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This is a Bill, not an Act. For current law, see the Acts databases.
1998-1999-2000-2001
The
Parliament of the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Presented and read a first
time
New Business
Tax System (Capital Allowances) Bill
2001
No. ,
2001
(Treasury)
A Bill
for an Act to A Bill for an Act to implement the New Business Tax System by
amending the law relating to taxation, and for related purposes
ISBN: 0642 45812X
Contents
Income Tax Assessment Act
1997 3
Income Tax Assessment Act
1997 92
Income Tax Assessment Act
1997 94
A Bill for an Act to A Bill for an Act to implement the
New Business Tax System by amending the law relating to taxation, and for
related purposes
The Parliament of Australia enacts:
This Act may be cited as the New Business Tax System (Capital
Allowances) Act 2001.
(1) Subject to this section, this Act commences on the day on which it
receives the Royal Assent.
(2) Schedule 2 is taken to have commenced on 1 July
2000.
(3) Schedule 3 is taken to have commenced on 9 May
2001.
Subject to section 2, each Act that is specified in a Schedule to
this Act is amended or repealed as set out in the applicable items in the
Schedule concerned, and any other item in a Schedule to this Act has effect
according to its terms.
Income Tax Assessment Act
1997
1 Divisions 40, 41 and
42
Repeal the Divisions, substitute:
Table of Subdivisions
Guide to Division 40
40-A Objects of Division
40-B Core provisions
40-C Cost
40-D Balancing adjustments
40-E Low-value and software development pools
40-F Primary production depreciating assets
40-G Capital expenditure of primary producers and other
landholders
40-H Capital expenditure that is immediately deductible
40-I Capital expenditure that is deductible over time
You can deduct an amount equal to the decline in value of a depreciating
asset (an asset that has a limited effective life and that is reasonably
expected to decline in value over the time it is used) that you hold.
That decline is generally measured by reference to the effective life of
the asset.
You can also deduct amounts for certain other capital
expenditure.
The key concepts about depreciating assets and certain other capital
expenditure are outlined below (in bold italics).
|
Simplified outline of this Division |
||
|---|---|---|
|
Item |
Major topic |
Provisions |
|
1 |
Rules about depreciating assets |
|
|
1.1 |
Core provisions Depreciating assets are assets with a limited effective life
that are reasonably expected to decline in value. Broadly, the effective life of a depreciating asset is the
period it can be used to produce income. The decline in value is based on the cost and effective life
of the depreciating asset, not its actual change in value. It begins at
start time, when you begin to use the asset (or when you have it
installed ready for use). It continues while you use the asset (or have it
installed). Usually, the owner of a depreciating asset holds the asset
and can therefore claim deductions for its decline in value. Sometimes the
economic owner will be different to the legal owner and the economic owner will
be the holder. |
|
|
1.2 |
Cost The cost of a depreciating asset includes both: • expenses you incur to start holding the asset; and • additional expenses that contribute to its present condition and
location (e.g. improvements). |
Subdivision 40-C |
|
1.3 |
Balancing adjustments When you stop holding a depreciating asset you may have to include an
amount in your assessable income, or deduct an amount under a balancing
adjustment. The adjustment reconciles the decline with the actual change
in value. |
Subdivision 40-D |
|
1.4 |
Low-value and software development pools Low-cost assets and assets depreciated to a low value may be placed in a
low value pool, which is treated as a single depreciating asset.
You can also pool in-house software expenditure in a software development
pool. |
Subdivision 40-E |
|
1.5 |
Primary production depreciating assets You can deduct amounts for capital expenditure on: • water facilities over 3 income years; or • horticultural plants over a period that relates to
the effective life of the plant; or • grapevines over usually 4 years. |
Subdivision 40-F |
|
2 |
Rules about other capital expenditure |
|
|
2.1 |
Capital expenditure of primary producers and other
landholders You can deduct amounts for capital expenditure on: • landcare operations immediately; or • electricity and telephone lines over 10 income
years. |
Subdivision 40-G |
|
2.2 |
Capital expenditure that is immediately deductible You can get an immediate deduction for certain capital expenditure
on: • exploration or prospecting; and • rehabilitation of mine and quarry sites;
and • paying petroleum taxes; and • environmental protection activities. |
Subdivision 40-H |
|
2.3 |
Capital expenditure that is deductible over time You can deduct amounts for certain capital expenditure associated with
projects you carry on. You deduct the amount over the life of the project using
a project pool. You can also deduct amounts for certain business related costs over 5
years. |
Subdivision 40-I |
Table of sections
40-15 Objects of Division
The objects of this Division are:
(a) to allow you to deduct the *cost of a
*depreciating asset; and
(b) to spread the deduction over a period that reflects the time for which
the asset can be used to obtain benefits; and
(c) to provide deductions for certain other capital expenditure that is
not otherwise deductible.
Note: This Division does not apply to some depreciating
assets: see section 40-45.
The rules that apply to most depreciating assets are in this Subdivision.
It explains:
• what a depreciating asset is; and
• when you start deducting amounts for depreciating assets;
and
• how to work out your deductions.
It also contains rules for splitting and merging depreciating
assets.
Table of sections
Operative provisions
40-25 Deducting amounts for depreciating
assets
40-30 What a depreciating asset is
40-35 Jointly held depreciating assets
40-40 Meaning of hold a depreciating
asset
40-45 Assets to which this Division does not
apply
40-50 Assets for which you deduct under another
Subdivision
40-55 Use of certain car methods
40-60 When a depreciating asset starts to decline in
value
40-65 Choice of methods to work out the decline in
value
40-70 Diminishing value method
40-75 Prime cost method
40-80 When you can deduct the asset’s
cost
40-85 Meaning of adjustable value and opening
adjustable value of a depreciating asset
40-90 Debt forgiveness
40-95 Choice of determining effective life
40-100 Commissioner’s determination of effective
life
40-105 Self-assessing effective life
40-110 Recalculating effective life
40-115 Splitting a depreciating asset
40-120 Replacement spectrum licences
40-125 Merging depreciating assets
40-130 Choices
40-135 Certain anti-avoidance provisions
40-140 Getting tax information from
associates
40-145 Application of Criminal Code
[This is the end of the Guide.]
You deduct the decline in value
(1) You can deduct an amount equal to the decline in value for an income
year (as worked out under this Division) of a
*depreciating asset that you
*held for any time during the year.
Note 1: Sections 40-70 and 40-75 show you how to work
out the decline for most depreciating assets. There is a limit on the decline:
see subsections 40-70(3) and 40-75(7).
Note 2: STS taxpayers work out the amount they can deduct
under Division 328.
Note 3: Generally, only one taxpayer can deduct amounts for
a depreciating asset. However, if you and another taxpayer jointly hold the
asset, each of you deduct amounts for it: see
section 40-35.
Reduction of deduction
(2) You must reduce your deduction by the part of the asset’s
decline in value that is attributable to your use of the asset, or your having
it *installed ready for use, for a purpose
other than a *taxable purpose.
Example: Ben holds a depreciating asset that he uses for
private purposes for 30% of his total use in the income year.
If the asset declines by $1,000 for the year, Ben would
have to reduce his deduction by $300 (30% of $1,000).
Further reduction: leisure facilities and boats
(3) You may have to make a further reduction for a
*depreciating asset that is a
*leisure facility or a boat attributable to
your use of it, or your having it *installed
ready for use, for a *taxable
purpose.
(4) That reduction is the part of the asset’s decline in value that
is attributable to your use of the asset, or your having it
*installed ready for use, at a time
when:
(a) its use did not constitute a *fringe
benefit; or
(b) for a *leisure facility—you did
not use it or hold it for use as mentioned in paragraph 26-50(3)(b) (about using
it in the course of your business or for your employees); or
(c) for a boat—you did not use it or hold it for use as mentioned in
paragraph 26-50(5)(b), (c) or (d) (about using it mainly for letting on hire,
mainly for transporting the public or goods for payment or for a purpose that is
essential to the efficient conduct of your business).
Exception: low-value pools
(5) Subsections (2), (3) and (4) do not apply to
*depreciating assets allocated to a low-value
pool.
Note: See Subdivision 40-E for low-value
pools.
Exception: Use of
1/3
of actual expenses method for a car
(6) Subsections (2), (3) and (4) do not apply to a
*car for an income year for which you use the
“one-third of actual expenses” method. Instead, you reduce your
deduction by 2/3 of the
car’s decline in value.
Note: See Division 28 for that method.
Meaning of taxable purpose
(7) A taxable purpose is:
(a) the *purpose of producing assessable
income; or
(b) the purpose of *exploration or
prospecting; or
(c) the purpose of *mining site
rehabilitation; or
(d) *environmental protection
activities.
Note: Where you have had a deduction under this Division an
amount may be included in your assessable income if the expenditure was financed
by limited recourse debt that has terminated: see
Division 243.
(1) A depreciating asset is an asset that has a limited
*effective life and can reasonably be expected
to decline in value over the time it is used, except:
(a) land; or
(b) an item of *trading stock;
or
(c) an intangible asset, unless it is mentioned in
subsection (2).
(2) These intangible assets are depreciating assets if they
are not *trading stock:
(a) *mining, quarrying or prospecting
rights;
(b) *mining, quarrying or prospecting
information;
(c) items of *intellectual
property;
(d) *in-house software;
(e) *IRUs;
(f) *spectrum licences;
(g) *datacasting transmitter
licences.
(3) This Division applies to an improvement to land, or a fixture on land,
whether the improvement or fixture is removable or not, as if it were an asset
separate from the land.
Note 1: Whether such an asset is a depreciating asset
depends on whether it falls within the definition in
subsection (1).
Note 2: This Division does not apply to capital works for
which you can deduct amounts under Division 43: see subsection
40-45(2).
(4) Whether a particular composite item is itself a depreciating
asset or whether its components are separate depreciating
assets is a question of fact and degree which can only be determined in
the light of all the circumstances of the particular case.
Example 1: A car is made up of many separate components, but
usually the car is a depreciating asset rather than each
component.
Example 2: A floating restaurant consists of many separate
components (like the ship itself, stoves, fridges, furniture, crockery and
cutlery), but usually these components are treated as separate depreciating
assets.
(5) This Division applies to a renewal or extension of a
*depreciating asset that is a right as if the
renewal or extension were a continuation of the original right.
(1) This Division and Division 328 apply to a
*depreciating asset (the underlying
asset) that you *hold, and that is also
held by one or more other entities, as if your interest in the underlying
asset were itself the underlying asset.
Note: Partners do not hold partnership assets: see
section 40-40.
(2) As a result, the decline in value of the underlying asset is not
itself taken into account.
Example: Buford Corp owns an office block that it leases to
2 companies, Smokey Pty Ltd and Bandit Pty Ltd. Smokey and Bandit decide to
install a fountain in front of the building.
They discuss it with Buford who agrees to pay half the cost
(because the fountain won’t be removable at the end of the lease). Smokey
and Bandit split the rest of the cost between them.
Smokey and Bandit would each hold the asset under
item 3 of the table in section 40-40 and Buford would hold it under
item 10. They would be joint holders, so each would write-off its
interest in the fountain.
Use this table to work out who holds a
*depreciating asset. An entity identified in
column 3 of an item in the table as not holding a
depreciating asset cannot hold the asset under another
item.
|
Identifying the holder of a depreciating asset |
||
|---|---|---|
|
Item |
This kind of depreciating asset: |
Is held by this entity: |
|
1 |
A *luxury car in respect of which a lease
has been granted |
The lessee (while the lessee has the right to use the car) and not
the lessor |
|
2 |
A *depreciating asset that is fixed to
land subject to a *quasi-ownership right
(including any extension or renewal of such a right) where the owner of the
right has a right to remove the asset |
The owner of the quasi-ownership right (while the right to remove
exists) |
|
3 |
An improvement to land (whether a fixture or not) subject to a
*quasi-ownership right (including any extension
or renewal of such a right) made, or itself improved, by any owner of the right
for the owner’s own use where the owner of the right has no right to
remove the asset |
The owner of the quasi-ownership right (while it exists) |
|
4 |
A *depreciating asset that is subject to a
lease where the asset is fixed to land and the lessor has the right to recover
the asset |
The lessor (while the right to recover exists) |
|
5 |
A right that an entity legally owns but which another entity (the
economic owner) exercises or has a right to exercise immediately,
where the economic owner has a right to become its legal owner and it is
reasonable to expect that: |
The economic owner and not the legal owner |
|
6 |
A *depreciating asset that an entity (the
former holder) would, apart from this item, hold under this table
(including by another application of this item) where a second entity (also the
economic owner): and it is reasonable to expect that the economic owner will become its
holder by exercising the right, or that the asset will be disposed of at the
direction and for the benefit of the economic owner |
The economic owner and not the former holder |
|
7 |
A *depreciating asset that is a
partnership asset |
The partnership and not any particular partner |
|
8 |
*Mining, quarrying or prospecting
information that an entity has and that is relevant to: whether or not it is generally available |
The entity |
|
9 |
Other *mining quarrying or prospecting
information that an entity has and that is not generally available |
The entity |
|
10 |
Any *depreciating asset |
The owner, or the legal owner if there is both a legal and equitable
owner |
Example 1: Power Finance leases a luxury car to Kris who
subleases it to Rachael. As lessee, item 1 makes Rachael the holder of the
car. Power, as the legal owner, would normally hold the car under
item 10.
However, item 1 makes it clear that Power, as lessor,
does not hold the car. As the lessee, item 1 would normally mean
that Kris held the car but, again, she is also a lessor and so is not the holder
(she also doesn’t have the right to use the car during the
sublease).
Example 2: Sandra sells a packing machine to Jenny under a
hire purchase agreement. Jenny holds the machine under item 6 because,
although she is not the legal owner until she exercises her option to purchase,
she possesses the machine now and can exercise an option to become its legal
owner.
Jenny is reasonably expected to exercise that option
because the final payment will be well below the expected market value of the
machine at the end of the agreement. Sandra, as the machine’s legal owner,
would normally be its holder under item 10 but item 6 makes it clear
that the legal owner is not the holder.
Note 1: Some assets may have holders under more than one
item in the table.
Note 2: As well as hire purchase agreements, items 5
and 6 cover cases like assets subject to chattel mortgages, sales subject to
retention of title clauses and assets subject to bare trusts.
Research and development
(1) This Division does not apply to
*plant that you have used or had
*installed ready for use exclusively for the
purpose of carrying on *research and
development activities unless you have elected under subsection 73B(18) of the
Income Tax Assessment Act 1936 that the research and development
provisions do not apply to it.
