Part 2‑10—Capital allowances: rules about deductibility of capital expenditure
Division 40—Capital allowances
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
40‑J Capital expenditure for the establishment of trees in carbon sink forests
40‑1 What this Division is about
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.
40‑10 Simplified outline of this Division
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. | Subdivision 40‑B |
1.2 | Cost The cost of a depreciating asset includes both:
| 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:
| 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:
| Subdivision 40‑G |
2.2 | Capital expenditure that is immediately deductible You can get an immediate deduction for certain capital expenditure on:
| 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 where the amounts are not otherwise taken into account and are not denied a deduction. | Subdivision 40‑I |
2.4 | Capital expenditure for establishing trees in carbon sink forests You can deduct amounts for capital expenditure for the establishment of trees in carbon sink forests. | Subdivision 40‑J |
Subdivision 40‑A—Objects of Division
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 1: This Division does not apply to some depreciating assets: see section 40‑45.
Note 2: The application of this Division to a life insurance company is affected by sections 320‑200 and 320‑255.
Subdivision 40‑B—Core provisions
40‑20 What this Subdivision is about
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
40‑53 Alterations etc. to certain depreciating assets
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
40‑72 Diminishing value method for post‑9 May 2006 assets
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
40‑102 Capped life of certain depreciating assets
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
40‑25 Deducting amounts for depreciating assets
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, 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
(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
(3) 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.
(4) 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
(5) 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.
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) Subject to subsection (8), 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.
(8) If Division 250 applies to you and an asset that is a *depreciating asset:
(a) if section 250‑150 applies—you are taken to be using the asset for a *taxable purpose to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—you are taken not to be using the asset for such a purpose.
40‑30 What a depreciating asset is
(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;
(h) *telecommunications site access rights.
(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.
(6) This Division applies to a *mining, quarrying or prospecting right (the new right) as if it were a continuation of another mining, quarrying or prospecting right you *held if:
(a) the other right ends; and
(b) the new right and the other right relate to the same area, or any difference in area is not significant.
40‑35 Jointly held depreciating assets
(1) This Division and Divisions 328 and 775 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.
40‑40 Meaning of hold a depreciating asset
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: (a) the economic owner will become its legal owner; or (b) it will be disposed of at the direction and for the benefit of the economic owner | 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): (a) possesses the asset, or has a right as against the former holder to possess the asset immediately; and (b) has a right as against the former holder the exercise of which would make the economic owner the holder under any item of this table; 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: (a) *mining operations carried on, or proposed to be carried on by the entity; or (b) a *business carried on by the entity that includes *exploration or prospecting for *minerals or quarry materials obtainable by such operations; 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.
40‑45 Assets to which this Division does not apply
Eligible work related items
(1) This Division does not apply to an asset that is an eligible work related item for the purposes of section 58X of the Fringe Benefits Tax Assessment Act 1986 where the relevant benefit provided by the employer is an expense payment benefit or a property benefit (within the meaning of that Act).
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:
(a) but for expenditure being incurred, or capital works being started, before a particular day; or
(b) had you used the capital works for a purpose relevant to those capital works under section 43‑140.
Note: Section 43‑20 lists the capital works to which that Division applies.
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.
(6) This Division applies to a *depreciating asset that is copyright in a *film where a company is entitled to a *tax offset under section 376‑55 in respect of the film as if the asset’s *cost were reduced by the amount of that offset.
40‑50 Assets for which you deduct under another Subdivision
(1) You cannot deduct an amount, or work out a decline in value, 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), 40‑G (about capital expenditure of primary producers and other landholders) or 40‑J (about capital expenditure for the establishment of trees in carbon sink forests).
(2) You cannot deduct an amount, or work out a decline in value, for *in‑house software under this Subdivision if you have allocated expenditure on the software to a software development pool under Subdivision 40‑E.
40‑53 Alterations etc. to certain depreciating assets
(1) These things are not the same *depreciating asset for the purposes of section 40‑50 and Subdivision 40‑F:
(a) a depreciating asset; and
(b) a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a *water facility.
(2) These things are not the same *depreciating asset for the purposes of section 40‑50 and Subdivision 40‑G:
(a) a depreciating asset; and
(b) a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a *landcare operation.
40‑55 Use of certain car methods
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.
40‑60 When a depreciating asset starts to decline in value
(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.
40‑65 Choice of methods to work out the decline in value
(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 sections 40‑70 and 40‑72. 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.
Exception: expenditure deductible under research and development provisions
(6) If you can deduct an amount under section 73BA of the Income Tax Assessment Act 1936 (or could if you had not chosen a tax offset under section 73I of that Act) for the asset:
(a) for a period before the first period for which you can deduct an amount for the asset under this Division; or
(b) for a period that starts at the same time as the first period for which you can deduct an amount for the asset under this Division;
you must, for the purposes of this Division, use the same method as you used, or use, for the asset for the purposes of working out the deduction under section 73BA.
40‑70 Diminishing value method
(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 (except copyright in a *film); or
(c) a *spectrum licence; or
(d) a *datacasting transmitter licence; or
(e) a *telecommunications site access right.
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.
40‑72 Diminishing value method for post‑9 May 2006 assets
(1) You work out the decline in value of a *depreciating asset for an income year using the diminishing value method in this way if you started to *hold the asset on or after 10 May 2006:
where:
base value has the same meaning as in subsection 40‑70(1).
days held has the same meaning as in subsection 40‑70(1).
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 (except copyright in a *film); or
(c) a *spectrum licence; or
(d) a *datacasting transmitter licence; or
(e) a *telecommunications site access right.
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 *opening adjustable value is reduced under section 40‑90 (about debt forgiveness); or
(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
(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
(g) for which there is a reduction in the asset’s opening adjustable value under section 775‑70; or
(h) for which there is an increase in the asset’s opening adjustable value under section 775‑75.
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:
(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.
(5) 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.
(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.
40‑80 When you can deduct the asset’s cost
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) when you first use the asset, 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.
40‑85 Meaning of adjustable value and opening adjustable value of a depreciating asset
(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.
Note: The adjustable value of a depreciating asset may be modified by section 250‑285.
(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 may be modified by one of these provisions:
- Subdivision 27‑B;
- subsection 40‑90(3);
- subsection 40‑285(4);
- paragraph 40‑365(5)(b);
- section 775‑70;
- section 775‑75.
