Printable version

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

View history note Hide history note View history notes

History Div 40 substituted for Divs 40, 41 and 42 by No 76 of 2001.

Subdivision 40-B - Core provisions

View history reference

View history note Hide history note View history notes

History Subdiv 40-B substituted by No 76 of 2001.

Operative provisions

SECTION 40-75  Prime cost method

View history reference ITAA 36

40-75(1)

[42-165; 44-15; 46-35; 330-100; 330-110; 330-395; 373-20(1), (2); 380-15; 387-470]

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 31/3 years, the asset would decline in value in that year by:

$3,500

×

[365 - 25] 365

×

100%  31/3

=   $978

The asset's adjustable value at the end of the income year is:

$3,500 - $978 = $2,522

40-75(2)

[No equivalent]

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

View history reference

(d) in which the *remaining effective life of the asset is calculated under section 40-103; or

View history reference

(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

View history reference

(f) for which the opening adjustable value of the asset is modified under subsection 27-80(3A) or (4), 27-85(3) or 27-90(3); or

View history reference

(g) for which there is a reduction in the asset's opening adjustable value under section 775-70; or

View history reference

(h) for which there is an increase in the asset's opening adjustable value under section 775-75.

View history reference

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).

View history note Hide history note View history notes

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.

40-75(3)

[No equivalent]

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.

40-75(4)

View history reference [No equivalent]

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.

View history note Hide history note View history notes

History S 40-75(4) substituted by No 119 of 2002.

40-75(5)

[No equivalent]

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.

40-75(6)

[No equivalent]

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

40-75(7)

[42-20(2)]

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.

View history note Hide history note View history notes

History S 40-75 inserted by No 76 of 2001.