Capital works
(2) This Division does not apply to capital works for which you can deduct
amounts under Division 43, or for which you could deduct amounts under that
Division but for expenditure being incurred, or capital works being started,
before a particular day.
Note: Section 43-20 lists the capital works to which
that Division applies.
IRUs
(3) This Division does not apply to an
*IRU to the extent to which expenditure on the
IRU was incurred at or before 11.45 am, by legal time in the Australian Capital
Territory, on 21 September 1999 (the IRU time).
(4) This Division does not apply to an
*IRU over an international telecommunications
submarine cable system if the system had been used for telecommunications
purposes at or before the IRU time.
Films
(5) This Division does not apply to a
*depreciating asset if you or another taxpayer
has deducted or can deduct amounts for it under:
(a) Division 10BA of Part III of the Income Tax Assessment
Act 1936 (about Australian films); or
(b) Division 10B of Part III of that Act if the depreciating
asset relates to a copyright in an Australian film within the meaning of that
Division.
(1) You cannot deduct an amount for a
*depreciating asset under this Subdivision if
you or another taxpayer has deducted or can deduct amounts for it under
Subdivision 40-F (about primary production depreciating assets) or 40-G
(about capital expenditure of primary producers and other
landholders).
(2) You cannot deduct an amount for
*in-house software under this Subdivision if
you have allocated expenditure on the software to a software development pool
under Subdivision 40-E.
You cannot deduct any amount for the decline in value of a
*car for an income year if you use the
“cents per kilometre” method, or the “12% of original
value” method, for the car for that year.
Note: See Division 28 for those
methods.
(1) A *depreciating asset you
*hold starts to decline in value from when its
*start time occurs.
(2) The start time of a
*depreciating asset is when you first use it,
or have it *installed ready for use, for any
purpose.
Note: Previous use by a transition entity is ignored: see
section 58-70.
(3) However, there is another start time for a
*depreciating asset you
*hold if a
*balancing adjustment event referred to in
paragraph 40-295(1)(b) occurs for the asset and you start to use the asset
again. Its second start time is when you start using it
again.
(1) You have a choice of 2 methods to work out the decline in value of a
*depreciating asset. You must choose to use
either the *diminishing value method or the
*prime cost method.
Note 1: Once you make the choice for an asset, you cannot
change it: see section 40-130.
Note 2: For the diminishing value method, see
section 40-70. For the prime cost method, see
section 40-75.
Note 3: In some cases you do not have to make the choice
because you can deduct the asset’s cost: see
section 40-80.
Exception: asset acquired from associate
(2) For a *depreciating asset that you
acquire from an *associate of yours where the
associate has deducted or can deduct an amount for the asset under this
Division, you must use the same method that the associate was using.
Note: You can require the associate to tell you which method
the associate was using: see section 40-140.
Exception: holder changes but user same or associate of former
user
(3) For a *depreciating asset that you
acquire from a former *holder of the asset, you
must use the same method that the former holder was using for the asset
if:
(a) the former holder or another entity (each of which is the former
user) was using the asset at a time before you became the holder;
and
(b) while you hold the asset, the former user or an
*associate of the former user uses the
asset.
(4) However, you must use the
*diminishing value method if:
(a) you do not know, and cannot readily find out, which method the former
holder was using; or
(b) the former holder did not use a method.
Exception: low-value pools
(5) You work out the decline in value of a
*depreciating asset in a low-value pool under
Subdivision 40-E rather than under this Subdivision.
(1) You work out the decline in value of a
*depreciating asset for an income year using
the diminishing value method in this way:
where:
base value is:
(a) for the income year in which the asset’s
*start time occurs—its
*cost; or
(b) for a later year—the sum of its
*opening adjustable value for that year and any
amount included in the second element of its cost for that year.
days held is the number of days you
*held the asset in the income year from its
*start time, ignoring any days in that year
when you did not use the asset, or have it
*installed ready for use, for any
purpose.
Note: If you recalculate the effective life of a
depreciating asset, you use that recalculated life in working out your
deduction.
You can choose to recalculate effective life because of
changed circumstances: see section 40-110. That section also requires you
to recalculate effective life in some cases.
Exception: intangibles
(2) You cannot use the *diminishing value
method to work out the decline in value of:
(a) *in-house software; or
(b) an item of *intellectual property;
or
(c) a *spectrum licence; or
(d) a *datacasting transmitter
licence.
Limit on decline
(3) The decline in value of a
*depreciating asset under this section for an
income year cannot be more than the amount that is the asset’s base
value in the formula in subsection (1) for that income
year.
(1) You work out the decline in value of a
*depreciating asset for an income year using
the prime cost method in this way:
where:
where:
days held has the same meaning as in subsection
40-70(1).
Example: Greg acquires an asset for $3,500 and first uses it
on the 26th day of the income year. If the effective life of the asset is
31/3 years, the asset would decline in value in that year
by:
The asset’s adjustable value at the end of the income
year is:
(2) However, you must adjust the formula in subsection (1) for an
income year (the change year):
(a) for which you recalculate the
*depreciating asset’s
*effective life; or
(b) after the year in which the asset’s start time occurs and in
which an amount is included in the second element of the asset’s
*cost; or
(c) for which the asset’s cost or
*adjustable value is reduced under
section 40-90 (about debt forgiveness); or
(d) for which there is roll-over relief under section 40-340 where
the transferor referred to in that section was using the
*prime cost method; or
(e) for which there is a reduction to the asset’s adjustable value
under paragraph 40-365(5)(b) (about involuntary disposals) where you are using
the prime cost method; or
(f) for which the *opening adjustable
value of the asset is modified under subsection 27-80(4), 27-85(3) or
27-90(3).
The adjustments apply for the change year and later years.
Note: For recalculating a depreciating asset’s
effective life: see section 40-110.
(3) The adjustments are:
(a) instead of the asset’s *cost,
you use its *opening adjustable value for the
change year plus the amounts (if any) included in the second element of its cost
for that year; and
(b) instead of the asset’s
*effective life, you use its
*remaining effective life.
(4) The remaining effective life of a
*depreciating asset is any period of its
*effective life that is yet to elapse as at the
start of the change year.
Note: Effective life is worked out in years and fractions of
years.
(5) You must also adjust the formula in subsection (1) for an
intangible *depreciating asset that:
(a) is mentioned in the table in subsection 40-95(7); and
(b) you acquire from a former *holder of
the asset.
The adjustment applies for the income year in which you acquire the asset
and later income years.
(6) Instead of the asset’s
*effective life under the table in subsection
40-95(7), you use the number of years remaining in that effective life as at the
start of the income year in which you acquire the asset.
Limit on decline
(7) The decline in value of a
*depreciating asset under this section for an
income year cannot be more than:
(a) for the income year in which the asset’s
*start time occurs—its
*cost; or
(b) for a later year—the sum of its
*opening adjustable value for that year and any
amount included in the second element of its cost for that year.
Exploration or prospecting
(1) The decline in value of a
*depreciating asset you
*hold is the asset’s
*cost if:
(a) you first use the asset for
*exploration or prospecting for
*minerals, or quarry materials, obtainable by
*mining operations; and
(b) you do not use it for:
(i) development drilling for *petroleum;
or
(ii) operations in the course of working a mining property, quarrying
property or petroleum field; and
(c) you satisfy one or more of these subparagraphs at the asset’s
*start time:
(i) you carry on *mining
operations;
(ii) it would be reasonable to conclude you proposed to carry on such
operations;
(iii) you carry on a *business of, or a
business that included, exploration or prospecting for minerals or quarry
materials obtainable by such operations, and expenditure on the asset was
necessarily incurred in carrying on that business.
Depreciating assets used for certain purposes
(2) The decline in value of a
*depreciating asset you start to
*hold in an income year is the asset’s
*cost if:
(a) that cost does not exceed $300; and
(b) you use the asset predominantly for the
*purpose of producing assessable income that is
not income from carrying on a *business;
and
(c) the asset is not one that is part of a set of assets that you started
to hold in that income year where the total cost of the set of assets exceeds
$300; and
(d) the total cost of the asset and any other identical, or substantially
identical, asset that you start to hold in that income year does not exceed
$300.
(1) The adjustable value of a
*depreciating asset at a particular time
is:
(a) if you have not yet used it or had it
*installed ready for use for any
purpose—its *cost; or
(b) for a time in the income year in which you first use it, or have it
installed ready for use, for any purpose—its cost less its decline in
value up to that time; or
(c) for a time in a later income year—the sum of its
*opening adjustable value for that year and any
amount included in the second element of its cost for that year up to that time,
less its decline in value for that year up to that time.
(2) The opening adjustable value of a
*depreciating asset for an income year is its
*adjustable value to you at the end of the
previous income year.
Note: The opening adjustable value of a depreciating asset
is reduced by an amount applied in reduction of deductible expenditure under the
debt forgiveness provisions: see section 40-90.
(1) This section applies if an amount (the debt forgiveness
amount) is applied in reduction of deductible expenditure for a
*depreciating asset in an income year (within
the meaning of Division 245 of Schedule 2C to the Income Tax
Assessment Act 1936) under section 245-155 of that Schedule.
(2) The asset’s *cost is reduced
for that income year by the debt forgiveness amount.
(3) The asset’s *opening adjustable
value for that income year is reduced by the debt forgiveness amount if that
income year is later than the one in which its
*start time occurs.
(1) You must choose either:
(a) to use an *effective life determined
by the Commissioner for a *depreciating asset
under section 40-100; or
(b) to work out the effective life of the asset yourself under
section 40-105.
(2) Your choice of an *effective life
determined by the Commissioner for a
*depreciating asset is limited to one in force
as at:
(a) the time when you entered into a contract to acquire the asset, you
otherwise acquired it or you started to construct it if its
*start time occurs within 5 years of that time;
or
(b) for *plant that you entered into a
contract to acquire, you otherwise acquired or you started to construct before
11.45 am, by legal time in the Australian Capital Territory, on
21 September 1999—the time when you entered into the contract to
acquire it, otherwise acquired it or started to construct it; or
(c) otherwise—its *start
time.
(3) You must make the choice for the income year in which the
asset’s *start time occurs.
Note: For rules about choices: see
section 40-130.
Exception: asset acquired from associate
(4) For a *depreciating asset that you
start to *hold where the former holder is an
*associate of yours and the associate has
deducted or can deduct an amount for the asset under this Division, you must
use:
(a) if the associate was using the
*diminishing value method for the
asset—the same *effective life that the
associate was using; or
(b) if the associate was using the *prime
cost method—an effective life equal to any period of the asset’s
effective life the associate was using that is yet to elapse at the time you
started to hold it.
Note: You can require the associate to tell you which
effective life the associate was using: see
section 40-140.
Exception: holder changes but user same or associate of former
user
(5) For a *depreciating asset that you
start to *hold where:
(a) the former holder or another entity (each of which is the former
user) was using the asset at a time before you became the holder;
and
(b) while you hold the asset, the former user or an
*associate of the former user uses the
asset;
you must use:
(c) if the former holder was using the
*diminishing value method for the
asset—the same *effective life that the
former holder was using; or
(d) if the former holder was using the
*prime cost method—an effective life
equal to any period of the asset’s effective life the former holder was
using that is yet to elapse at the time you started to hold it.
(6) However, you must use an *effective
life determined by the Commissioner if:
(a) you do not know, and cannot readily find out, which effective life the
former holder was using; or
(b) the former holder did not use an effective life.
Exception: intangible depreciating assets
(7) The effective life of an intangible
*depreciating asset mentioned in this table is
the period applicable to that asset under the table.
|
Effective life of certain intangible depreciating
assets |
||
|---|---|---|
|
Item |
For this asset: |
The effective life is: |
|
1 |
Standard patent |
20 years |
|
2 |
Innovation patent |
8 years |
|
3 |
Petty patent |
6 years |
|
4 |
Registered design |
15 years |
|
5 |
Copyright |
The shorter of: (b) the period until the copyright ends |
|
6 |
A licence (except one relating to a copyright or
*in-house software) |
The term of the licence |
|
7 |
A licence relating to a copyright |
The shorter of: (b) the period until the licence ends |
|
8 |
*In-house software |
21/2 years |
|
9 |
*Spectrum licence |
The term of the licence |
|
10 |
*Datacasting transmitter licence |
15 years |
(8) The effective life of an intangible
*depreciating asset that is not mentioned in
the table in subsection (7) and is not an
*IRU (for example, a
*mining, quarrying or prospecting right) cannot
be longer than the term of the asset as extended by any reasonably assured
extension or renewal of that term.
(9) The effective life of an
*IRU is the
*effective life of the international
telecommunications submarine cable over which the IRU is granted.
(1) The Commissioner may make a written determination specifying the
effective life of *depreciating
assets. The determination may specify conditions for particular depreciating
assets.
(2) A determination may specify a day from which it takes effect for
*depreciating assets specified in the
determination.
(3) A determination may operate retrospectively to a day specified in the
determination if:
(a) there was no applicable determination at that day for the
*depreciating asset covered by the
determination; or
(b) the determination specifies a shorter
*effective life for the depreciating asset
covered by the determination than was previously applicable.
(4) The Commissioner is to make a determination of the effective
life of a *depreciating asset by
estimating the period (in years, including fractions of years) it can be used by
any entity for a *taxable purpose or for the
purpose of producing *exempt income:
(a) assuming it will be subject to wear and tear at a rate that is
reasonable for the Commissioner to assume; and
(b) assuming it will be maintained in reasonably good order and condition;
and
(c) having regard to the period within which it is likely to be scrapped,
sold for no more than scrap value or abandoned.
(1) You work out the effective life of a
*depreciating asset yourself by estimating the
period (in years, including fractions of years) it can be used by any entity for
a *taxable purpose or for the purpose of
producing *exempt income:
(a) having regard to the wear and tear you reasonably expect from your
expected circumstances of use; and
(b) assuming that it will be maintained in reasonably good order and
condition.
(2) If, in working out that period, you conclude that the asset would be
likely to be scrapped, sold for no more than scrap value or abandoned before the
end of that period, its effective life ends at the earlier
time.
(3) You work out the period in subsection (1) or (2) as from the
*start time of the
*depreciating asset.
Exception: intangibles
(4) This section does not apply to an intangible
*depreciating asset mentioned in the table in
subsection 40-95(7).
(1) You may choose to recalculate the
*effective life of a
*depreciating asset from a later income year if
the effective life you have been using is no longer accurate because of changed
circumstances relating to the nature of the use of the asset.