(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.
40‑95 Choice of determining effective life
(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.
Note: If you choose to use an effective life determined by the Commissioner for a depreciating asset, a capped life may apply to the asset under section 40‑102.
(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.
(4A) Subsection (4) does not apply to a *depreciating asset if subsection (4B) or (4C) applies to the asset.
(4B) For a *depreciating asset that you start to *hold if:
(a) the former holder is an *associate of yours; and
(b) the associate has deducted or can deduct an amount for the asset under this Division; and
(c) section 40‑102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40‑102(4) and (5) applied to it at the relevant time (the relevant time for the associate) that applied to the associate under subsection 40‑102(3); and
(d) a different item in the tables in subsections 40‑102(4) and (5) applies to the asset when you start to hold it; and
(e) the item referred to in paragraph (d) would have applied to the asset at the relevant time for the associate if the use to which the asset were put at that time were the use (the new use) to which it is put when you start to hold it;
you must use:
(f) if the associate was using the *diminishing value method for the asset—an *effective life equal to the *capped life that would have applied to the asset under subsection 40‑102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; or
(g) if the associate was using the *prime cost method—an effective life equal to the capped life that:
(i) would have applied to the asset under subsection 40‑102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; and
(ii) is yet to elapse at the time you start to hold it.
Note 1: If paragraph (e) is not satisfied, subsection (4C) may apply to the depreciating asset.
Note 2: You can require the associate to tell you the relevant time that applied to the associate under subsection 40‑102(3): see section 40‑140.
(4C) For a *depreciating asset that you start to *hold if:
(a) the former holder is an *associate of yours; and
(b) the associate has deducted or can deduct an amount for the asset under this Division; and
(c) section 40‑102 applied to the asset immediately before you started to hold it; and
(d) one of the following applies:
(i) no item in the tables in subsections 40‑102(4) and (5) applies to the asset when you start to hold it;
(ii) subsection (4B) would apply to the asset but for paragraph (e) of that subsection not being satisfied;
you must use:
(e) if the associate was using the *diminishing value method for the asset—the *effective life determined by the Commissioner for the asset under section 40‑100 that the associate would have used if section 40‑102 had not applied to the asset; or
(f) if the associate was using the *prime cost method—an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40‑100 that:
(i) the associate would have used if section 40‑102 had not applied to the asset; and
(ii) is yet to elapse at the time you start to hold it.
Note: You can require the associate to tell you which effective life the associate would have used if section 40‑102 had not applied to the asset: 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.
(5A) Subsection (5) does not apply to a *depreciating asset if subsection (5B) or (5C) applies to the asset.
(5B) For a *depreciating asset that you start to *hold if:
(a) paragraphs (5)(a) and (b) apply; and
(b) section 40‑102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40‑102(4) and (5) applied to it at the relevant time (the relevant time for the former holder) that applied to the former holder under subsection 40‑102(3); and
(c) a different item in the tables in subsections 40‑102(4) and (5) applies to the asset when you start to hold it; and
(d) the item referred to in paragraph (c) would have applied to the asset at the relevant time for the former holder if the use to which the asset were put at that time were the use (the new use) to which it is put when you start to hold it;
you must use:
(e) if the former holder was using the *diminishing value method for the asset—an *effective life equal to the *capped life that would have applied to the asset under subsection 40‑102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; or
(f) if the former holder was using the *prime cost method—an effective life equal to the capped life that:
(i) would have applied to the asset under subsection 40‑102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; and
(ii) is yet to elapse at the time you start to hold it.
Note: If paragraph (d) is not satisfied, subsection (5C) may apply to the depreciating asset.
(5C) For a *depreciating asset that you start to *hold if:
(a) paragraphs (5)(a) and (b) apply; and
(b) section 40‑102 applied to the asset immediately before you started to hold it; and
(c) one of the following applies:
(i) no item in the tables in subsections 40‑102(4) and (5) applies to the asset when you start to hold it;
(ii) subsection (5B) would apply to the asset but for paragraph (d) of that subsection not being satisfied;
you must use:
(d) if the former holder was using the *diminishing value method for the asset—the *effective life determined by the Commissioner for the asset under section 40‑100 that the former holder would have used if section 40‑102 had not applied to the asset; or
(e) if the former holder was using the *prime cost method—an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40‑100 that:
(i) the former holder would have used if section 40‑102 had not applied to the asset; and
(ii) is yet to elapse at the time you start 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 and, if subsection (5B) or (5C) applied to the asset, either of the following matters:
(i) the effective life the former holder would have used if section 40‑102 had not applied to the asset;
(ii) the relevant time that applied to the former holder under subsection 40‑102(3); 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 (except copyright in a *film) | The shorter of: (a) 25 years from when you acquire the copyright; or (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 (except copyright in a *film) | The shorter of: (a) 25 years from when you become the licensee; or (b) the period until the licence ends |
8 | *In‑house software | 4 years |
9 | *Spectrum licence | The term of the licence |
10 | *Datacasting transmitter licence | 15 years |
14 | *Telecommunications site access right | The term of the right |
(8) The effective life of an intangible *depreciating asset that is not mentioned in the table in subsection (7) and is not an *IRU or 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 telecommunications cable over which the IRU is granted.
Note: Section 73BG of the Income Tax Assessment Act 1936 modifies the way in which the effective life of a depreciating asset is worked out for certain companies. That section applies if it is reasonably likely that the asset will be used for the purpose of the carrying on by or on behalf of the company of research and development activities (as defined in section 73B of that Act).
Exception: mining, quarrying or prospecting rights
(10) The effective life of a *mining, quarrying or prospecting right is the period you work out yourself by estimating the period (in years, including fractions of years) set out in column 3 of this table:
Item | For this asset: | Estimate the period until the end of: |
1 | A *mining, quarrying or prospecting right relating to *mining operations (except obtaining *petroleum or quarry materials) | The life of the mine or proposed mine to which the right relates or, if there is more than one, the life of the mine that has the longest estimated life |
2 | A *mining, quarrying or prospecting right relating to *mining operations to obtain *petroleum | The life of the petroleum field or proposed petroleum field to which the right relates |
3 | A *mining, quarrying or prospecting right relating to *mining operations to obtain quarry materials | The life of the quarry or proposed quarry to which the right relates or, if there is more than one, the life of the quarry that has the longest estimated life |
(11) You work out the period in subsection (10):
(a) as from the *start time of the *mining, quarrying or prospecting right; and
(b) by reference only to the period of time over which the reserves, reasonably estimated using an appropriate accepted industry practice, are expected to be extracted from the mine, petroleum field or quarry.
