revenue expenditure. However, the costs of the base and sides, which form part of the site containment structure, remain capital expenditure.
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