Example: Some examples of changes in circumstances that may
result in your recalculating the effective life of a depreciating asset
are:
• your use of the asset turns out to be more or less
rigorous than you expected (or was anticipated by the Commissioner’s
determination);
• there is a downturn in demand for the goods or
services the asset is used to produce that will result in the asset being
scrapped;
• legislation prevents the asset’s continued
use;
• changes in technology make the asset
redundant.
(2) You must recalculate a *depreciating
asset’s *effective life from a later
income year if:
(a) you:
(i) self-assessed its effective life; or
(ii) are using an effective life worked out under section 40-100
(about the Commissioner’s determination) and the
*prime cost method; or
(iii) are using an effective life because of subsection 40-95(4) or (5);
and
(b) its *cost is increased in that year
by at least 10%.
Note 1: You may conclude that the effective life is the
same.
Note 2: For the elements of the cost of a depreciating
asset, see Subdivision 40-C.
Example 1: Paul purchases a photocopier and self-assesses
its effective life at 6 years. In a later year he incurs expenditure to increase
the quality of the reproductions it makes. He recalculates its effective life,
but concludes that it remains the same.
Example 2: Fiona also purchases a photocopier and
self-assesses its effective life at 6 years. In a later year she incurs
expenditure to incorporate a more robust paper handling system. She recalculates
its effective life, and concludes that it is increased to 7
years.
(3) You must recalculate a *depreciating
asset’s *effective life for the income
year in which you started to *hold it
if:
(a) you are using an effective life because of subsection 40-95(4) or (5);
and
(b) the asset’s *cost is increased
after you started to hold it in that year by at least 10%.
(4) A recalculation under this section must be done using
section 40-105 (about self-assessing effective life).
Exception: intangibles
(5) This section does not apply to an intangible
*depreciating asset mentioned in the table in
subsection 40-95(7).
(1) If a *depreciating asset you
*hold is split into 2 or more assets, this
Division applies as if you had stopped holding the original asset and started
holding the assets into which it is split.
Note 1: For the cost of the split assets, see
section 40-205.
Note 2: A balancing adjustment event does not occur just
because you split a depreciating asset: see
section 40-295.
(2) If you stop *holding part of a
*depreciating asset, this Division applies as
if, just before you stopped holding that part, you had split the original asset
into the part you stopped holding and the rest of the original asset. (The rest
of the original asset is then taken to be a different asset from the original
asset.)
Example: Bronwyn sells Tim a part interest in a depreciating
asset she owns. They become joint holders under section 40-35. She is taken
to have split the underlying asset into the interest she retains and the
interest Tim buys. She now holds an interest (a new depreciating asset) in the
underlying asset and is taken to have stopped holding the interest
sold.
(3) If you grant or assign an interest in an item of
*intellectual property, subsection (2)
applies to you as if you had stopped *holding
part of the item.
(1) If:
(a) some (but not all) of a *spectrum
licence you *hold is assigned or resumed;
and
(b) your original licence is replaced by one or more other spectrum
licences (possibly including a modified version of your original licence);
and
(c) the replacement licences together cover exactly the same rights as
were covered by your original licence just after the assignment or
resumption;
this Division applies as if your original licence (as it existed just after
the assignment or resumption) had been split into the replacement
licences.
Example: MGP Communications Ltd buys a spectrum licence on
1 July 2003 for $5 million. The licence specifies areas A, B, C and D. The
company assigns the spectrum relating to area C. Area C represents 20% of the
market value of the overall licence. $1m of the adjustable value is allocated to
it and $4m is allocated to the remaining licence.
The Australian Communication Authority adjusts the licence
to specify only areas A and B, and issues a new licence specifying area
D.
Area D represents 25% of the market value of the spectrum
remaining in the licence. The adjustable value of the new licence is therefore
$1m and the adjustable value of the original (modified) licence is
$3m.
(2) If a *spectrum licence you
*hold is replaced by 2 or more spectrum
licences (possibly including a modified version of your original licence) that
together cover exactly the same rights as your original licence, this Division
applies as if the original licence had been split into the replacement
licences.
If a *depreciating asset or assets that
you *hold is or are merged into another
depreciating asset, this Division applies as if you had stopped holding the
original asset or assets and started holding the merged asset.
Note 1: For the cost of the merged asset, see
section 40-210.
Note 2: A balancing adjustment event does not occur just
because you merge depreciating assets: see section 40-295.
(1) A choice you can make under this Division about a
*depreciating asset must be made:
(a) by the day you lodge your *income tax
return for the income year to which the choice relates; or
(b) within a further time allowed by the Commissioner.
(2) Your choice, once made, applies to that income year and all later
income years.
Exception: recalculating effective life
(3) However, subsection (2) does not apply to a choice to recalculate
the *effective life of a
*depreciating asset under
section 40-110.
These anti-avoidance provisions:
(a) section 51AD (Deductions not allowable in respect of property
under certain leveraged arrangements) of the Income Tax Assessment Act
1936;
(b) Division 16D (Certain arrangements relating to the use of
property) of Part III of that Act;
apply to your deductions under this Division for a
*depreciating asset you
*hold as if you were the owner of the asset
instead of any other person.
(1) If you acquire a *depreciating asset
from an *associate of yours where the associate
has deducted or can deduct an amount for the asset under this Division, you may
give the associate a written notice requiring the associate to tell
you:
(a) the method the associate was using to work out the decline in value of
the asset; and
(b) the *effective life the associate was
using.
(2) The notice must:
(a) be given within 60 days of your acquiring the asset; and
(b) specify a period of at least 60 days within which the information must
be given; and
(c) set out the effect of subsection (3).
Note: Subsections (4) and (5) explain how this
subsection operates if the associate is a partnership.
Requirement to comply with notice
(3) The *associate must not intentionally
refuse or fail to comply with the notice.
Penalty: 10 penalty units.
Giving the notice to a partnership
(4) If the *associate is a
partnership:
(a) you may give it to the partnership by giving it to any of the partners
(this does not limit how else you can give it); and
(b) the obligation to comply with the notice is imposed on each of the
partners (not on the partnership), but may be discharged by any of
them.
(5) A partner must not intentionally refuse or fail to comply with that
obligation, unless another partner has already complied with it.
Penalty: 10 penalty units.
Limits on giving a notice
(6) Only one notice can be given in relation to the same
*depreciating asset.
The Criminal Code applies to all offences in this
Division.
Your cost of a depreciating asset is a component in working out the amounts
you can deduct for it.
There are 2 elements of the cost of a depreciating asset. This Subdivision
shows you how to work out those elements.
Table of sections
Operative provisions
40-175 Cost
40-180 First element of cost
40-185 Amount you are taken to have paid to hold a
depreciating asset or to receive a benefit
40-190 Second element of cost
40-195 Apportionment of cost
40-200 Exclusion from cost
40-205 Cost of a split depreciating asset
40-210 Cost of merged depreciating assets
40-215 Adjustment: double deduction
40-220 Cost reduced by amounts not of a capital
nature
40-225 Adjustment: acquiring a car at a
discount
40-230 Adjustment: car limit
[This is the end of the Guide.]
The cost of a
*depreciating asset you
*hold consists of 2 elements.
(1) The first element is worked out as at the time when you began to
*hold the
*depreciating asset (except for a case to which
item 3 or 4 of the table in subsection (2) applies). It is:
(a) if an item in that table applies—the amount specified in that
item; or
(b) otherwise—the amount you are taken to have paid to hold the
asset under section 40-185.
Note: The first element of the cost may be modified by a
later provision in this Subdivision.
(2) If more than one item in this table covers the asset, apply the last
item that covers it.
|
First element of the cost of a depreciating
asset |
||
|---|---|---|
|
Item |
In this case: |
The cost is: |
|
1 |
A *depreciating asset you
*hold is split into 2 or more assets |
For each of the assets into which it is split, the amount worked out under
section 40-205 |
|
2 |
A *depreciating asset or assets that you
*hold is or are merged into another
depreciating asset |
For the other asset, the amount worked out under
section 40-210 |
|
3 |
A *balancing adjustment event happens to a
*depreciating asset you
*hold because you stop using it for any purpose
expecting never to use it again, and you start to use it again |
The *termination value of the asset at the
time of the event |
|
4 |
A *balancing adjustment event happens to a
*depreciating asset you
*hold but have not used because you expect
never to use it, and you start to use it |
The *termination value of the asset at the
time of the event |
|
5 |
There is roll-over relief under section 40-340 for a
*balancing adjustment event happening to a
*depreciating asset |
The *adjustable value of the asset to the
transferor just before the balancing adjustment event occurred |
|
6 |
A partnership asset that was *held, just
before it became a partnership asset, by one or more partners (whether or not
any other entity was a joint holder) or a partnership asset to which subsection
40-295(2) applies |
The *market value of the asset when the
partnership started to hold it or when the change referred to in subsection
40-295(2) occurred |
|
7 |
You are the legal owner of a *depreciating
asset that is hired under a *hire purchase
agreement and you start *holding it because the
entity to whom it is hired does not become the legal owner |
The *market value of the asset when you
started to hold it |
|
8 |
You started to *hold the asset under an
*arrangement and: |
The market value of the asset when you started to hold it |
|
9 |
You started to *hold the asset under an
*arrangement that was private or domestic in
nature to you (for example, a gift) |
The *market value of the asset when you
started to hold it |
|
10 |
The Minister for Finance has determined a cost for you under
section 49A, 49B, 50A, 50B, 51A or 51B of the Airports (Transitional)
Act 1996 |
The cost so determined |
|
11 |
To which Division 58 (which deals with assets previously owned by an
*exempt entity) applies |
The amount applicable under subsections 58-70(3) and (5) |
|
12 |
A *balancing adjustment event happens to a
*depreciating asset because a person dies and
the asset devolves to you as the person’s
*legal personal representative |
The asset’s *adjustable value at the
time of death |
|
13 |
You started to *hold a
*depreciating asset because it
*passed to you as the beneficiary or a joint
tenant |
The *market value of the asset when you
started to hold it reduced by any *capital gain
that was disregarded under section 128-10 or subsection 128-15(3), whether
by the deceased or by the *legal personal
representative |
(1) This Division applies to you as if you had paid, to
*hold a
*depreciating asset or for an economic benefit
for such an asset, the greater of these amounts:
(a) the sum of the amounts that would have been included in your
assessable income because you started to hold the asset or received the benefit,
or because you gave something to start holding the asset or receive the benefit,
if you ignored the value of anything you gave that reduced the amount actually
included; or
(b) the sum of the applicable amounts set out in this table for holding
the asset or receiving the benefit.
Example: Gold Medals Ltd manufactures some medals for a
local sporting association’s annual meeting in return for a die cut
stamping machine. The medals have a market value of $20,000. The machine has an
arm’s length value of $100,000 but Gold Medals has to contribute $75,000
towards acquiring it from the association. Gold Medals will have to
include:
in its assessable income because of section 21A of the
Income Tax Assessment Act 1936.
The first element of the machine’s cost will be the
greater of:
• the amount it paid ($75,000) plus the market value
of the non-cash benefits it provided ($20,000), which comes to $95,000;
and
• the amount that was assessable income from receiving
the machine ($25,000) plus the amount by which that assessable income was
reduced because of the payment Gold Medals made ($75,000), which comes to
$100,000.
So, in this case, the first element of the machine’s
cost to Gold Medals is $100,000.
|
Amount you are taken to have paid to hold a depreciating asset or to
receive a benefit |
||
|---|---|---|
|
Item |
In this case: |
The amount is: |
|
1 |
You pay an amount |
The amount |
|
2 |
You incur or increase a liability to pay an amount |
The amount of the liability or increase when you incurred or increased
it |
|
3 |
All or part of a liability to pay an amount owed to you by another entity
is terminated |
The amount of the liability or part when it is terminated |
|
4 |
You provide a *non-cash benefit |
The *market value of the non-cash benefit
when it is provided |
|
5 |
You incur or increase a liability to provide a
*non-cash benefit |
The *market value of the non-cash benefit
or the increase when you incurred or increased the liability |
|
6 |
All or part of a liability to provide a
*non-cash benefit (except the
*depreciating asset) owed to you by another
entity is terminated |
The *market value of the non-cash benefit
when the liability is terminated |
Note: Item 1 includes not only amounts actually paid
but also amounts taken to have been paid. Examples include the price of the
notional purchase made when trading stock is converted to a depreciating asset
under section 70-110, the cost of an asset held under a hire purchase
arrangement under section 240-25 and a lessor’s deemed purchase price
when a luxury car lease is terminated under subsection 42A-105(3) of
Schedule 2E to the Income Tax Assessment Act 1936.
(2) In applying the table in subsection (1) to a liability of yours
to pay an amount or provide a *non-cash
benefit, don’t count any part of the liability you have already
satisfied.
(1) The second element is worked out after you start to
*hold the
*depreciating asset.
(2) The second element is the amount you are taken to have paid under
section 40-185 for each economic benefit that has contributed to bringing
the asset to its present condition and location from time to time since you
started to *hold the asset.
Example: Andrew adds a new tray and canopy to his ute. The
materials and labour that go into the addition are economic benefits that Andrew
received and that contribute to the ute’s present
condition.
The payments he makes for those economic benefits are
included in the second element of the ute’s cost.
Note: The second element of the cost may be modified by a
later provision in this Subdivision.
(3) However, the second element is worked out using this table if an item
in it applies. Use the last applicable item.
|
Second element of the cost of a depreciating asset |
||
|---|---|---|
|
Item |
In this case: |
The second element of cost is: |
|
1 |
You received the benefit under an
*arrangement and: |
The market value of the benefit when you received it |
|
2 |
You received the benefit under an
*arrangement that was private or domestic in
nature to you |
The *market value of the benefit when you
received it |
If you pay an amount for 2 or more things that include at least one
*depreciating asset, or that include a
contribution to bringing a depreciating asset to its present condition and
location, you take into account as part of its
*cost only that part of what you paid that is
reasonably attributable to the asset.
Example: Ian buys 3 assets (one depreciating asset and 2
other assets) under the one transaction. He pays $30,000 for the 3 assets.
$25,000 of that amount is reasonably attributable to the depreciating
asset.
The first element of the depreciating asset’s
cost is $25,000.
The *cost of a
*depreciating asset that is not
*plant does not include any amount that was
incurred:
(a) before 1 July 2001; or
(b) under a contract entered into before that day.
If you split a *depreciating asset into
separate assets as mentioned in section 40-115, the first element of the
cost of each of the separate assets is a reasonable proportion of
the sum of these amounts:
(a) the *adjustable value of the original
asset just before it was split; and
(b) the amount you are taken to have paid under section 40-185 for
any economic benefit involved in splitting the original asset.