40‑100 Commissioner’s determination of effective life
(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 or *non‑assessable non‑exempt income and, if relevant for the asset:
(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.
40‑102 Capped life of certain depreciating assets
(1) If this section applies to a *depreciating asset, the effective life of the asset is the period (the capped life) that applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)).
Working out if this section applies
(2) This section applies to a *depreciating asset if:
(a) you choose, under paragraph 40‑95(1)(a), to use an *effective life determined by the Commissioner for the asset under section 40‑100; and
(b) your choice is limited to a determination in force at the time mentioned in paragraph 40‑95(2)(a) or (c); and
(c) a *capped life applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)); and
(d) the capped life is shorter than the effective life mentioned in paragraph (a).
(3) For the purposes of this section, the relevant time is:
(a) the *start time of the *depreciating asset if:
(i) paragraph 40‑95(2)(c) applies to you; or
(ii) paragraph 40‑95(2)(a) applies to you and a *capped life does not apply to the asset under subsection (4) or (5) at the time mentioned in that paragraph; or
(iii) paragraph 40‑95(2)(a) applies to you and the capped life that applies to the asset under subsection (4) or (5) at the time mentioned in that paragraph is longer than the capped life that applies to the asset at its start time; or
(b) if paragraph (a) does not apply—the time mentioned in paragraph 40‑95(2)(a).
Capped life
(4) If the *depreciating asset corresponds exactly to the description in column 2 of the table, the capped life of the asset is the period specified in column 3 of the table.
Capped life of certain depreciating assets | ||
Item | Kind of depreciating asset | Period |
1 | Aeroplane used predominantly for agricultural spraying or agricultural dusting | 8 years |
2 | Aeroplane to which item 1 does not apply | 10 years |
3 | Helicopter used predominantly for mustering, agricultural spraying or agricultural dusting | 8 years |
4 | Helicopter to which item 3 does not apply | 10 years |
5 | Bus with a *gross vehicle mass of more than 3.5 tonnes | 7.5 years |
6 | Light commercial vehicle with a *gross vehicle mass of 3.5 tonnes or less and designed to carry a load of 1 tonne or more | 7.5 years |
7 | Minibus with a *gross vehicle mass of 3.5 tonnes or less and designed to carry 9 or more passengers | 7.5 years |
8 | Trailer with a *gross vehicle mass of more than 4.5 tonnes | 10 years |
9 | Truck with a *gross vehicle mass of more than 3.5 tonnes (other than a truck that is used in *mining operations and that is not of a kind that can be registered to be driven on a public road in the place in which the truck is operated) | 7.5 years |
(5) If the *depreciating asset is of a kind described in column 2 of the table and is used in the industry specified in column 3 of the table for the asset, the capped life of the asset is the period specified in column 4 of the table.
Capped life of certain depreciating assets used in specified industries | |||
Item | Kind of depreciating asset | Industry in which the asset is used | Period |
1 | Gas transmission asset | Gas supply | 20 years |
2 | Gas distribution asset | Gas supply | 20 years |
3 | Oil production asset (other than an electricity generation asset or an offshore platform) | Oil and gas extraction | 15 years |
4 | Gas production asset (other than an electricity generation asset or an offshore platform) | Oil and gas extraction | 15 years |
5 | Offshore platform | Oil and gas extraction | 20 years |
6 | Asset (other than an electricity generation asset) used to manufacture condensate, crude oil, domestic gas, liquid natural gas or liquid petroleum gas but not if the manufacture occurs in an oil refinery | Petroleum refining | 15 years |
7 | Harvester | Primary production sector | 6 2/3 years |
8 | Tractor | Primary production sector | 6 2/3 years |
40‑105 Self‑assessing effective life
(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 or *non‑assessable non‑exempt income and, if relevant for the asset:
(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 the following intangible *depreciating assets:
(a) assets to which an item in the table in subsection 40‑95(7) applies;
(b) *mining, quarrying or prospecting rights.
40‑110 Recalculating effective life
(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;
- there is an unexpected demand, or lack of success, for a film.
(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), or 40‑102 (about the capped life of certain depreciating assets), and the *prime cost method; or
(iii) are using an effective life because of subsection 40‑95(4), (4B), (4C), (5), (5B) or (5C); 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), (4B), (4C), (5), (5B) or (5C); and
(b) the asset’s *cost is increased after you started to hold it in that year by at least 10%.
(3A) Subsections (1), (2) and (3) do not apply to a *depreciating asset that is a *mining, quarrying or prospecting right.
(3B) You may choose to recalculate the *effective life of a *mining, quarrying or prospecting right from a later income year if the effective life you have been using is no longer accurate because of changed circumstances relating to an existing or proposed mine, petroleum field or quarry to which that right relates.
(4) A recalculation under this section must be done using:
(a) if paragraph (b) does not apply—section 40‑105 (about self‑assessing effective life); or
(b) if the *depreciating asset is a *mining, quarrying or prospecting right—subsections 40‑95(10) and (11).
Exception: intangibles
(5) This section does not apply to an intangible *depreciating asset to which an item in the table in subsection 40‑95(7) applies.
40‑115 Splitting a depreciating asset
(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.
40‑120 Replacement spectrum licences
(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 Communications and Media 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.
40‑125 Merging depreciating assets
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.
40‑135 Certain anti‑avoidance provisions
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.
40‑140 Getting tax information from associates
(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; and
(c) if section 40‑102 applied to the asset at any time:
(i) the effective life that the associate would have used if section 40‑102 had not applied to the asset; and
(ii) the relevant time that applied to the associate under subsection 40‑102(3).
(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.
40‑170 What this Subdivision is about
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
The cost of a *depreciating asset you *hold consists of 2 elements.
Note: The cost of a depreciating asset may be modified by one of these provisions:
- Subdivision 27‑B;
- subsection 40‑90(2);
- paragraph 40‑365(5)(a);
- section 775‑70;
- section 775‑75.
