INCOME TAX ASSESSMENT ACT 1997
| CHAPTER 2
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LIABILITY RULES OF GENERAL APPLICATION |
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| PART 2-10
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CAPITAL ALLOWANCES: RULES ABOUT DEDUCTIBILITY OF CAPITAL EXPENDITURE |
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History
Div 40 substituted for Divs 40, 41 and 42 by No 76 of 2001. |
Commissioner
'
s Remedial Power Note:
A Commissioner
'
s Remedial Power (CRP 2017/2) is relevant to this part of the tax law. Taxation Administration (Remedial Power
-
Small Business Restructure Roll-over) Determination 2017 (F2017L01687) modifies the operation of s
40-340
of the
Income Tax Assessment Act 1997
and any other provisions of a taxation law whose operation is affected by the modified operation of s
40-340
in relation to an asset transferred under a small business restructure roll-over (item 8 of the table in s
40-340(1)
). The operation of the relevant provisions is modified as follows: If s
40-340
of ITAA 1997 provides for rollover relief in relation to a disposal of a depreciating asset because the condition in item 8 of the table in s
40-340(1)
of ITAA 1997 is satisfied in relation to the asset, that section has effect as if it also provided that the disposal of the asset has no direct consequences under the income tax law (other than Div
40
of ITAA 1997). The modification applies in respect of transfers on or after 8 May 2018. An entity must treat a modification as not applying to it or any other entity if the modification would produce a less favourable result for it. The Commissioner is empowered by s
370-5
of Sch
1
to the
Taxation Administration Act 1953
to make modifications, by legislative instrument, to ensure the law is administered to achieve its intended purpose or object. |
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History
Subdiv 40-B substituted by No 76 of 2001. |
Operative provisions
You work out the decline in value of a
*
depreciating asset for an income year using the
prime cost method
in this way:
where:
| | Asset
'
s *cost | × | Days held
365 | × |
100%
Asset
'
s *effective life
| |
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 3
1/3
years, the asset would decline in value in that year by:
| | $3,500 | × | [
365
-
25
]
365 | × | 100%
3
1/3 | =
$978 | |
The asset
'
s adjustable value at the end of the income year is:
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
*
opening adjustable value is reduced under section
40-90
(about debt forgiveness); or
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(e) for which there is a reduction to the asset
'
s opening adjustable value under paragraph
40-365(5)(b)
(about involuntary disposals) where you are using the prime cost method; or
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The adjustments apply for the change year and later years.
Note 1:For recalculating a depreciating asset
'
s effective life: see section
40-110
. Note 2:You may also adjust the formula for an income year if you had undeducted core technology expenditure for the asset at the end of your last income year commencing before 1 July 2011 (see section
355-605
of the
Income Tax (Transitional Provisions) Act 1997
).
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History
S 40-75(2) amended by No 57 of 2012, s 3 and Sch 2 item 3, by inserting para (d), applicable to a vessel that you hold on or after 1 July 2012, even if you commenced to hold it before that day. However, if you commenced to hold the vessel before that day, the amendments made apply to it as if you commenced to hold it on that day. S 40-75(2) amended by No 93 of 2011, s 3 and Sch 4 items 7 and 8, by substituting
"
Note 1
"
for
"
Note
"
in the note and inserting note 2, effective 8 September 2011. For application, savings and transitional provisions see note under Div
355
heading. S 40-75(2) amended by No 133 of 2003 and No 119 of 2002. |
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.
The
remaining effective life
of a
*
depreciating asset is any period of its
*
effective life that is yet to elapse as at:
(a) the start of the change year; or
(b) in the case of a roll-over under section
40-340
-
the time when the
*
balancing adjustment event occurs for the transferor.
Note:Effective life is worked out in years and fractions of years.
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History
S 40-75(4) substituted by No 119 of 2002. |
You must also adjust the formula in subsection (1) for an intangible
*
depreciating asset that:
(a) is mentioned in an item in the table in subsection
40-95(7)
(except item 5, 7 or 8); 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.
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
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.
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History
S 40-75 inserted by No 76 of 2001. |
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