Example: Barry owns a spectrum licence that covers 3 areas:
Area A, area B and area C. The licence has an adjustable value of $160,000. He
sells area A to Chris, and his costs of splitting are $10,000. Barry is taken to
have split the licence into 2 assets.
On the basis of their relative market values, Barry
apportions $170,000 to area A (that he disposed of) and to the licence he still
holds for areas B and C.
If a *depreciating asset or assets that
you *hold is or are merged into another
depreciating asset as mentioned in section 40-125, the first element of the
cost of the merged asset is a reasonable proportion of the sum
of:
(a) the *adjustable value or adjustable
values of the original asset or assets just before the merger; and
(b) the amount you are taken to have paid under section 40-185 for
any economic benefit involved in merging the original asset or assets.
(1) Each element of the *cost of a
*depreciating asset is reduced by any portion
of that element of cost that you have deducted or can deduct, or that has been
or will be taken into account in working out an amount you can deduct, other
than under this Division.
(2) Subsection (1) does not apply to deductions for:
(a) research and development plant expenditure (section 73B of the
Income Tax Assessment Act 1936); or
(b) development and investment allowances (Subdivisions B and BA of
Division 3 of Part III of that Act); or
(c) drought investment allowance (Part XII of that Act).
The *cost of a
*depreciating asset is reduced by any portion
of it that consists of an amount that is not of a capital nature.
(1) You must increase the first element of the cost of a
*car designed mainly for carrying passengers
you acquire at a discount if:
(a) it is reasonable to conclude that any portion (the discount
portion) of the discount is referable to you or another entity selling
another asset for less than its *market value;
and
(b) you, or another entity, has deducted or can deduct an amount for the
other asset for any income year; and
(c) the sum of the cost of the car and the discount portion exceeds the
*car limit for the
*financial year in which you first use the car
for any purpose.
(2) The first element of the cost of the
*car is increased by the discount
portion.
(3) This section does not apply to a *car
that is excluded from the *car limit by
subsection 40-230(2).
(1) The first element of the cost of a
*car designed mainly for carrying passengers
(after applying section 40-225) is reduced to the
*car limit for the
*financial year in which you started to
*hold it if its cost exceeds that
limit.
(2) However, the *car limit does not
apply to a *car:
(a) fitted out for transporting disabled people in wheelchairs for profit;
or
(b) whose first element of *cost exceeds
that limit only because of modifications made to enable an individual with a
disability to use it for a *taxable
purpose.
(3) The car limit for the 2000-01
*financial year is $55,134. The limit is
indexed annually.
Note: Subdivision 960-M shows you how to index
amounts.
You may have to make an adjustment to your taxable income if you stop
holding a depreciating asset.
The adjustment is generally based on the difference between the actual
value of the asset when you stop holding it and its adjustable value.
Table of sections
Operative provisions
40-285 Balancing adjustments
40-290 Reduction for non-taxable use
40-295 Meaning of balancing adjustment
event
40-300 Meaning of termination value
40-305 Amount you are taken to have received under a
balancing adjustment event
40-310 Apportionment of termination value
40-315 Expenses of balancing adjustment
event
40-320 Car to which section 40-225
applies
40-325 Adjustment: car limit
40-335 Deduction for in-house software where you will never
use it
40-340 Roll-over relief
40-345 What the roll-over relief is
40-350 Additional consequences
40-360 Notice to allow transferee to work out how this
Division applies
40-365 Involuntary disposals
40-370 Balancing adjustments where there has been use of
different car expense methods
[This is the end of the Guide.]
(1) An amount is included in your assessable income if:
(a) a *balancing adjustment event occurs
for a *depreciating asset you
*held and:
(i) whose decline in value you worked out under Subdivision 40-B;
or
(ii) whose decline in value you would have worked out under that
Subdivision if you had used the asset; and
(b) the asset’s *termination value
is more than its *adjustable value just before
the event occurred.
The amount included is the difference between those amounts, and it is
included for the income year in which the balancing adjustment event
occurred.
Note 1: The most common balancing adjustment event is where
you sell the depreciating asset.
Note 2: There is a different calculation if you had used
different car expense methods for a car: see
section 40-370.
(2) You can deduct an amount if:
(a) a *balancing adjustment event occurs
for a *depreciating asset you
*held and:
(i) whose decline in value you worked out under Subdivision 40-B;
or
(ii) whose decline in value you would have worked out under that
Subdivision if you had used the asset; and
(b) the asset’s *termination value
is less than its *adjustable value just before
the event occurred.
The amount you can deduct is the difference between those amounts, and you
can deduct it for the income year in which the balancing adjustment event
occurred.
Note: There is a different calculation if you had used
different car expense methods for a car: see
section 40-370.
(3) The *adjustable value of a
*depreciating asset you
*hold after this section applies to it is then
zero.
(4) However, subsection (3) does not apply to a
*depreciating asset for which you have a
*cost under item 3 or 4 of the table in
subsection 40-180(2).
Note: Those items deal with a case where a balancing
adjustment event happens because you start using an asset you expected not to
use.
(1) You must reduce the amount (the balancing adjustment
amount) included in your assessable income, or the amount you can
deduct, under section 40-285 for a
*depreciating asset if your deductions for the
asset have been reduced under section 40-25.
(2) The reduction is:
where:
sum of reductions is the sum of:
(a) the reductions in your deductions for the asset under
section 40-25; and
(b) if there has been roll-over relief for the asset under
section 40-340—the reductions in deductions for the asset for the
transferor or an earlier successive transferor under section 40-25;
and
(c) if you *hold the asset as the
*legal personal representative of an
individual—the reductions in deductions for the asset for the individual
under section 40-25.
total decline is the sum of:
(a) the decline in value of the
*depreciating asset since you started to
*hold it; and
(b) if there has been roll-over relief for the asset under
section 40-340—the decline in value of the asset for the transferor
or an earlier successive transferor; and
(c) if you *hold the asset as the
*legal personal representative of an
individual—the decline in value of the asset for the individual.
(3) You must further reduce the amount included in your assessable income,
or the amount you can deduct, under section 40-285 for a
*depreciating asset (the current
asset) if:
(a) the asset’s *cost (for you) was
worked out under section 40-205 (Cost of a split depreciating asset) or
40-210 (Cost of merged depreciating assets); and
(b) you used the depreciating asset from which the current asset was
split, or a depreciating asset that was merged into the current asset, or had it
*installed ready for use, for a purpose other
than a *taxable purpose.
(4) The further reduction is such amount as is reasonable having regard to
the extent of the use referred to in paragraph (3)(b).
Exception: mining, quarrying or prospecting information
(5) This section does not apply to
*mining, quarrying or prospecting
information.
(1) A balancing adjustment event occurs for a
*depreciating asset if:
(a) you stop *holding the asset;
or
(b) you stop using it for any purpose and you expect never to use it
again; or
(c) you have not used it and you decide never to use it.
Note: A balancing adjustment event occurs under paragraph
40-295(1)(a) when you start holding a depreciating asset as trading
stock.
(2) A balancing adjustment event occurs for a
*depreciating asset if:
(a) for any reason, a change occurs in the
*holding of, or in the interests of entities
in, the asset; and
(b) the entity or one of the entities that held the asset before the
change has an interest in it after the change; and
(c) the asset was a partnership asset before the change or becomes one as
a result of the change.
(3) However, a balancing adjustment event does not occur for
a *depreciating asset merely because you split
it into 2 or more depreciating assets or you merge it with one or more other
depreciating assets.
Note: A balancing adjustment event will occur if you stop
holding part of a depreciating asset.
(1) The termination value of a
*depreciating asset is worked out as at the
time when the *balancing adjustment event
occurs. It is:
(a) if an item in the table in subsection (2) applies—the
amount specified in that item; or
(b) otherwise—the amount you are taken to have received under
section 40-305 for the asset.
(2) If more than one item applies, use the value under the last applicable
item.
|
Termination value table |
||
|---|---|---|
|
Item |
For this balancing adjustment event: |
The termination value is: |
|
1 |
You stop using a *depreciating asset for
any purpose and you expect never to use it again even though you still
*hold it |
The *market value of the asset when you
stopped using it |
|
2 |
You decide never to use a *depreciating
asset that you have not used even though you still
*hold it |
The *market value of the asset when you
make the decision |
|
3 |
You stop using *in-house software for any
purpose and you expect never to use it again even though you still
*hold it |
Zero |
|
4 |
You decide never to use *in-house software
that you have not used even though you still
*hold it |
Zero |
|
5 |
One or more partners stop holding a
*depreciating asset when it becomes a
partnership asset or a *balancing adjustment
event referred to in subsection 40-295(2) occurs |
The *market value of the asset when the
partnership started to *hold it or when the
balancing adjustment event occurred |
|
6 |
You stop *holding a
*depreciating asset under an
*arrangement and: |
The market value of the asset just before you stopped holding it |
|
7 |
You stop *holding a
*depreciating asset under an
*arrangement that was private or domestic in
nature to you (for example, a gift) |
The *market value of the asset just before
you stopped *holding it |
|
8 |
A *depreciating asset is lost or
destroyed |
The amount or value received or receivable under an insurance policy or
otherwise for the loss or destruction |
|
9 |
You stop *holding a
*depreciating asset because you die and the
asset starts being held by the *legal personal
representative |
The *adjustable value of the asset when
you die |
|
10 |
You stop *holding a
*depreciating asset because it
*passes directly to a beneficiary or joint
tenant when you die |
The *market value of the asset just before
you die |
|
11 |
A *depreciating asset for which the
Minister for Finance has determined an amount for you under section 52A of
the Airports (Transitional) Act 1996 |
The amount so determined |
(1) This Division applies to you as if you had received, under a
*balancing adjustment event, the greater of
these amounts:
(a) the sum of the amounts you have deducted or can deduct, or has been or
will be taken into account in working out an amount you can deduct because of
the balancing adjustment event and any amount by which the amount so deductible
was reduced because of a case described in the table in this subsection;
and
(b) the sum of the applicable amounts set out in that table:
|
Amount you are taken to have received under a balancing adjustment
event |
||
|---|---|---|
|
Item |
In this case: |
The amount is: |
|
1 |
You receive an amount |
The amount |
|
2 |
You terminate all or part of a liability to pay an amount |
The amount of the liability or part when you terminate it |
|
3 |
You are granted a right to receive an amount or an amount to which you are
entitled is increased |
The amount of the right or increase when it is granted or
increased |
|
4 |
You receive a *non-cash benefit |
The *market value of the non-cash benefit
when it is received |
|
5 |
You terminate all or part of a liability to provide a
*non-cash benefit |
The *market value of the non-cash benefit
or reduction in the non-cash benefit when the liability or part is
terminated |
|
6 |
You are granted a right to receive a
*non-cash benefit or you become entitled to an
increased non-cash benefit |
The *market value of the non-cash benefit,
or the increase, when it is granted or increased |
Note: Item 1 includes not only amounts actually
received but also amounts taken to have been received. Examples include the
price of the notional sale made when a depreciating asset is converted to
trading stock under section 70-30, the consideration for an asset held
under a hire purchase arrangement under section 240-25 and a lessee’s
deemed consideration when a luxury car lease is terminated under subsection
42A-105(3) of Schedule 2E to the Income Tax Assessment Act
1936.
(2) In applying the table in subsection (1) to a right you have to
receive an amount or a *non-cash benefit,
don’t count any part of the right that has already been
satisfied.
If you receive an amount for 2 or more things that include a
*balancing adjustment event occurring for a
*depreciating asset, you take into account as
its *termination value only that part of what
you received that is reasonably attributable to the asset.
(1) The *termination value of a
*depreciating asset is reduced by your expenses
that you have not deducted and cannot deduct that are reasonably attributable to
the *balancing adjustment event occurring for
that asset.
(2) Subsection (1) does not apply to a
*balancing adjustment event referred to in
item 6 or 11 of the table in subsection 40-300(2).
You must increase the *termination value
of a *car the
*cost of which was increased under
section 40-225 by the discount portion for the car referred to in that
section.
The termination value of a
*car the *cost
of which was worked out by applying section 40-230 (Car limit) is the
amount worked out under subsection 40-300(1) multiplied by the
fraction:
where:
CL is the *car
limit for the *car for the
*financial year in which you first used it for
any purpose.
(1) You can deduct expenditure you incurred on
*in-house software if:
(a) you incurred the expenditure with the intention of using the software
for a *taxable purpose; and
(b) the expenditure relates to a unit of software that you have not used
or had *installed ready for use; and
(c) the expenditure is not allocated to a software development pool (see
Subdivision 40-E); and
(d) in the *current year, you have
decided that you will never use the software, or have it installed ready for
use.
(2) The amount that you can deduct in the
*current year is:
(a) the total of your expenditure on the
*in-house software in the current year and any
previous income year; less
(b) any amount of consideration you derive in relation to the software or
any part of it (but no more than the total in paragraph (a));
but only to the extent that, when you incurred the expenditure, you
intended to use the software, or have it
*installed ready for use, for a
*taxable purpose.
Example: Shannon has abandoned a software project that she
was working on. She could not deduct expenditure on the project for the current
year or any previous income year under any other provision. Shannon can deduct
it under this section, to the extent that she intended to use it, or have it
installed ready for use, for a taxable purpose.
Note: If an amount of the expenditure is recouped, the
amount may be included in her assessable income: see
Subdivision 20-A.
Automatic roll-over relief
(1) There is roll-over relief if:
(a) there is a *balancing adjustment
event because an entity (the transferor) disposes of a
*depreciating asset in an income year to
another entity (the transferee); and
(b) the disposal involves a *CGT event;
and
(c) the conditions in an item in this table are satisfied.
|
CGT roll-overs that qualify transferor for relief |
||
|---|---|---|
|
Item |
Type of CGT roll-over |
Conditions |
|
1 |
Disposal of asset to wholly-owned company |
The transferor is able to choose a roll-over under Subdivision 122-A
for the *CGT event. |
|
2 |
Disposal of asset by partnership to wholly-owned company |
The transferor is a partnership, the property is partnership property and
the partners are able to choose a roll-over under Subdivision 122-B for the
disposal by the partners of the *CGT assets
consisting of their interests in the property. |
|
3 |
Marriage breakdown |
There is a roll-over under Subdivision 126-A for the
*CGT event. |
|
4 |
Disposal of asset to another member of the same wholly-owned
group |
The transferor is able to choose a roll-over under Subdivision 126-B
for the *CGT event. |
Note: Section 40-345 sets out what the relief
is.