(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 continue to hold it | 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 continue to hold it | The *termination value of the asset at the time of the event |
5 | 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 |
6 | 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 |
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: (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 item, the first element of the asset’s cost would exceed its *market value | 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 on the day the person died or, if the asset is allocated to a low‑value pool, so much of the *closing pool balance for the income year in which the person died as is reasonably attributable to the asset |
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 |
(3) The first element of *cost includes an amount you paid or are taken to have paid in relation to starting to *hold the *depreciating asset if that amount is directly connected with holding the asset.
(4) The first element of *cost of a *depreciating asset does not include an amount that forms part of the second element of cost of another depreciating asset.
40‑185 Amount you are taken to have paid to hold a depreciating asset or to receive a benefit
(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 in relation to holding the asset or receiving the benefit.
Example 1: 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.
Example 2: Laura travels overseas to purchase a purpose‑built vehicle for use in her trade. The purchase of the vehicle is the sole reason for the trip. Laura incurs expenses for airfares and accommodation. These expenses are included in the cost of the vehicle because they are “in relation to starting to hold” the vehicle.
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:
(a) 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; and
(b) expenditure you incur that is reasonably attributable to a *balancing adjustment event occurring for the asset.
Example 1: 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.
Example 2: Leonie needed to replace one of her old depreciating assets that was fixed to her land with a new, more efficient one. Leonie paid a contractor a fee to demolish and remove the old asset. This resulted in a balancing adjustment event occurring for the old asset, and the fee forms part of the second element of the cost of the old asset that was demolished.
Note: The second element of the cost may be modified by a later provision in this Subdivision.
(2A) Paragraph (2)(b) does not apply to a *balancing adjustment event referred to in item 6 or 11 of the table in subsection 40‑300(2).
(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: (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 item, the second element of cost for the benefit would exceed its *market value | 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.
40‑205 Cost of a split depreciating asset
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.
40‑210 Cost of merged depreciating assets
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.
40‑215 Adjustment: double deduction
(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 or Division 328.
(2) Subsection (1) does not apply to deductions for research and development plant expenditure (sections 73B and 73BA of the Income Tax Assessment Act 1936).
Note: Subsection (2) does not have the effect that deductions for the same amount of any such expenditure will be allowable under both this Division and section 73B or 73BA. Such an outcome is prevented by subsection 40‑25(2) (including as applied by section 73BC for the purposes of section 73BA) and subsections 73B(20) and 73BA(7).
40‑220 Cost reduced by amounts not of a capital nature
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.
40‑225 Adjustment: acquiring a car at a discount
(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 and Subdivision 27‑B) 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.
(4) If you *hold a *car that is also held by one or more other entities, subsection (1) applies to the *cost of the car despite section 40‑35. Then section 40‑35 applies to the cost of the car as reduced under subsection (1).
Subdivision 40‑D—Balancing adjustments
40‑280 What this Subdivision is about
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
40‑292 Adjustments where deductions for decline in value also allowable under section 73BA or 73BH of Income Tax Assessment Act 1936
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
40‑320 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
(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.
Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25‑47.
(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 1: There is a different calculation if you had used different car expense methods for a car: see section 40‑370.
Note 2: The timing of a deduction allowed under this subsection is determined under Subdivision 170‑D where that Subdivision applies to the balancing adjustment event.
Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25‑47.
(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). Instead, the asset’s *opening adjustable value for the income year (the later year) after the one in which the *balancing adjustment event occurred is that cost plus any amounts included in the second element of that cost after the event occurred and before the start of the later year.
Note: Those items deal with a case where a balancing adjustment event happens because you still hold an asset you expected not to use.
40‑290 Reduction for non‑taxable 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.
Section applies if deductions for decline in value under both this Division and section 73BA
(1) This section applies 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) for any income year in which you held the asset, you also deducted an amount for it under section 73BA or 73BH of the Income Tax Assessment Act 1936, or could have done so if:
(i) you had not chosen a tax offset under section 73I of that Act; or
(ii) section 73BAF of that Act had not been enacted.
Section 40‑290 to be applied as if use for carrying on research and development activities were use for a taxable purpose
(2) If this section applies, you must, in applying section 40‑290 (including references in that section to the reduction of deductions under section 40‑25) in relation to the *depreciating asset, assume that when you used it either for a taxable purpose or for the purpose of the carrying on by or on behalf of you of research and development activities, within the meaning of section 73B of the Income Tax Assessment Act 1936, you used it for a taxable purpose.
Increase in amounts deductible or assessable under section 40‑285 where 1.25 rate deductions under section 73BA or 73BH
(3) If:
(a) this section applies; and
(b) the amount you deducted under section 73BA or 73BH of the Income Tax Assessment Act 1936, as mentioned in paragraph (1)(b) of this section, for at least one income year was worked out by multiplying a notional Division 40 deduction (within the meaning of section 73BA) or a notional Division 42 deduction (within the meaning of section 73BJ) by 1.25 (or would have been so worked out had section 73BAF of the Income Tax Assessment Act 1936 not been enacted);
then subsection (4) applies.
(4) Any amount (the section 40‑285 amount) that you can deduct, or that is included in your assessable income, for the *depreciating asset under section 40‑285 (after applying subsection (2) of this section) is increased by the amount worked out using the formula:
where:
adjusted section 40‑285 amount means:
(a) if the section 40‑285 amount is a deduction—the amount of the deduction; or
(b) if the section 40‑285 amount is an amount included in your assessable income—so much of the section 40‑285 amount as does not exceed the formula component total decline in value.
sum of all 1.25 rate notional Division 40/42 deductions means the sum of all notional Division 40 deductions and notional Division 42 deductions (see paragraph (3)(b)) that were multiplied by 1.25 in working out the amounts you deducted for the *depreciating asset as mentioned in paragraph (1)(b).
total decline in value means the cost of the *depreciating asset less its *adjustable value.
Note: An asset whose tax cost is set under Division 701 of this Act may have its adjustable value reduced in applying this section: see section 73BAG of the Income Tax Assessment Act 1936.
