INCOME TAX ASSESSMENT ACT 1997
|CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION
|PART 2-10 - CAPITAL ALLOWANCES: RULES ABOUT DEDUCTIBILITY OF CAPITAL EXPENDITURE
Div 40 substituted for Divs 40, 41 and 42 by No 76 of 2001.
Subdiv 40-B substituted by No 76 of 2001.
SECTION 40-27 Further reduction of deduction for second-hand assets in residential property
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In addition to subsections 40-25(2) to (4), you may have to further reduce your deduction for a *depreciating asset for the income year.
Reduce your deduction by any part of the asset's decline in value that is attributable to your use of it, or your having it *installed ready for use, for the *purpose of producing assessable income:
(a) from the use of *residential premises to provide residential accommodation; but
(b) not in the course of carrying on a *business;
(c) you did not *hold the asset when it was first used, or first installed ready for use, (other than as trading stock) by any entity; or
(d) at any time during the income year or an earlier income year, the asset was used, or installed ready for use, either:
(i) in residential premises that were one of your residences at that time; or
(ii) for a purpose that was not a *taxable purpose, and in a way that was not occasional.
Your deduction could be reduced to nil if the purpose to which paragraphs (a) and (b) relate is your only taxable purpose for using the asset or having the asset installed ready for use.
Exception - kind of entity
Subsection (2) does not apply to you for the asset if, at any time during the income year, you are:
(a) a *corporate tax entity; or
(b) a *superannuation plan that is not a *self managed superannuation fund; or
(c) a *managed investment trust; or
(d) a public unit trust (within the meaning of section 102P of the Income Tax Assessment Act 1936); or
(e) a unit trust or partnership, if each *member of the trust or partnership is covered by a paragraph of this subsection at that time during the income year.
Exception - certain assets in new residential premises
Paragraph (2)(c) does not apply to you for the asset if:
(a) the *residential premises referred to in paragraph (2)(a) (the current premises) are supplied to you as new residential premises on a particular day (the current supply day); and
(b) the asset is supplied to you as part of that supply of the current premises; and
(c) at the time you first *hold the asset as a result of that supply, the asset is used, or *installed ready for use, in:
(i) the current premises; or
(ii) any other real property in which an interest was supplied to you as part of that supply of the current premises; and
(d) at any earlier time, no entity was residing in any residential premises in which the asset was used, or installed ready for use, at that earlier time; and
(e) no amount can be deducted under this Division, or under Subdivision 328-D, for the asset for any income year by any previous holder of the asset.
An entity residing at an earlier time in other residential premises in the same complex will not cause paragraph (d) to prevent this subsection from applying.
However, disregard paragraph (4)(d) for an earlier time if:
(a) the asset was used, or installed ready for use, in the current premises at that time; and
(b) both that time, and the current supply, happen during the 6-month period starting on the day the current premises became new residential premises.
Exception - low-value pools
Subsection (2) does not apply to *depreciating assets allocated to a low-value pool.
See Subdivision 40-E for low-value pools.
S 40-27 inserted by No 126 of 2017, s 3 and Sch 2 item 4, effective 1 January 2018. No 126 of 2017, s 3 and Sch 2 item 13 contains the following application provision:
13 Application of amendments
13(1) The amendments apply to an entity, for income years commencing on or after 1 July 2017, for assets:
(a) acquired by the entity under contracts entered into; or
(b) otherwise acquired by the entity;
at or after 7.30 pm, by legal time in the Australian Capital Territory, on 9 May 2017.
13(2) The amendments also apply to the entity, for income years commencing on or after 1 July 2017, for any other asset acquired by the entity, if:
(a) the asset's start time is during the income year that includes 9 May 2017 or during an earlier income year; and
(b) no amount can be deducted under Division 40, or Subdivision 328-D, of the Income Tax Assessment Act 1997 by the entity for the asset for the income year that includes 9 May 2017.