(2) In applying an item in the table in subsection (1), disregard the
following so far as they relate to the
*depreciating asset you disposed of:
(a) an exemption in Division 118 (which contains the general
exemptions from CGT); and
(b) subsection 122-25(3) (which excludes certain assets from roll-over
relief under Subdivision 122-A).
Choosing roll-over relief
(3) There is also roll-over relief if:
(a) there is a *balancing adjustment
event for a *depreciating asset because of
subsection 40-295(2) (about a change in the holding of, or in interests in, the
asset); and
(b) the entity or entities that *held the
asset before the change (also the transferor) and the entity or
entities that have an interest in the asset after the change (also the
transferee) jointly choose the roll-over relief.
Example: The change could be a variation in the constitution
of a partnership or in the interests of the partners.
Note: Section 40-345 sets out what the relief
is.
(4) The choice must:
(a) be in writing; and
(b) contain enough information about the transferor’s holding of the
property for the transferee to work out how this Division applies to the
transferee’s holding of the *depreciating
asset; and
(c) be made within 6 months after the end of the transferee’s income
year in which the *balancing adjustment event
occurred, or within a longer period allowed by the Commissioner.
(5) If a person dies before the end of the time allowed for jointly
choosing roll-over relief, the trustee of the person’s estate may be a
party to the choice.
(6) The transferor must keep the choice or a copy of it for 5 years after
the *balancing adjustment event
occurred.
Penalty: 30 penalty units.
(7) The transferee must keep the choice or a copy of it until the end of 5
years after the next *balancing adjustment
event occurs for the *depreciating
asset.
Penalty: 30 penalty units.
Exception: Subdivision 170-D applies
(8) There can be no roll-over relief if Subdivision 170-D (about
transactions by a company that is a member of a linked group) applies to the
disposal of the *depreciating asset or the
change in interests in it.
(1) Section 40-285 does not apply to the
*balancing adjustment event for the
transferor.
(2) The transferee can deduct the decline in value of the
*depreciating asset using the same method and
*effective life (or
*remaining effective life if that method is the
*prime cost method) that the transferor was
using.
(1) For the purposes of Division 45:
(a) if the transferor, or a partnership of which the transferor was a
member, leased the *depreciating asset to
another entity for most of the time that the transferor or partnership
*held the asset, the transferee is taken also
to have done so; and
(b) if the transferor, or a partnership of which the transferor was a
member, leased the asset to another entity for a period on or after
22 February 1999, the transferee is taken also to have done so;
and
(c) if the main *business of the
transferor, or a partnership of which the transferor was a member, was to lease
assets, the main business of the transferee is taken also to have been to lease
assets.
(2) However, subsection (1) does not apply to roll-over relief under
subsection 40-340(3) if the sum of the amounts specified in paragraph 45-5(1)(e)
or 45-10(1)(f), or subsection 45-5(4) or 45-10(4), is at least equal to the
market value of the *plant or interest
concerned.
(1) This section applies if there is roll-over relief because of
subsection 40-340(1).
(2) The transferor must give the transferee a notice containing enough
information about the transferor’s
*holding of the property for the transferee to
work out how this Division applies to the transferee’s holding of the
*depreciating asset.
(3) The transferor must give the notice within 6 months after the end of
the transferee’s income year in which the
*balancing adjustment event occurred, or within
a longer period allowed by the Commissioner.
(4) The transferee must keep the notice until the end of 5 years after the
earlier of these events:
(a) the transferee disposes of the property;
(b) the property is lost or destroyed.
Penalty: 30 penalty units.
(1) You may exclude some or all of an amount that has been included in
your assessable income for a *depreciating
asset (the original asset) as a result of a
*balancing adjustment event to the extent that
you choose to treat it as an amount to be applied under subsection (5) for
one or more replacement assets.
(2) You can only make this choice if you stop
*holding the asset because:
(a) the original asset is lost or destroyed; or
(b) the original asset is compulsorily acquired by an
*Australian government agency; or
(c) you dispose of the original asset to an Australian government agency
after a notice was served on you by or on behalf of the agency:
(i) inviting you to negotiate with the agency with a view to the agency
acquiring it by agreement; and
(ii) informing you that, if the negotiations are unsuccessful, it will be
compulsorily acquired by the agency.
(3) You can only make this choice for a replacement asset if you incur the
expenditure on the replacement asset, or you start to
*hold it:
(a) no earlier than one year, or within a further period the Commissioner
allows, before the *balancing adjustment event
occurred; and
(b) no later than one year, or within a further period the Commissioner
allows, after the end of the income year in which the balancing adjustment event
occurred.
(4) You can only make this choice for a replacement asset if:
(a) at the end of the income year in which you incurred the expenditure on
the asset, or you started to *hold it, you used
it, or had it *installed ready for use, wholly
for a *taxable purpose; and
(b) you can deduct an amount for it.
(5) The amount covered by the choice is applied in reduction of:
(a) for the income year in which the replacement asset’s
*start time occurs—its
*cost; or
(b) for a later year—the sum of its
*opening adjustable value for that year and any
amount included in the second element of its cost for that year.
(6) If you are making the choice for 2 or more replacement assets, you
apportion the amount covered by the choice between those items in proportion to
their *cost.
(1) An amount is included in your assessable income or you can deduct an
amount under this section instead of section 40-285 if:
(a) a *balancing adjustment event occurs
for a *car you
*held; and
(b) you have deducted or can deduct an amount for the decline in value of
the car for an income year under this Division; and
(c) you chose:
(i) the “cents per kilometre” method in Subdivision 28-C;
or
(ii) the “12% of original value” method in
Subdivision 28-D;
for deducting your car expenses for the car for one or more other income
years.
Note 1: This means if you have only used the “log
book” method or the “one-third of actual expenses” method
since you began using the car, you calculate the assessable amount or deductible
amount under section 40-285.
Note 2: Also, if you have only used the “cents per
kilometre” method or the “12% of original value” method since
you began using the car, no amount is assessable or deductible under this
section or section 40-285.
(2) Work out the amount you include in your assessable income or the
amount you can deduct in this way:
Method statement
Step 1. Subtract the *car’s
*adjustable value just before the
*balancing adjustment event occurred from the
car’s *termination value.
Step 2. Reduce the step 1 amount by the part of the
*car’s decline in value that is
attributable to your using the car, or having it
*installed ready for use, for purposes other
than *taxable purposes. You do this by applying
the formula in subsection 40-290(2).
Step 3. Multiply the step 2 amount by the total number of days for
which you deducted the decline in value of the
*car under this Division.
Step 4. Divide the step 3 amount by the total number of days you
*held the
*car.
Step 5. The step 4 amount is a deduction if it is negative or it is
included in your assessable income if it is positive.
(3) In working out the *adjustable value
for the income years for which you chose the “cents per kilometre
method” or the “12% of original value” method, you are to
assume the decline in value was calculated under this Division on the same basis
as those income years when those methods did not apply.
(4) In working out the reduction in step 2 for the income years for which
you chose the “cents per kilometre method” or the “12% of
original value” method, you must assume that:
(a) you had not chosen either of those methods for the
*car; and
(b) Division 28 (car expenses) had not applied to the car;
and
(c) you used the car for *taxable
purposes:
(i) to the extent of 20% if you used the “cents per kilometre”
method; or
(ii) to the extent of one-third if you used the “12% of original
value” method.
You may choose to work out the decline in value of low-cost assets (assets
costing less than $1,000) and certain other depreciating assets through a
low-value pool.
You may also choose to deduct amounts for expenditure you incur on in-house
software through a software development pool.
Table of sections
Operative provisions
40-425 Allocating assets to a low-value
pool
40-430 Rules for assets in low-value pools
40-435 Private or exempt use of assets
40-440 How you work out the decline in value of assets in
low-value pools
40-445 Balancing adjustment events
40-450 Software development pools
40-455 How to work out your deduction
40-460 Your assessable income includes consideration for
pooled software
[This is the end of the Guide.]
(1) You may choose to allocate a *low
cost asset you *hold to a low-value pool for
the income year in which you start to use it, or have it
*installed ready for use, for a
*taxable purpose.
(2) A low-cost asset is a
*depreciating asset, except a
*horticultural plant (including a grapevine)
whose *cost as at the end of the income year in
which you start to use it, or have it
*installed ready for use, for a
*taxable purpose is less than $1,000.
(3) You may also choose to allocate a
*low-value asset to a low-value pool.
(4) You cannot allocate a *depreciating
asset to a low-value pool if:
(a) its *cost does not exceed $300;
and
(b) you use the asset predominantly for the
*purpose of producing assessable income that is
not income from carrying on a *business;
and
(c) the asset is not part of a set of assets that you started to hold in
that income year where the total cost of the set of assets exceeds $300;
and
(d) the total cost of the asset and any other identical, or substantially
identical, asset that you start to hold in that income year does not exceed
$300.
(5) A low-value asset is a
*depreciating asset, except a
*horticultural plant (including a grapevine),
you *hold:
(a) if you have deducted or can deduct amounts for it under this Division
for a previous income year—for which you used the
*diminishing value method; and
(b) that has an *opening adjustable value
for the current year of less than $1,000 (worked out using the diminishing value
method); and
(c) that is not a *low-cost
asset.
(6) A *depreciating asset:
(a) to which Division 58 (about assets previously owned by an exempt
entity) applied for an entity sale situation; and
(b) for which you used the *diminishing
value method; and
(c) whose *adjustable value as at the end
of the income year before the *current year is
less than $1,000;
is also a low-value asset.
Exception: STS
(7) You cannot allocate a *depreciating
asset to a low-value pool if you deduct amounts for it under
Subdivision 328-D (about capital allowances for STS taxpayers).
(1) Once you have made a choice to allocate a
*low-cost asset to a low-value pool for an
income year, you must allocate all low-cost assets you start to
*hold in that income year or a later one to the
pool.
Note: This rule does not apply to low-value
assets.
(2) However, if you become an *STS
taxpayer for an income year, you cannot allocate any
*depreciating asset to a low-value pool until
you stop being an STS taxpayer.
(3) Once you allocate any *depreciating
asset to a low-value pool, it must remain in the pool.
When you allocate a *depreciating asset
to a low-value pool, you must make a reasonable estimate of the percentage (the
taxable use percentage) of your use of the asset (including any
past use) that will be for a *taxable purpose
over:
(a) for a *low-cost asset—its
*effective life; or
(b) for a *low-value asset—any
period of its effective life that is yet to elapse at the start of the income
year for which you allocate it to the pool.
(1) You work out the decline in value of
*depreciating assets in a low-value pool for an
income year in this way:
Step 1. Work out the amount obtained by taking
183/4% of the taxable use
percentage of the *cost of each
*low-cost asset you allocated to the pool for
that year. Add those amounts.
Step 2. Add to the step 1 amount
183/4% of the taxable use
percentage of any amounts included in the second element of the
*cost for that year of:
(a) assets allocated to the pool for an earlier income year; and
(b) *low-value assets allocated to the
pool for the *current year.
Step 3. Add to the step 2 amount
371/2% of the sum
of:
(a) the *closing pool balance for the
previous income year; and
(b) the taxable use percentage of the
*opening adjustable values of
*low-value assets, at the start of the income
year, that you allocated to the pool for that year.
Step 4. The result is the decline in value of the
*depreciating assets in the pool.
(2) The closing pool balance of a low-value pool for an
income year is the sum of:
(a) the *closing pool balance of the pool
for the previous income year; and
(b) the taxable use percentage of the
*costs of
*low-cost assets you allocated to the pool for
that year; and
(c) the taxable use percentage of the
*opening adjustable values of any
*low-value assets you allocated to the pool for
that year as at the start of that year; and
(d) the taxable use percentage of any amounts included in the second
element of the cost for the income year of:
(i) assets allocated to the pool for an earlier income year; and
(ii) low-value assets allocated to the pool for the
*current year;
less the decline in value of the
*depreciating assets in the pool worked out
under subsection (1).
Note: The closing pool balance may be reduced under
section 40-445 if a balancing adjustment event happens.
(1) If a *balancing adjustment event
happens to a *depreciating asset in a low-value
pool in an income year, the *closing pool
balance for that year is reduced (but not below zero) by the taxable use
percentage of the asset’s *termination
value.
(2) If the sum of the *termination
values, or the part of it, applicable under subsection (1) exceeds the
*closing pool balance of the pool for that
year, the excess is included in your assessable income.
(1) You may choose to allocate amounts of expenditure you incur on
*in-house software in an income year to a
software development pool if it is expenditure on developing, or having another
entity develop, computer software.
Note: You cannot allocate expenditure on in-house software
to a software development pool if it is expenditure on acquiring computer
software or a right to use computer software.
(2) Once you choose to create a software development pool for an income
year, any amounts of the kind referred to in subsection (1) you incur after
the pool is created (whether in that income year or a later one) must be
allocated to a software development pool.
(3) However, an amount of expenditure on
*in-house software can only be allocated to a
software development pool if you intend to use the software solely for a
*taxable purpose.
(4) You must create a separate software development pool for each income
year for which you incur amounts of the kind referred to in
subsection (1).
For all the expenditure on *in-house
software in a software development pool that was incurred in a particular income
year (Year 1), you get deductions in successive income years as
follows:
|
Deductions allowed for software development pool |
|
|---|---|
|
Income year |
Amount of expenditure you can deduct for that year |
|
Year 1 |
Nil |
|
Year 2 |
40% |
|
Year 3 |
40% |
|
Year 4 |
20% |
(1) If expenditure on *in-house software
is (or was) in your software development pool, your assessable income includes
any amount you derive as consideration in relation to the software.
(2) However, subsection (1) does not apply if subsection 40-340(3)
(roll-over relief) applies to the change.
You can deduct amounts for capital expenditure on depreciating assets that
are water facilities, horticultural plants or grapevines.
The amount you can deduct is equal to the asset’s decline in value
during an income year (as measured under this Subdivision).
Table of sections
Operative provisions
40-515 Water facilities, grapevines and horticultural
plants
40-520 Meaning of water facility and horticultural
plant
40-525 Conditions
40-530 When a water facility, horticultural plant or
grapevine starts to decline in value
40-535 Meaning of horticulture and commercial
horticulture
40-540 How you work out the decline in value for water
facilities
40-545 How you work out the decline in value for
horticultural plants
40-550 How you work out the decline in value for
grapevines
40-555 Amounts you cannot deduct
40-560 Non-arm’s length transactions
40-565 Extra deduction for destruction of a horticultural
plant or grapevine
40-570 How this Subdivision applies to partners and
partnerships
40-575 Getting tax information if you acquire a
horticultural plant or grapevine
[This is the end of the Guide.]