40‑295 Meaning of balancing adjustment event
(1) A balancing adjustment event occurs for a *depreciating asset if:
(a) you stop *holding the asset; or
(b) you stop using it, or having it *installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again; or
(c) you have not used it and:
(i) if you have had it installed ready for use—you stop having it so installed; and
(ii) 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 had an interest in 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.
40‑300 Meaning of termination value
(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, or having it *installed ready for use, 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 or having it *installed ready for use |
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: (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 item, the *termination value would be less than its *market value | 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 asset’s *adjustable value on the day you died or, if the asset is allocated to a low‑value pool, so much of the *closing pool balance for the income year in which you died as is reasonably attributable to the asset |
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 on the day 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 |
(3) The termination value of a *depreciating asset does not include an amount that is included in assessable income as *ordinary income under section 6‑5 or as *statutory income under section 6‑10 (except an amount that is statutory income under this Division).
Note: Termination value may be adjusted under Subdivision 27‑B so that any GST consequences are accounted for.
40‑305 Amount you are taken to have received under a balancing adjustment event
(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.
40‑310 Apportionment of termination value
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.
40‑320 Car to which section 40‑225 applies
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.
40‑335 Deduction for in‑house software where you will never use it
(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 had an interest in 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 1: Section 40‑345 sets out what the relief is.
Note 2: Subdivision 328‑D sets out what the relief is for small business entities that calculate deductions for their depreciating assets under that Subdivision.
(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 or Subdivision 328‑D 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.
40‑345 What the roll‑over relief is
(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.
40‑350 Additional consequences
(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.
40‑360 Notice to allow transferee to work out how this Division applies
(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) the original asset is acquired by an entity (other than an Australian government agency or a *foreign government agency) under a power of compulsory acquisition conferred by a law covered under subsection (2A); or
(d) you dispose of the original asset to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:
(i) the disposal takes place after a notice was served on you by or on behalf of the entity;
(ii) the notice invited you to negotiate with the entity with a view to the entity acquiring the asset by agreement;
(iii) the notice informed you that if the negotiations were unsuccessful, the asset would be compulsorily acquired by the entity;
(iv) the compulsory acquisition would have been under a power of compulsory acquisition conferred by a law covered under subsection (2A); or
(e) you dispose of land onto which the original asset was fixed to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:
(i) a mining lease was compulsorily granted over the land;
(ii) the lease significantly affected your use of the land;
(iii) the lease was in force just before the disposal;
(iv) the entity to which you dispose of the land was the lessee under the lease; or
(f) you dispose of land onto which the original asset was fixed to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:
(i) a mining lease would have been compulsorily granted over the land if you had not disposed of it;
(ii) that lease would have significantly affected your use of the land;
(iii) the entity to which you dispose of the land would have been the lessee under the lease.
(2A) A law is covered under this subsection if it is:
(a) an *Australian law (other than Chapter 6A of the Corporations Act 2001); or
(b) a *foreign law (other than a foreign law corresponding to Chapter 6A of the Corporations Act 2001).
(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) For the purposes of applying this Act to the replacement asset:
(a) its *cost is reduced by the amount covered by the choice for the income year in which the asset’s *start time occurs; and
(b) if the income year is later than the one in which the asset’s *start time occurs—the sum of its *opening adjustable value for that later year and any amount included in the second element of the asset’s cost for that later year is reduced by the amount covered by the choice.
(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.
40‑370 Balancing adjustments where there has been use of different car expense methods
(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.
Subdivision 40‑E—Low‑value and software development pools
40‑420 What this Subdivision is about
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
40‑425 Allocating assets to a low‑value pool
(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 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, 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: small business entities
(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 small business entities).
Exception: research and development
(8) You cannot allocate a *depreciating asset to a low‑value pool if you can deduct an amount for the asset under section 73BA of the Income Tax Assessment Act 1936 (or could so deduct an amount if you had not chosen a tax offset under section 73I of that Act) for a period before, or starting at the same time as, the allocation has effect.
40‑430 Rules for assets in low‑value pools
(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 1: This rule does not apply to low‑value assets.
Note 2: If you are a small business entity for the income year and you calculate your deductions for your depreciating assets under Subdivision 328‑D, you must deduct amounts for your depreciating assets under that Subdivision unless deductions for particular assets are specifically excluded by that Subdivision.
(2) Once you allocate any *depreciating asset to a low‑value pool, it must remain in the pool.
40‑435 Private or exempt use of assets
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.
40‑440 How you work out the decline in value of assets in low‑value pools
(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.
40‑445 Balancing adjustment events
(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.
40‑450 Software development pools
(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).
40‑455 How to work out your deduction
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% |
40‑460 Your assessable income includes consideration for pooled software
(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.
Subdivision 40‑F—Primary production depreciating assets
40‑510 What this Subdivision is about
You can deduct amounts for capital expenditure on depreciating assets that are water facilities or horticultural plants.
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 and horticultural plants
40‑520 Meaning of water facility and horticultural plant
40‑525 Conditions
40‑530 When a water facility or horticultural plant 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
40‑555 Amounts you cannot deduct
40‑560 Non‑arm’s length transactions
40‑565 Extra deduction for destruction of a horticultural plant
40‑570 How this Subdivision applies to partners and partnerships
40‑575 Getting tax information if you acquire a horticultural plant
40‑515 Water facilities and horticultural plants
(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.
Note 1: Sections 40‑540 and 40‑545 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.
(5) Paragraph (4)(a) does not apply to a *water facility if the expenditure incurred on the construction, manufacture, installation or acquisition of the water facility was incurred by an *irrigation water provider.
Meaning of irrigation water provider
(6) An irrigation water provider is an entity whose *business is primarily and principally the supply (otherwise than by using a *motor vehicle) of water to entities for use in *primary production businesses on land in Australia.
40‑520 Meaning of water facility and horticultural plant
(1) A water facility is:
(a) *plant or a structural improvement, or a repair of a capital nature, 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; or
(b) a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to 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. Examples of things reasonably incidental to conserving or conveying water include a culvert, a fence to prevent livestock entering an irrigation channel and a bridge over an irrigation channel.
(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:
(a) 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; or
(b) for expenditure incurred by an *irrigation water provider—primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia, being entities supplied with water by the irrigation water provider.
Note: If Division 250 applies to you and an asset that is a water facility:
(a) if section 250‑150 applies—the condition in this subsection is taken to be satisfied for the facility to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—the condition in this subsection is taken not to be satisfied for the facility.
