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INCOME TAX ASSESSMENT ACT 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-10 - CAPITAL ALLOWANCES: RULES ABOUT DEDUCTIBILITY OF CAPITAL EXPENDITURE  

Division 40 - Capital allowances    View history reference

Subdivision 40-B - Core provisions    View history reference

Operative provisions

SECTION 40-25  Deducting amounts for depreciating assets  

 View history reference

You deduct the decline in value

40-25(1)  

 ITAA 36
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, 40-72 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), 40-72(3) and 40-75(7).

Note 2:

Small business entities can choose to both deduct and 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

40-25(2)  

 View history reference ITAA 36
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

40-25(3)  

 View history reference ITAA 36
You may have to make a further reduction for a *depreciating asset that is a *leisure facility attributable to your use of it, or your having it *installed ready for use, for a *taxable purpose.

40-25(4)  

 View history reference ITAA 36
That reduction is the part of the *leisure facility's decline in value that is attributable to your use of it, or your having it *installed ready for use, at a time when:


(a) its use did not constitute a *fringe benefit; or


(b) 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).

Exception: low-value pools

40-25(5)  

 View history reference [No equivalent]
Subsections (2), (3) and (4) do not apply to *depreciating assets allocated to a low-value pool.

Despite subsection (1), you can continue to deduct an amount equal to the decline in value for an income year (as worked out under this Division) of such an asset even though you do not continue to *hold that asset.

Note:

See Subdivision 40-E for low-value pools.

40-25(6)  

(Repealed by No 162 of 2015)

Meaning of taxable purpose

40-25(7)  

 View history reference [No equivalent]
Subject to subsection (8), a taxable purpose is:


(a) the *purpose of producing assessable income; or
 [42-15(b)]


(b) the purpose of *exploration or prospecting; or
 [No equivalent]


(c) the purpose of *mining site rehabilitation; or
 [330-455]


(d) *environmental protection activities.
 [400-100]

Note 1:

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.

Note 2:

When this Division notionally applies under section 355-310 (about depreciating assets used for R&D activities), the taxable purpose is sometimes only the purpose of conducting R&D activities.

40-25(8)  

 View history reference
If Division 250 applies to you and an asset that is a *depreciating asset:


(a) if section 250-150 applies - you are taken not to be using the asset for a *taxable purpose to the extent of the *disallowed capital allowance percentage; or
 View history reference


(b) otherwise - you are taken not to be using the asset for such a purpose.


 



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