(1) You can deduct an amount equal to the decline in value for an income
year (as worked out under this Subdivision) of a
*depreciating asset that is one of
these:
(a) a *water facility;
(b) a *horticultural plant;
(c) a grapevine.
Note 1: Sections 40-540, 40-545 and 40-550 show you how
to work out the decline.
Note 2: Generally, only one taxpayer can deduct amounts for
a depreciating asset. However, if you and another taxpayer jointly hold the
asset, each of you deduct amounts for it: see
section 40-35.
Conditions
(2) However, the applicable condition in section 40-525 must be
satisfied for the *depreciating
asset.
Limit on deduction
(3) You cannot deduct more in total than the amount of capital expenditure
incurred on the *depreciating asset.
Reduction of deduction: water facilities
(4) You must reduce your deduction for a
*water facility for an income year by the part
of the facility’s decline in value that is attributable to the period (if
any) in the income year when it was:
(a) not wholly used in carrying on a
*primary production business on land in
Australia; or
(b) not wholly used for a *taxable
purpose.
(1) A water facility is
*plant or a structural improvement, or an
alteration, addition or extension to plant or a structural improvement, that is
primarily and principally for the purpose of conserving or conveying
water.
Example: Examples of a water facility include a dam, tank,
tank stand, bore, well, irrigation channel, pipe, pump, water tower and
windmill.
(2) A horticultural plant is a live plant or fungus that is
cultivated or propagated for any of its products or parts.
Water facilities
(1) The capital expenditure you incurred on the construction, manufacture,
installation or acquisition of the *water
facility must have been incurred primarily and principally for the purpose of
conserving or conveying water for use in a
*primary production business that you conduct
on land in Australia.
Horticultural plants
(2) One of the conditions in this table must be satisfied:
|
Conditions relating to horticultural plants |
|---|
|
Item |
Condition |
|---|---|
|
1 |
You own the *horticultural plant and any
holder of a lease, lesser interest or licence relating to the land does not
carry on a *business of
*horticulture on the land |
|
2 |
The *horticultural plant is attached to
land you hold under a lease, or a
*quasi-ownership right granted by an
*exempt Australian government agency or an
*exempt foreign government agency, and: |
|
3 |
You: |
Grapevines
(3) One of the conditions in this table must be satisfied:
|
Conditions relating to grapevines |
|---|
|
Item |
Condition |
|---|---|
|
1 |
You own the grapevine |
|
2 |
The grapevine: |
A *water facility,
*horticultural plant or grapevine starts to
decline in value in the income year worked out using this table:
|
Start of decline in value |
||
|---|---|---|
|
Item |
This asset: |
Starts to decline in value in: |
|
1 |
A *water facility |
the income year in which you first incur expenditure on the
facility |
|
2 |
A *horticultural plant |
(a) if you are the first entity to satisfy a condition in subsection
40-525(2) for the plant—the income year in which the first commercial
season starts; or |
|
3 |
A grapevine |
the income year when you first used it in a
*primary production business for the
*purpose of producing assessable
income |
(1) Horticulture includes:
(a) propagation and cultivation of a
*horticultural plant in any environment
(whether natural or artificial); and
(b) propagation and cultivation of seeds, bulbs, spores and similar
things; and
(c) propagation and cultivation of fungi.
(2) Use for commercial horticulture means use for the
*purpose of producing assessable income in a
*business of
*horticulture.
You work out the decline in value of a
*water facility for an income year in this way
for the income year in which you incurred the expenditure and the 2 following
years:
where:
expenditure is the amount of capital expenditure you incurred
on the construction, manufacture, installation or acquisition of the
*water facility.
(1) The decline in value of a
*horticultural plant for the income year in
which it starts to decline in value is all of the capital expenditure
attributable to the establishment of the plant if its
*effective life is less than 3 years.
(2) You work out the decline in value for an income year of a
*horticultural plant whose
*effective life is 3 years or more in this
way:
where:
establishment expenditure is the amount of capital
expenditure incurred that is attributable to the establishment of the
*horticultural plant.
write-off days in income year is the number of days in the
income year on which you satisfied a condition in subsection 40-525(2) for the
plant and either used it for *commercial
horticulture or held it ready for that use.
write-off rate is the rate shown in this table for the
*horticultural plant according to its
*effective life.
|
Write-off rate for horticultural plant |
||
|---|---|---|
|
Item |
Effective life of: |
The write-off rate is: |
|
1 |
3 to fewer than 5 years |
40% |
|
2 |
5 to fewer than 62/3
years |
27% |
|
3 |
62/3 to fewer than
10 years |
20% |
|
4 |
10 to fewer than 13 years |
17% |
|
5 |
13 to fewer than 30 years |
13% |
|
6 |
30 years or more |
7% |
Limit on write-off days
(3) Disregard your use of the
*horticultural plant on a day outside the
period that:
(a) starts when the plant can first be used for
*commercial horticulture; and
(b) extends for the time shown in this table (depending on the
plant’s *effective life).
|
Period after which you cannot count use of horticultural
plant |
||
|---|---|---|
|
Item |
Effective life: |
Time limit: |
|
1 |
3 to fewer than 5 years |
2 years and 183 days |
|
2 |
5 to fewer than 62/3
years |
3 years and 257 days |
|
3 |
62/3 to fewer than
10 years |
5 years |
|
4 |
10 to fewer than 13 years |
5 years and 323 days |
|
5 |
13 to fewer than 30 years |
7 years and 253 days |
|
6 |
30 years or more |
14 years and 105 days |
(1) You work out the decline in value of a grapevine in this
way:
where:
establishment expenditure is the amount of capital
expenditure incurred that is attributable to the establishment of the
grapevine.
write-off days in income year is the number of days in the
income year on which you satisfied a condition in subsection 40-525(3) for the
grapevine and used it in a *primary production
business for the *purpose of producing
assessable income.
No deduction for period more than 4 years after grapevine
established
(2) Disregard your use of the grapevine on a day that is more than 4 years
after the grapevine was established.
Note: That 4-year period will be spread over 5 income years,
unless the grapevine is established on the first day of an income
year.
Exception where you work out decline under
section 40-545
(3) You cannot work out the decline in value of a grapevine under this
section if you work out its decline in value under section 40-545 (about
horticultural plants).
Water facilities
(1) You cannot deduct an amount for any income year for capital
expenditure on the acquisition of a *water
facility if any person has deducted or can deduct an amount under this
Subdivision for any income year for earlier capital expenditure on:
(a) the construction or manufacture of the facility; or
(b) a previous acquisition of the facility.
(2) A *water facility and an alteration,
addition or extension to that facility are not the same water facility for the
purposes of subsection (1).
Horticultural plants and grapevines
(3) In working out your deduction under this Subdivision for a
*horticultural plant or a grapevine, disregard
expenditure incurred:
(a) in draining swamp or low-lying land; or
(b) in clearing land.
If you incurred capital expenditure under an
*arrangement and:
(a) there is at least one other party to the arrangement with whom you did
not deal at *arm’s length; and
(b) apart from this section, the amount of the expenditure would be more
than the *market value of what it was
for;
the amount of expenditure you take into account under this Subdivision is
that market value.
(1) You can deduct the amount worked out under subsection (2) for a
*horticultural plant or a grapevine for an
income year if:
(a) for a horticultural plant—its
*effective life is 3 years or more and it is
destroyed during the income year while you own it and use it for
*commercial horticulture; or
(b) for a grapevine—it is destroyed at any time up to 4 years after
the day it was established.
(2) Work out your deduction as follows:
Method statement
Step 1. Work out the total of the amounts you could have deducted
under this Subdivision for the *horticultural
plant or grapevine for the period:
(a) starting when the plant could first be used for
*commercial horticulture or when the grapevine
was established; and
(b) ending when it was destroyed;
assuming that, during that period, you satisfied a condition in
section 40-525 for the plant or grapevine and used it for commercial
horticulture (for a plant) or in a *primary
production business for the *purpose of
producing assessable income (for a grapevine).
Step 2. Subtract from the capital expenditure that is attributable
to the establishment of the *horticultural
plant or grapevine:
(a) the result from step 1; and
(b) any amount you received (under an insurance policy or otherwise) for
the destruction.
The remaining amount (if any) is your deduction under
subsection (1).
(3) This deduction is in addition to any deduction for the income year
under section 40-545 or 40-550.
(1) This section applies to allocate expenditure to you for the purposes
of this Subdivision if you were a partner in a partnership when it incurred
capital expenditure during an income year.
(2) For the purposes of this Subdivision, you are taken to have incurred
during that income year:
(a) the amount of the expenditure that the partners agreed you should
bear; or
(b) if there was no such agreement—the proportion of the expenditure
equal to the proportion of your individual interest in the net income or
partnership loss of the partnership for that income year.
(3) Disregard this Subdivision when working out the net income or
partnership loss of the partnership under section 90 of the Income Tax
Assessment Act 1936.
(1) If you begin to satisfy a condition in section 40-525 for a
*horticultural plant or a grapevine, you may
give the last entity (if any) that satisfied such a condition for the plant or
grapevine a written notice requiring the entity to give you any or all of the
following information:
(a) the amount of establishment expenditure for the plant or
grapevine;
(b) for a horticultural plant—its
*effective life and the day on which it could
first be used for *commercial
horticulture;
(c) for a grapevine—the day on which it was established.
(2) The notice must:
(a) be given within 60 days of your beginning to satisfy that condition;
and
(b) specify a period of at least 60 days within which the information must
be given; and
(c) set out the effect of subsection (3).
Note: Subsections (4) and (5) explain how this
subsection operates if the last owner is a partnership.
Requirement to comply with notice
(3) The entity to whom the notice is given must not intentionally refuse
or fail to comply with the notice.
Penalty: 10 penalty units.
Giving the notice to a partnership
(4) If the entity to whom the notice is given is a partnership:
(a) you may give it to the partnership by giving it to any of the partners
(this does not limit how else you can give it); and
(b) the obligation to comply with the notice is imposed on each of the
partners (not on the partnership), but may be discharged by any of
them.
(5) A partner must not intentionally refuse or fail to comply with that
obligation, unless another partner has already complied with it.
Penalty: 10 penalty units.
Limits on giving a notice
(6) Only one notice can be given in relation to the same
*horticultural plant or grapevine.
You can deduct amounts for capital expenditure you incur:
• on landcare operations; or
• on electricity connections or telephone lines.
Table of sections
Operative provisions
40-630 Landcare operations
40-635 Meaning of landcare operation
40-640 Meaning of approved management
plan
40-645 Electricity and telephone lines
40-650 Amounts you cannot deduct under this
Subdivision
40-655 Meaning of connecting power to land or upgrading
the connection and metering point
40-660 Non-arm’s length transactions
40-665 How this Subdivision applies to partners and
partnerships
40-670 Approval of persons as farm
consultants
40-675 Review of decisions relating to
approvals
[This is the end of the Guide.]
(1) You can deduct capital expenditure you incur at a time in an income
year on a *landcare operation for:
(a) land in Australia you use at the time for carrying on a
*primary production business; or
(b) rural land in Australia you use at the time for carrying on a
*business for a
*taxable purpose from the use of that land
(except a business of *mining
operations).
Exception: plant
(2) However, you cannot deduct an amount under this Subdivision for
capital expenditure on *plant,
except:
(a) a fence erected for a purpose described in paragraph 40-635(1)(a) or
(b); or
(b) a dam or structural improvement (except a fence) covered by
paragraph (1)(c), (d), (e) or (f) of the definition of plant
in section 45-40.
Reduction of deduction
(3) You must reduce your deduction by a reasonable amount to reflect your
use of the land in the income year after the time when you incurred the
expenditure for a purpose other than the purpose of carrying on:
(a) a *primary production business;
or
(b) a *business for the
*purpose of producing assessable income from
the use of rural land (except a business of
*mining operations).
(1) Landcare operation for land means:
(a) erecting a fence to separate different land classes on the land in
accordance with an *approved management plan
for the land; or
(b) erecting a fence on the land primarily and principally for the purpose
of excluding animals from an area affected by land degradation:
(i) to prevent or limit extension or worsening of land degradation in the
area; and
(ii) to help reclaim the area; or
(c) constructing a levee or a similar improvement on the land;
or
(d) constructing drainage works on the land primarily and principally for
the purpose of controlling salinity or assisting in drainage control;
or
(e) an operation primarily and principally for the purpose of:
(i) eradicating or exterminating from the land animals that are pests;
or
(ii) eradicating, exterminating or destroying plant growth detrimental to
the land; or
(iii) preventing or fighting land degradation (except by erecting fences
on the land); or
(f) an extension, alteration or addition to an asset described in
paragraph (a), (b), (c) or (d) or an extension of an operation described in
paragraph (e).
(2) Paragraph (1)(d) does not apply to an operation draining swamp or
low-lying land.
An approved management plan for
*land is a plan that:
(a) shows the different classes within the land and the location of any
fencing needed to separate any of the land classes to prevent land degradation;
and
(b) describes the kind of fencing and how it will prevent land
degradation; and
(c) has been prepared by, or approved in writing as a suitable plan for
the land by:
(i) an officer of an *Australian
government agency responsible for land conservation who has authority to do so;
or
(ii) an individual who was at the time approved as a farm consultant under
this Subdivision.
(1) You can deduct amounts for capital expenditure you incur on
*connecting power to land or upgrading the
connection if, when you incur the expenditure:
(a) you have an interest in the land or are a share-farmer carrying on a
*business on the land; and
(b) you or another entity intends to use some or all of the electricity to
be supplied as a result of the expenditure in carrying on a business on the land
for a *taxable purpose at a time when you have
an interest in the land or are a share-farmer carrying on a business on the
land.
(2) You can also deduct amounts for capital expenditure you incur on a
telephone line on or extending to land if, when you incurred the
expenditure:
(a) a *primary production business was
carried on the land; and
(b) you had an interest in the land or you were a share-farmer carrying on
a primary production business on the land.
(3) The amount you can deduct is 10% of the expenditure:
(a) for the income year in which you incur it; and
(b) for each of the next 9 income years.
Note 1: Various provisions may reduce the amount you can
deduct or stop you deducting. For example, see:
• Division 26 of this Act (limiting deductions
generally); and
• section 40-650 of this Act (specifying
expenditure you cannot deduct under this Subdivision); and
• Division 245 of Schedule 2C to the
Income Tax Assessment Act 1936 (which may affect your entitlement to a
deduction if your debts are forgiven).
Note 2: If you recoup an amount of the expenditure, the
amount will be included in your assessable income. See
Subdivision 20-A.