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: (a) the lease or quasi‑ownership right enables you to carry on a *business of *horticulture on the land; and (b) any holder of a lesser interest or licence relating to the land does not carry on a *business of *horticulture on the land. | |
3 | You: (a) hold a licence relating to the land to which the *horticultural plant is attached; and (b) carry on a *business of *horticulture on the land as a result of holding the licence. | |
Note: If Division 250 applies to you and an asset that is a horticultural plant:
(a) if section 250‑150 applies—a condition in this subsection is taken to be satisfied for the plant to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—the conditions in this subsection are taken not to be satisfied for the horticultural plant.
40‑530 When a water facility or horticultural plant starts to decline in value
A *water facility or horticultural plant 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 (b) if not—the later of the income year in which you first satisfied that condition and the income year in which the first commercial season starts |
40‑535 Meaning of horticulture and commercial horticulture
(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.
40‑540 How you work out the decline in value for water facilities
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.
40‑545 How you work out the decline in value for horticultural plants
(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 |
40‑555 Amounts you cannot deduct
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.
Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset that is a water facility are not the same depreciating asset for the purposes of section 40‑50 and this Subdivision: see section 40‑53.
Horticultural plants
(3) In working out your deduction under this Subdivision for a *horticultural plant, disregard expenditure incurred:
(a) in draining swamp or low‑lying land; or
(b) in clearing land.
40‑560 Non‑arm’s length transactions
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.
40‑565 Extra deduction for destruction of a horticultural plant
(1) You can deduct the amount worked out under subsection (2) for a *horticultural plant for an income year if 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.
(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 for the period:
(a) starting when the plant could first be used for *commercial horticulture; and
(b) ending when it was destroyed;
assuming that, during that period, you satisfied a condition in section 40‑525 for the plant and used it for commercial horticulture.
Step 2. Subtract from the capital expenditure that is attributable to the establishment of the *horticultural plant:
(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.
40‑570 How this Subdivision applies to partners and partnerships
(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.
40‑575 Getting tax information if you acquire a horticultural plant
(1) If you begin to satisfy a condition in section 40‑525 for a *horticultural plant, you may give the last entity (if any) that satisfied such a condition for the plant 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;
(b) if the entity used the plant’s *effective life to work out the decline in value of the plant—its effective life and the day on which it could first be used for *commercial horticulture.
(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.
Subdivision 40‑G—Capital expenditure of primary producers and other landholders
40‑625 What this Subdivision is about
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
(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).
Note: If Division 250 applies to you and an asset that is land:
(a) if section 250‑150 applies—you are taken to be using the land for the purpose of carrying on a primary production business, or a business for the purpose of producing assessable income from the use of rural land (except a business of mining operations), to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—you are taken not to be using the land for such a purpose.
(1A) A *rural land irrigation water provider can deduct capital expenditure it incurs at a time in an income year on a *landcare operation for:
(a) land in Australia that other entities use at the time for carrying on *primary production businesses; or
(b) rural land in Australia that other entities use at the time for carrying on *businesses for a *taxable purpose from the use of that land (except a business of *mining operations);
being entities supplied with water by the rural land irrigation water provider.
(1B) A rural land irrigation water provider is:
(a) an *irrigation water provider; or
(b) an entity whose *business is primarily and principally the supply (otherwise than by using a *motor vehicle) of water to entities for use in carrying on *businesses (except businesses of *mining operations) using rural land in Australia.
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.
(2A) In applying paragraph (2)(b) to capital expenditure incurred by a *rural land irrigation water provider on a dam or structural improvement, the requirement in paragraph 45‑40(1)(c) that the land on which the dam or structural improvement is situated be used for agricultural or pastoral operations is to be disregarded.
Exception: deduction available under Subdivision 40‑F
(2B) A *rural land irrigation water provider cannot deduct an amount under this Subdivision for capital expenditure if the entity can deduct an amount for that expenditure under Subdivision 40‑F.
Exception: deduction available under Subdivision 40‑J
(2C) You cannot deduct an amount under this Subdivision for capital expenditure if any entity can deduct an amount for that expenditure for any income year under Subdivision 40‑J.
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).
(4) Subsection (3) does not apply to expenditure incurred by a *rural land irrigation water provider. Instead, a rural land irrigation water provider must reduce its deduction in relation to particular land by a reasonable amount to reflect an entity’s use of the land in the income year after the rural land irrigation water provider incurred the expenditure for a purpose other than a *taxable purpose.
40‑635 Meaning of landcare operation
(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) a repair of a capital nature, or an alteration, addition or extension, to an asset described in paragraph (a), (b), (c) or (d) or an extension of an operation described in paragraph (e); or
(g) constructing a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to an asset described in paragraph (c) or (d).
Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset are not the same asset for the purposes of section 40‑50 and this Subdivision: see section 40‑53.
(2) Paragraph (1)(d) does not apply to an operation draining swamp or low‑lying land.
40‑640 Meaning of approved management plan
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.
40‑645 Electricity and telephone lines
(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.
40‑650 Amounts you cannot deduct under this Subdivision
(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.
40‑655 Meaning of connecting power to land or upgrading the connection and metering point
(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.
40‑660 Non‑arm’s length transactions
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.
40‑665 How this Subdivision applies to partners and partnerships
(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.
40‑670 Approval of persons as farm consultants
(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.
40‑675 Review of decisions relating to approvals
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.
Subdivision 40‑H—Capital expenditure that is immediately deductible
40‑725 What this Subdivision is about
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
40‑730 Deduction for expenditure on exploration or prospecting
(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.
Note: If Division 250 applies to you and an asset that is land:
(a) if section 250‑150 applies—you can deduct expenditure you incur in relation to the land to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—you cannot deduct such expenditure.
(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 the *purpose of producing assessable income.
(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.
40‑735 Deduction for expenditure on mining site rehabilitation
(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 1: If an amount of the expenditure is recouped, the amount may be included in your assessable income: see Subdivision 20‑A.
Note 2: If Division 250 applies to you and an asset that is land:
(a) if section 250‑150 applies—you can deduct expenditure you incur in relation to the land to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—you cannot deduct such expenditure.
(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.
40‑740 Meaning of ancillary mining activities and mining building 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.