(1) You cannot deduct amounts for capital expenditure you incur on
*connecting power to land or upgrading the
connection if, during the 12 months after electricity is first supplied to the
land as a result of the expenditure, no electricity supplied as a result of the
expenditure is used in carrying on a *business
on the land for a *taxable purpose.
(2) If you deducted an amount for any income year under this Subdivision
for the expenditure, your assessment for that income year may be amended under
section 170 of the Income Tax Assessment Act 1936 to disallow the
deduction.
(3) You cannot deduct an amount for capital expenditure you incur on
*connecting power to land or upgrading the
connection for:
(a) expenditure in providing water, light or power for use on, access to
or communication with the site of *mining
operations; or
(b) a contribution to the cost of providing water, light or power for
those operations.
(4) You cannot deduct an amount for any income year for your capital
expenditure on a part of a telephone line if:
(a) any entity has deducted, or can deduct, an amount for any income year
for the cost of that part under a provision of this Act (except this
Subdivision); or
(b) the cost of that part has been, or must be, taken into account in
working out:
(i) the amount of any entity’s deduction (including a deduction for
a *depreciating asset) for any income year
under a provision of this Act (except this Subdivision); or
(ii) the net income, or partnership loss, of a partnership under
section 90 of the Income Tax Assessment Act 1936.
(5) However, you can deduct an amount under this Subdivision for your
expenditure on a part of a telephone line even if:
(a) an entity that worked on installing that part has deducted, or can
deduct, an amount relating to that part for any income year under this Act
(except this Subdivision); or
(b) the cost of that part has been, or must be, taken into
account:
(i) in working out the amount of such an entity’s deduction for any
income year under a provision of this Act (except this Subdivision);
or
(ii) under section 90 of the Income Tax Assessment Act 1936 in
working out the net income, or partnership loss, of a partnership that worked on
installing that part.
(6) Subsection (5) has effect whether the entity did the work itself
or through one or more employees or
*agents.
(7) If you can deduct, or have deducted, an amount for any income year
under section 40-645 for your expenditure:
(a) an entity cannot deduct an amount for any income year under a
provision of this Act (except this Subdivision) for the expenditure;
and
(b) the expenditure cannot be taken into account to work out the amount of
an entity’s deduction for any income year under a provision of this Act
(except this Subdivision).
(8) Subsection (7) also applies in working out the net income, or
partnership loss, of a partnership under section 90 of the Income Tax
Assessment Act 1936.
(1) Each of these operations is connecting power to land or
upgrading the connection:
(a) connecting a mains electricity cable to a
*metering point on the land (whether or not the
point from which the cable is connected is on the land);
(b) providing or installing equipment designed to measure the amount of
electricity supplied through a mains electricity cable to a metering point on
the land;
(c) providing or installing equipment for use directly in connection with
the supply of electricity through a mains electricity cable to a metering point
on the land;
(d) work to increase the amount of electricity that can be supplied
through a mains electricity cable to a metering point on the land;
(e) work to modify or replace equipment designed to measure the amount of
electricity supplied through a mains electricity cable to a metering point on
the land, if the modification or replacement results from increasing the amount
of electricity supplied to the land;
(f) work to modify or replace equipment for use directly in connection
with the supply of electricity through a mains electricity cable to the land, if
the modification or replacement results from increasing the amount of
electricity supplied to the land;
(g) work carried out as a result of a contribution to the cost of a
project consisting of the connection of mains electricity facilities to that
land and other land.
(2) However, an operation described in subsection (1) done in the
course of replacing or relocating mains electricity cable or equipment is
connecting power to land or upgrading the connection only if done
to increase the amount of electricity that can be supplied to a
*metering point on the land.
(3) A metering point on land is a point where consumption of
electricity supplied to the land through a mains electricity cable is
measured.
If you incurred capital expenditure under an
*arrangement and:
(a) there is at least one other party to the arrangement with whom you did
not deal at *arm’s length; and
(b) apart from this section, the amount of the expenditure would be more
than the *market value of what it was
for;
the amount of expenditure you take into account under this Subdivision is
that market value.
(1) This section applies to allocate expenditure to you for the purposes
of this Subdivision if you were a partner in a partnership when it incurred
capital expenditure during an income year.
(2) For the purposes of this Subdivision, you are taken to have incurred
during that income year:
(a) the amount of the expenditure that the partners agreed you should
bear; or
(b) if there was no such agreement—the proportion of the expenditure
equal to the proportion of your individual interest in the net income or
partnership loss of the partnership for that income year.
(3) Disregard this section when working out the net income or partnership
loss of the partnership under section 90 of the Income Tax Assessment
Act 1936.
(1) A person may be approved in writing as a farm consultant by:
(a) the Secretary of the Department of Agriculture, Fisheries and
Forestry; or
(b) an officer of that Department who has been authorised in writing by
that Secretary to approve persons as farm consultants.
Note: This subsection also allows the approval of an
individual as a farm consultant to be revoked. See subsection 33(3) of the
Acts Interpretation Act 1901.
(2) The following matters must be taken into account when deciding whether
to approve a person as a farm consultant:
(a) the person’s qualifications, experience and knowledge relating
to *land conservation and farm
management;
(b) the person’s standing in the professional community;
(c) any other relevant matters.
A person may apply to the *AAT for
review of a decision (as defined in the Administrative Appeals Tribunal Act
1975):
(a) to refuse to approve the person as a farm consultant; or
(b) to revoke the approval of the person as a farm consultant.
You get an immediate deduction for certain capital expenditure
on:
• exploration or prospecting; and
• rehabilitation of mining or quarrying sites; and
• paying petroleum resource rent tax; and
• environmental protection activities.
Table of sections
Operative provisions
40-730 Deduction for expenditure on exploration or
prospecting
40-735 Deduction for expenditure on mining site
rehabilitation
40-740 Meaning of ancillary activities and mining
building site
40-745 No deduction for certain expenditure
40-750 Deduction for payments of petroleum resource rent
tax
40-755 Environmental protection activities
40-760 Limits on deductions from environmental protection
activities
40-765 Non-arm’s length transactions
[This is the end of the Guide.]
(1) You can deduct expenditure you incur in an income year on
*exploration or prospecting for
*minerals, or quarry materials, obtainable by
*mining operations if, for that expenditure,
you satisfy one or more of these paragraphs:
(a) you carried on mining operations;
(b) it would be reasonable to conclude you proposed to carry on such
operations;
(c) you carried on a *business of, or a
business that included, exploration or prospecting for minerals or quarry
materials obtainable by such operations, and the expenditure was necessarily
incurred in carrying on that business.
(2) However, you cannot deduct expenditure under subsection (1) if it
is expenditure on:
(a) development drilling for *petroleum;
or
(b) operations in the course of working a mining property, quarrying
property or petroleum field.
(3) Also, you cannot deduct expenditure under subsection (1) to the
extent that it forms part of the *cost of a
*depreciating asset.
(4) Exploration or prospecting includes:
(a) for mining in general, and quarrying:
(i) geological mapping, geophysical surveys, systematic search for areas
containing *minerals (except
*petroleum) or quarry materials, and search by
drilling or other means for such minerals or materials within those areas;
and
(ii) search for ore within, or near, an ore-body or search for quarry
materials by drives, shafts, cross-cuts, winzes, rises and drilling;
and
(b) for petroleum mining:
(i) geological, geophysical and geochemical surveys; and
(ii) exploration drilling and appraisal drilling; and
(c) feasibility studies to evaluate the economic feasibility of mining
minerals or quarry materials once they have been discovered; and
(d) obtaining *mining, quarrying or
prospecting information associated with the search for, and evaluation of, areas
containing minerals or quarry materials.
(5) Minerals
includes *petroleum.
(6) Petroleum means:
(a) any naturally occurring hydrocarbon or naturally occurring mixture of
hydrocarbons, whether in a gaseous, liquid or solid state; or
(b) any naturally occurring mixture of:
(i) one or more hydrocarbons, whether in a gaseous, liquid or solid state;
and
(ii) one or more of the following: hydrogen sulphide, nitrogen, helium or
carbon dioxide;
whether or not that substance has been returned to a natural
reservoir.
(7) Mining operations means:
(a) mining operations on a mining property for extracting
*minerals (except
*petroleum) from their natural site;
or
(b) mining operations for the purpose of obtaining petroleum; or
(c) quarrying operations on a quarrying property for extracting quarry
materials from their natural site;
for a *taxable purpose.
(8) Mining, quarrying or prospecting information is
geological, geophysical or technical information that:
(a) relates to the presence, absence or extent of deposits of
*minerals or quarry materials in an area;
or
(b) is likely to help in determining the presence, absence or extent of
such deposits in an area.
(1) You can deduct for an income year expenditure you incur in that year
to the extent it is on *mining site
rehabilitation of:
(a) a site on which you:
(i) carried on *mining operations;
or
(ii) conducted *exploration or
prospecting; or
(iii) conducted *ancillary mining
activities; or
(b) a *mining building site.
Note: If an amount of the expenditure is recouped, the
amount may be included in your assessable income: see
Subdivision 20-A.
(2) However, a provision of this Act (except Division 8 (which is
about deductions)) that expressly prevents or restricts the operation of that
Division applies in the same way to this section.
(3) However, you cannot deduct expenditure under subsection (1) to
the extent that it forms part of the *cost of a
*depreciating asset.
(4) Mining site rehabilitation is an act of restoring or
rehabilitating a site or part of a site to, or to a reasonable approximation of,
the condition it was in before *mining
operations, *exploration or prospecting or
*ancillary mining activities were first started
on the site, whether by you or by someone else.
(5) Partly restoring or rehabilitating such a site counts as
mining site rehabilitation (even if you had no intention of
completing the work).
(6) For a *mining building site,
the time when *ancillary mining activities were
first started on the site is the earliest time when the buildings, improvements
or *depreciating assets concerned were located
on the site.
(1) Any of the following are ancillary mining
activities:
(a) preparing a site for you to carry on
*mining operations;
(b) providing water, light or power for, access to, or communications
with, a site on which you carry on, or will carry on, mining
operations;
(c) *minerals treatment of
*minerals or minerals treatment of quarry
materials, obtained by you in carrying on mining operations;
(d) storing (whether before or after minerals treatment) such minerals,
petroleum or quarry materials in relation to the operation of a
*depreciating asset for use primarily and
principally in treating such minerals or quarry materials;
(e) liquefying natural gas obtained from mining operations you carry
on.
(2) A mining building site is a site, or a part of a site,
where there are *depreciating assets that are
or were necessary for you to carry on *mining
operations. However, a mining building site does not include
anything covered by the definition of housing and
welfare.
Expenditure on these things is not deductible under
section 40-735:
(a) acquiring land or an interest in land or a right, power or privilege
to do with land;
(b) a bond or security, however described, for performing
*mining site rehabilitation;
(c) *housing and welfare.
(1) You can deduct a payment of
*petroleum resource rent tax, or an
*instalment of petroleum resource rent tax,
that you make in an income year.
Note: If an amount of the expenditure is recouped, the
amount may be included in your assessable income: see
Subdivision 20-A.
(2) You cannot deduct under subsection (1) a payment that you make
under paragraph 99(c) of the Petroleum Resource Rent Tax Assessment Act
1987.
(3) These amounts are included in your assessable income for the income
year in which they are refunded, credited, paid or applied:
(a) an amount the Commissioner pays you in total or partial discharge of a
debt of the kind referred to in subsection 47(1) of the Petroleum Resource
Rent Tax Assessment Act 1987; or
(b) an amount the Commissioner applies under subsection 47(2) of the
Petroleum Resource Rent Tax Assessment Act 1987 in total or partial
discharge of a liability you have.
(1) You can deduct expenditure you incur in an income year for the sole or
dominant purpose of carrying on *environmental
protection activities.
(2) Environmental protection activities are any of the
following activities that are carried on by or for you:
(a) preventing, fighting or remedying:
(i) pollution resulting, or likely to result, from
*your earning activity; or
(ii) pollution of or from the site of your earning activity; or
(iii) pollution of or from a site where an entity was carrying on any
*business that you have acquired and carry on
substantially unchanged as your earning activity;
(b) treating, cleaning up, removing or storing:
(i) waste resulting, or likely to result, from your earning activity;
or
(ii) waste that is on or from the site of
*your earning activity; or
(iii) waste that is on or from a site where an entity was carrying on any
business that you have acquired and carry on substantially unchanged as your
earning activity.
No other activities are environmental protection activities.
(3) Your earning activity is an activity you carried on,
carry on, or propose to carry on:
(a) for the *purpose of producing
assessable income for an income year (except a
*net capital gain); or
(b) for the purpose of *exploration or
prospecting; or
(c) for the purpose of *mining site
rehabilitation; or
(d) for purposes that include one or more of those purposes.
(4) If *your earning activity
is:
(a) leasing a site you own; or
(b) granting a right to use a site you own or control; or
(c) a similar activity involving a site;
that site is taken to be the site of your earning activity.
Note: This means you can deduct your expenditure on
environmental protection activities relating to the site, even if the pollution
or waste is caused by another entity that uses the site.
Expenditure you cannot deduct
(1) You cannot deduct an amount under section 40-755 for an income
year for:
(a) expenditure for acquiring land; or
(b) capital expenditure for constructing a building, structure or
structural improvement; or
(c) capital expenditure for constructing an extension, alteration or
improvement to a building, structure or structural improvement; or
(d) a bond or security (however described) for performing
*environmental protection activities;
or
(e) expenditure to the extent that you can deduct an amount for it under a
provision of this Act outside this Subdivision.
Note: You may be able to deduct expenditure described in
paragraph (1)(b) or (c) under Division 43 (which deals with capital
works).
(2) In particular, you cannot deduct under section 40-755 expenditure
to the extent that you incur it on carrying out an activity for environmental
impact assessment of your project.
(3) However, a provision of this Act (except Division 8 (which is
about deductions)) that expressly prevents or restricts the operation of that
Division applies in the same way to section 40-755.
If you incurred capital expenditure under an
*arrangement and:
(a) there is at least one other party to the arrangement with whom you did
not deal at *arm’s length; and
(b) apart from this section, the amount of the expenditure would be more
than the *market value of what it was
for;
the amount of expenditure you take into account under this Subdivision is
that market value.
You can deduct amounts for certain capital expenditure associated with
projects you carry on. You deduct the amounts over the life of the project using
a pool.
You can also deduct amounts for certain business related costs. You deduct
these amounts over 5 years.