40‑745 No deduction for certain expenditure
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.
40‑750 Deduction for payments of petroleum resource rent tax
(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 1: If an amount of the expenditure is recouped, the amount may be included in your assessable income: see Subdivision 20‑A.
Note 2: If Division 250 applies to you and an asset:
(a) if section 250‑150 applies—you can deduct expenditure you incur in relation to the asset to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—you cannot deduct such expenditure.
(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.
40‑755 Environmental protection activities
(1) You can deduct expenditure you incur in an income year for the sole or dominant purpose of carrying on *environmental protection activities.
Note: If Division 250 applies to you and an asset that is land:
(a) if section 250‑150 applies—you can deduct expenditure you incur in relation to the land to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—you cannot deduct such expenditure.
(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.
40‑760 Limits on deductions from environmental protection activities
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.
40‑765 Non‑arm’s length transactions
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.
Subdivision 40‑I—Capital expenditure that is deductible over time
40‑825 What this Subdivision is about
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 if the amounts are not otherwise taken into account and are not denied a deduction.
Table of sections
Operative provisions
40‑830 Project pools
40‑832 Project pools for post‑9 May 2006 projects
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
(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.
Note: The calculation is made under subsection 40‑832(3) for project amounts incurred on or after 10 May 2006 for projects that start to operate on or after that day.
(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.
40‑832 Project pools for post‑9 May 2006 projects
(1) You calculate your deduction for an income year for a project pool in this way if the project pool contains only *project amounts incurred on or after 10 May 2006 for projects that start to operate on or after that day:
where:
DV project pool life has the same meaning as in subsection 40‑830(3).
pool value has the same meaning as in subsection 40‑830(3).
(2) 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.
(3) Your assessable income for that income year includes any amount you receive for the abandonment, sale or other disposal.
(4) 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.
(5) Your deduction for an income year cannot be more than the amount of the component “pool value” in the formula in subsection (1) for that year.
You must reduce your deduction under section 40‑830 or 40‑832 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.
Note: If Division 250 applies to you and an asset:
(a) if section 250‑150 applies—you are taken to be using the asset for taxable purposes to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—you are taken not to be using the asset for such purposes.
40‑840 Meaning of project amount
(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, 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.
40‑855 When you start to deduct amounts for a project pool
You start to deduct amounts for a project pool for the first income year when the project starts to operate.
40‑860 Meaning of mining capital expenditure
(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.
40‑865 Meaning of transport capital expenditure
(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 a Petroleum Act offshore area or an Installations Act 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).
40‑870 Meaning of transport facility
(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.
40‑875 Meaning of processed minerals and minerals treatment
(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.
Object
(1) The object of this section is to make certain *business capital expenditure deductible over 5 years if:
(a) the expenditure is not otherwise taken into account; and
(b) a deduction is not denied by some other provision; and
(c) the business is, was or is proposed to be *carried on for a *taxable purpose.
Note: If Division 250 applies to you and an asset:
(a) if section 250‑150 applies—you can deduct an amount for capital expenditure you incur in relation to the asset to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—you cannot deduct an amount for such expenditure.
Deduction
(2) You can deduct, in equal proportions over a period of 5 income years starting in the year in which you incur it, capital expenditure you incur:
(a) in relation to your *business; or
(b) in relation to a business that used to be *carried on; or
(c) in relation to a business proposed to be carried on; or
(d) to liquidate or deregister a company of which you were a *member, to wind up a partnership of which you were a partner or to wind up a trust of which you were a beneficiary, that carried on a business.
Limitations and exceptions
(3) You can only deduct the expenditure, for a *business that you *carry on, used to carry on or propose to carry on, to the extent that the business is carried on, was carried on or is proposed to be carried on for a *taxable purpose.
(4) You can only deduct the expenditure, for a *business that another entity used to *carry on or proposes to carry on, to the extent that:
(a) the business was carried on or is proposed to be carried on for a *taxable purpose; and
(b) the expenditure is in connection with:
(i) your deriving assessable income from the business; and
(ii) the business that was carried on or is proposed to be carried on.
(5) You cannot deduct anything under this section for an amount of expenditure you incur to the extent that:
(a) it forms part of the *cost of a *depreciating asset that you *hold, used to hold or will hold; or
(b) you can deduct an amount for it under a provision of this Act other than this section; or
(c) it forms part of the cost of land; or
(d) it is in relation to a lease or other legal or equitable right; or
(e) it would, apart from this section, be taken into account in working out:
(i) a profit that is included in your assessable income (for example, under section 6‑5 or 15‑15); or
(ii) a loss that you can deduct (for example, under section 8‑1 or 25‑40); or
(f) it could, apart from this section, be taken into account in working out the amount of a *capital gain or *capital loss from a *CGT event; or
(g) a provision of this Act other than this section would expressly make the expenditure non‑deductible if it were not of a capital nature; or
(h) a provision of this Act other than this section expressly prevents the expenditure being taken into account as described in paragraphs (a) to (f) for a reason other than the expenditure being of a capital nature; or
(i) it is expenditure of a private or domestic nature; or
(j) it is incurred in relation to gaining or producing *exempt income or *non‑assessable non‑exempt income.
(6) The exceptions in paragraphs (5)(d) and (f) do not apply to expenditure you incur to preserve (but not enhance) the value of goodwill if the expenditure you incur is in relation to a legal or equitable right and the value to you of the right is solely attributable to the effect that the right has on goodwill.
(7) You cannot deduct an amount under paragraph (2)(c) in relation to a *business proposed to be *carried on unless, having regard to any relevant circumstances, it is reasonable to conclude that the business is proposed to be carried on within a reasonable time.
(8) You cannot deduct anything under this section for an amount of expenditure that, because of a market value substitution rule, was excluded from the *cost of a *depreciating asset or the *cost base or *reduced cost base of a *CGT asset.
Note: Some examples of market value substitution rules are subsection 40‑180(2) (table item 8), subsection 40‑190(3) (table item 1) and sections 40‑765 and 112‑20.
(9) You cannot deduct anything under this section for an amount of expenditure you incur:
(a) by way of returning an amount you have received (except to the extent that the amount was included in your assessable income or taken into account in working out an amount so included); or
(b) to the extent that, for another entity, the amount is a *return on or of:
(i) an *equity interest; or
(ii) a *debt interest that is an obligation of yours.