Table of sections
Operative provisions
40-830 Project pools
40-835 Reduction of deduction
40-840 Meaning of project amount
40-845 Project life
40-855 When you start to deduct amounts for a project
pool
40-860 Meaning of mining capital
expenditure
40-865 Meaning of transport capital
expenditure
40-870 Meaning of transport facility
40-875 Meaning of processed minerals and minerals
treatment
40-880 Business related costs
40-885 Non-arm’s length transactions
[This is the end of the Guide.]
(1) You can allocate *project amounts to
a project pool.
(2) You can deduct amounts for *project
amounts that are allocated to the project pool.
(3) You calculate your deduction for an income year for a project pool in
this way:
where:
DV project pool life is:
(a) the *project life of the project;
or
(b) if its project life has been recalculated—its most recently
recalculated project life.
pool value is:
(a) for the first income year that a
*project amount is allocated to the
pool—the sum of the project amounts allocated to the pool for that year;
or
(b) for a later income year—the sum of the pool’s
*closing pool value for the previous income
year and any project amounts allocated to the pool for the later year.
(4) If, in an income year, you abandon, sell or otherwise dispose of a
project for which you have a project pool, you can deduct for that year the sum
of the pool’s *closing pool value for the
previous income year and any *project amounts
allocated to the pool for the income year.
(5) Your assessable income for that income year includes any amount you
receive for the abandonment, sale or other disposal.
(6) Your assessable income for an income year includes other capital
amounts that you derive in that year in relation to a
*project amount allocated to your project pool
or in relation to something on which the project amount is expended.
(7) The closing pool value of a project pool for an income
year is:
(a) for the first income year that a
*project amount is allocated to the
pool—the sum of the project amounts allocated to the pool for that year
less the amount you could deduct for the pool for that year (apart from
section 40-835); or
(b) for a later income year—the sum of the pool’s
*closing pool value for the previous income
year and any project amounts allocated to the pool for the later year less the
amount you could deduct for the pool for the later year (apart from
section 40-835).
(8) Your deduction for an income year cannot be more than the amount of
the component “pool value” in the formula in subsection (3) for
that year.
You must reduce your deduction under section 40-830 for an income
year by a reasonable amount for the extent (if any) to which the project
operates in the year for purposes other than
*taxable purposes.
(1) An amount of *mining capital
expenditure or *transport capital expenditure
you incur is a project amount if:
(a) it does not form part of the *cost of
a *depreciating asset you
*hold or held; and
(b) you cannot deduct it under a provision of this Act outside this
Subdivision; and
(c) it is directly connected with:
(i) for mining capital expenditure—carrying on the
*mining operations in relation to which the
expenditure is incurred; or
(ii) for transport capital expenditure—carrying on the
*business in relation to which the expenditure
is incurred.
(2) Another amount of capital expenditure you incur is also a
project amount so far as:
(a) it does not form part of the *cost of
a *depreciating asset you
*hold or held; and
(b) you cannot deduct it under a provision of this Act outside this
Subdivision; and
(c) it is directly connected with a project you carry on or propose to
carry on for a *taxable purpose; and
(d) it is one of these:
(i) an amount paid to create or upgrade community infrastructure for a
community associated with the project; or
(ii) an amount incurred for site preparation costs for depreciating assets
(except, for *horticultural plants including
grapevines, in draining swamp or low-lying land or in clearing land);
or
(iii) an amount incurred for feasibility studies for the project;
or
(iv) an amount incurred for environmental assessments for the project;
or
(v) an amount incurred to obtain information associated with the project;
or
(vi) an amount incurred in seeking to obtain a right to
*intellectual property; or
(vii) an amount incurred for ornamental trees or shrubs.
You work out the project life of a project by estimating
how long (in years, including fractions of years) it will be from when the
project starts to operate until it stops operating.
You start to deduct amounts for a project pool for the first income year
when the project starts to operate.
(1) Mining capital expenditure is capital expenditure you
incur:
(a) in carrying on *mining operations;
or
(b) in preparing a site for those operations; or
(c) on buildings or other improvements necessary for you to carry on those
operations; or
(d) in providing, or in contributing to the cost of providing:
(i) water, light or power for use on the site of those operations;
or
(ii) access to, or communications with, the site of those operations;
or
(e) on buildings for use directly in connection with operating or
maintaining *plant that is primarily and
principally for *treating
*minerals, or quarry materials, that you obtain
by carrying on such operations; or
(f) on buildings or other improvements for use directly in connection with
storing minerals or quarry materials or to facilitate
*minerals treatment of them (whether the
storage happens before or after the treatment).
(2) Capital expenditure you incur on
*housing and welfare in carrying on
*mining operations (except quarrying
operations) is also mining capital expenditure, but only
if:
(a) for residential accommodation—the accommodation is provided by
you, on or adjacent to a site where you carry on those operations, for the use
of:
(i) your employees, or someone else’s employees, who are employed or
engaged in those operations, or in operations of yours that are connected with
those operations; or
(ii) dependants of such employees; or
(b) for health, education, recreation or other similar facilities, or
facilities for meals—the facilities:
(i) are on or adjacent to a site where you carry on those operations, and
are principally for the benefit of the employees or dependants covered by
paragraph (a); and
(ii) are not run for profit by any person, except in the case of
facilities for meals (which may be run for profit); or
(c) in the case of works, including works for providing water, light,
power, access or communications—the works are carried out directly in
connection with the accommodation or facilities covered by this
section.
(3) However, expenditure on these is not mining capital
expenditure:
(a) railway lines, roads, pipelines or other facilities, for use wholly or
partly for transporting *minerals or quarry
materials, or their products, other than facilities used for transport wholly
within the site of *mining operations you carry
on;
(b) works carried out in connection with, or buildings or other
improvements constructed or acquired for use in connection with, establishing,
operating or using a port facility or other facility for ships;
(c) an office building that is not at or adjacent to the site of mining
operations you carry on;
(d) *housing and welfare in relation to
quarrying operations.
(1) Transport capital expenditure is capital expenditure you
incur, in carrying on a *business for a
*taxable purpose, on:
(a) a *transport facility; or
(b) obtaining a right to construct or install a transport facility, or
part of one, on land owned or leased by another entity or in an adjacent area
within the meaning of section 6AA of the Income Tax Assessment Act
1936; or
(c) paying compensation for any damage or loss caused by constructing or
installing a transport facility or part of one; or
(d) earthworks, bridges, tunnels or cuttings that are necessary for a
transport facility.
(2) Transport capital expenditure also includes capital
expenditure you incur, in carrying on a
*business for a
*taxable purpose, by way of contribution
to:
(a) someone else’s capital expenditure on a
*transport facility or on anything else covered
by a paragraph of subsection (1); or
(b) an *exempt Australian government
agency’s capital expenditure on railway rolling-stock.
(3) Transport capital expenditure does not include
expenditure on:
(a) road vehicles or ships; or
(b) railway rolling-stock; or
(c) a thing covered by the definition of housing and
welfare; or
(d) works for providing water, light or power, in connection with a port
facility or other facility for ships;
and does not include expenditure by way of contribution to that expenditure
(except expenditure by way of contribution to an
*exempt Australian government agency’s
capital expenditure on railway rolling-stock).
(1) A transport facility is a railway, a road, a pipe-line,
a port facility or other facility for ships, or another facility, that is used
primarily and principally for transport of:
(a) *minerals or quarry materials
obtained by any entity in carrying on *mining
operations; or
(b) *processed minerals produced from
minerals or quarry materials.
(2) However, a facility used for these is not a transport
facility:
(a) transport wholly within the site of
*mining operations;
(b) transport of *petroleum:
(i) that has been treated at a refinery; or
(ii) that forms part of a system of reticulation to consumers;
or
(iii) to a particular consumer or consumers.
(1) Processed minerals are any of the following:
(a) materials resulting from *minerals
treatment of *minerals or quarry materials
(except *petroleum);
(b) materials resulting from sintering or calcining;
(c) pellets or other agglomerated forms of iron;
(d) alumina and blister copper.
(2) Minerals treatment means:
(a) cleaning, leaching, crushing, grinding, breaking, screening, grading
or sizing; or
(b) concentration by a gravity, magnetic, electrostatic or flotation
process; or
(c) any other treatment:
(i) that is applied to *minerals, or to
quarry materials, before that concentration; or
(ii) for a mineral or materials not requiring that concentration, that
would, if the mineral or materials had required concentration, have been applied
before the concentration;
but does not include:
(d) sintering or calcining; or
(e) producing alumina, or pellets or other agglomerated forms of iron, or
processing connected with such production.
(1) You can deduct amounts for capital expenditure you incur that is one
of these:
(a) expenditure to establish a
*business;
(b) expenditure to convert your business structure to a different
structure;
(c) expenditure to raise equity for your business;
(d) expenditure to defend your business against a takeover;
(e) costs to your business of unsuccessfully attempting a
takeover;
(f) costs of liquidating a company that carried on a business and of which
you are a shareholder;
(g) costs to stop carrying on a business;
to the extent that the business is or was carried on for a
*taxable purpose.
(2) The amount you can deduct is 20% of the expenditure:
(a) for the income year in which you incur it; and
(b) for each of the next 4 income years.
(3) However, you cannot deduct anything under this section for an amount
of capital expenditure you incur to the extent that:
(a) it forms part of the *cost of a
*depreciating asset that you
*hold; or
(b) you can deduct an amount for it under a provision of this Act outside
this section; or
(c) it forms part of the cost of land.
If you incurred capital expenditure, or received an amount, under an
*arrangement and:
(a) there is at least one other party to the arrangement with whom you did
not deal at *arm’s length; and
(b) apart from this section:
(i) the amount of the expenditure would be more than the
*market value of what it was for; or
(ii) the amount you received would be less than the market value of what
it was for;
the amount of expenditure, or the amount received, you take into account
under this Subdivision is that market value.
2 Application
The amendments made by this Schedule apply to:
(a) depreciating assets:
(i) you start to hold under a contract entered into after 30 June
2001; or
(ii) you constructed where the construction started after that day;
or
(iii) you start to hold in some other way after that day; and
(b) expenditure that does not form part of the cost of a depreciating
asset incurred after that day.
Income Tax Assessment Act
1997
1 At the end of
section 42-100
Add:
(3) Your choice of an *effective life
specified by the Commissioner for *plant is
limited to one in force as at:
(a) the time when you entered into a contract to acquire the plant, you
otherwise acquired it or you started to construct it if you first used it, or
had it *installed ready for use, for any
purpose within 5 years of that time; or
(b) for plant that you entered into a contract to acquire, you otherwise
acquired or you started to construct before 11.45 am, by legal time in the
Australian Capital Territory, on 21 September 1999—the time when you
entered into the contract to acquire it, otherwise acquired it or started to
construct it; or
(c) otherwise—when you first used it, or had it installed ready for
use, for any purpose.
2 Subsection 42-167(2)
Repeal the subsection, substitute:
(2) Despite sections 42-160 and 42-165, your deduction is the
*plant’s cost for the income year in
which you became its owner or *quasi-owner
(regardless of when you acquired or constructed it) if that cost does not exceed
$300 and:
(a) you are a *small business taxpayer
for that income year; or
(b) each of these subparagraphs applies:
(i) you use the plant predominantly for the
*purpose of producing assessable income that is
not income from carrying on a *business;
and
(ii) the plant is not part of a set of assets of which you became the
owner or quasi-owner in that income year where the total cost of the set of
assets exceeds $300; and
(iii) the total cost of the plant and any other identical, or
substantially identical, item of plant of which you became the owner or
quasi-owner in that income year does not exceed $300.
3 At the end of
section 42-460
Add:
(6) You cannot allocate *plant to a
*low-value pool if:
(a) its *cost does not exceed $300;
and
(b) you use the plant predominantly for the
*purpose of producing assessable income that is
not income from carrying on a *business;
and
(c) the plant is not part of a set of assets of which you became the owner
or *quasi-owner in that income year where the
total cost of the set of assets exceeds $300; and
(d) the total cost of the plant and any other identical, or substantially
identical, item of plant of which you became the owner or quasi-owner in that
income year does not exceed $300.
4 Application
The amendments made by this Schedule apply to assessments for the income
year in which 1 July 2000 occurs, and for later income years.
Income Tax Assessment Act
1997
1 At the end of
section 42-25
Add:
Exception: plant acquired from associate
(4) For *plant that you acquire from an
*associate of yours where the associate has
deducted or can deduct an amount for the plant under this Division, you must use
the same method the associate was using.
Exception: owner changes but user same or associate of former
user
(5) For *plant that you acquire from a
former owner or *quasi-owner of the plant, you
must use the same method that the former owner or quasi-owner was using for the
plant if:
(a) the former owner or quasi-owner or another entity (each of which is
the former user) was using the plant at a time before you became
its owner or quasi-owner; and
(b) while you are the owner or quasi-owner of the plant, the former user
or an *associate of the former user uses the
plant.
(6) However, you must use the
*diminishing value method if:
(a) you do not know, and cannot readily find out, which method the former
owner or *quasi-owner was using; or
(b) the former owner or quasi-owner did not use a method.
2 At the end of
section 42-100
Add:
Exception: plant acquired from associate
(4) For *plant that you acquire from an
*associate of yours where the associate has
deducted or can deduct an amount for the plant under this Division, you must
use:
(a) if the associate was using the
*diminishing value method—the
*effective life that the associate was using;
or
(b) if the associate was using the *prime
cost method—an effective life equal to any period of the asset’s
effective life the associate was using that is yet to elapse at the time of
acquisition.
Exception: owner changes but user same or associate of former
user
(5) For *plant that you acquire from a
former owner or *quasi-owner of the plant
where:
(a) the former owner or quasi-owner or another entity (each of which is
the former user) was using the plant at a time before you became
its owner or quasi-owner; and
(b) while you are the owner or quasi-owner of the plant, the former user
or an *associate of the former user uses the
plant;
you must use:
(c) if the associate was using the
*diminishing value method—the same
*effective life that the former owner or
quasi-owner was using; or
(d) if the former owner or quasi-owner was using the
*prime cost method—an effective life
equal to any period of the asset’s effective life the former owner or
quasi-owner was using that is yet to elapse at the time of
acquisition.
(6) However, you must use an *effective
life determined by the Commissioner if:
(a) you do not know, and cannot readily find out, which effective life the
former owner or *quasi-owner was using;
or
(b) the former owner or quasi-owner did not use an effective
life.
3 Application
The amendments made by this Schedule apply to plant:
(a) you start to own or be the quasi-owner of under a contract entered
into at or after 10 am, by legal time in the Australian Capital Territory, on
9 May 2001; or
(b) you constructed where the construction started at or after that time;
or
(c) you start to own or be the quasi-owner of in some other way at or
after that time.