40‑885 Non‑arm’s length transactions
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.
Subdivision 40‑J—Capital expenditure for the establishment of trees in carbon sink forests
40‑1000 What this Subdivision is about
You can deduct amounts for capital expenditure incurred for establishing trees that meet the requirements for constituting a carbon sink forest.
Table of sections
Operative provisions
40‑1005 Deduction for expenditure for establishing trees in carbon sink forests
40‑1010 Expenditure for establishing trees in carbon sink forests
40‑1015 Carbon sequestration by trees
40‑1020 Certain expenditure disregarded
40‑1025 Non‑arm’s length transactions
40‑1005 Deduction for expenditure for establishing trees in carbon sink forests
(1) You can deduct an amount for an income year if:
(a) you incur capital expenditure that is covered under section 40‑1010 in relation to particular trees established in the income year; and
(b) you satisfy a condition in subsection (5) for the trees when they are established.
(2) The amount of the deduction is the amount of the expenditure.
(3) You can deduct an amount for an income year if:
(a) you incur capital expenditure in the income year or an earlier income year for establishing particular trees; and
(b) that expenditure is not covered under section 40‑1010 in relation to the trees, because some or all of the trees are established after the end of the income year; and
(c) the trees established after the end of the income year are established within 4 months after the end of the income year; and
(d) you could deduct the amount for the income year under subsection (1) in respect of the expenditure, assuming that, for the purposes of paragraphs 40‑1010(1)(a) and (2)(a), the income year ended 4 months after it actually ended.
(4) If:
(a) you can deduct an amount for an income year under subsection (3) in relation to particular trees; and
(b) you incur capital expenditure in the next income year for establishing other trees;
in determining whether you can deduct an amount under subsection (1) for the next income year in respect of the other trees, for the purposes of paragraph 40‑1010(2)(a), disregard the trees mentioned in paragraph (a).
(5) The conditions are as follows:
Conditions for deduction for establishing trees in carbon sink forest | |
Item | Condition |
1 | You own the trees and any holder of a lease, lesser interest or licence relating to the land occupied by the trees does not use the land for the primary and principal purpose of *carbon sequestration by the trees. |
2 | The trees occupy 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: (a) the lease or quasi‑ownership right enables you to use the land for the primary and principal purpose of *carbon sequestration by the trees; and (b) any holder of a lesser interest or licence relating to the land does not use the land for the primary and principal purpose of carbon sequestration by the trees. |
3 | You: (a) hold a licence relating to the land occupied by the trees; and (b) use the land for the primary and principal purpose of *carbon sequestration by the trees, as a result of holding the licence. |
40‑1010 Expenditure for establishing trees in carbon sink forests
(1) Expenditure is covered under this section in relation to particular trees if:
(a) the trees are established in an income year; and
(b) you incur the expenditure in the income year or an earlier income year for establishing the trees; and
(c) you are carrying on a *business in the income year; and
(d) your primary and principal purpose for establishing the trees is *carbon sequestration by the trees (see section 40‑1015); and
(e) your purposes for establishing the trees do not include any of the following:
(i) felling the trees;
(ii) using the trees for *commercial horticulture; and
(f) you do not incur the expenditure under:
(i) a *managed investment scheme; or
(ii) a *forestry managed investment scheme; and
(g) all of the conditions in subsection (2) are satisfied for the trees; and
(h) you give the Commissioner, in accordance with subsection (4), a statement that:
(i) sets out all information necessary to determine whether all of the conditions in subsection (2) are satisfied for the trees; and
(ii) is in the *approved form.
(2) The conditions are as follows:
(a) at the end of the income year, the trees occupy a continuous land area in Australia of 0.2 hectares or more;
(b) at the time the trees are established, it is more likely than not that they will:
(i) attain a crown cover of 20% or more; and
(ii) reach a height of at least 2 metres;
(c) on 1 January 1990, the area occupied by the trees was clear of other trees that:
(i) attained, or were more likely than not to attain, a crown cover of 20% or more; and
(ii) reached, or were more likely than not to reach, a height of at least 2 metres;
(d) the establishment of the trees meets the requirements of the guidelines mentioned in subsection (3).
(3) The *Climate Change Minister must, by legislative instrument, make guidelines about environmental and natural resource management in relation to the establishment of trees for the purposes of *carbon sequestration.
(4) The statement mentioned in paragraph (1)(h) is to be given to the Commissioner no later than:
(a) if you lodge your *income tax return for the income year within 5 months after the end of the income year—the day you lodge that income tax return; or
(b) otherwise—5 months after the end of the income year.
(5) However, expenditure is not covered under this section if the *Climate Change Secretary gives the Commissioner a notice under subsection (6) in relation to the trees.
(6) The *Climate Change Secretary must give the Commissioner a notice in writing under this subsection if the Climate Change Secretary is satisfied that one or more of the conditions in subsection (2) have not been satisfied for the trees.
(7) A person may apply to the *AAT for review of a decision (as defined in the Administrative Appeals Tribunal Act 1975) of the *Climate Change Secretary to give a notice under subsection (6).
(8) The Commissioner may give the *Climate Change Secretary a copy of the statement mentioned in paragraph (1)(h), for the purposes of subsections (5), (6) and (7).
40‑1015 Carbon sequestration by trees
Carbon sequestration by trees means the process by which trees absorb carbon dioxide from the atmosphere.
40‑1020 Certain expenditure disregarded
In working out a deduction under this Subdivision in relation to the establishment of trees, disregard expenditure incurred:
(a) in draining swamp or low‑lying land; or
(b) in clearing land.
40‑1025 Non‑arm’s length transactions
If an entity incurred capital expenditure under an *arrangement and:
(a) there is at least one other party to the arrangement with whom the entity 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 taken into account under this Subdivision is that market value.
Division 43—Deductions for capital works
Table of Subdivisions
Guide to Division 43
43‑A Key operative provisions
43‑B Establishing the deduction base
43‑C Your area and your construction expenditure
43‑D Deductible uses of capital works
43‑E Special rules about uses
43‑F Calculation of deduction
43‑G Undeducted construction expenditure
43‑H Balancing deduction on destruction of capital works
43‑1 What this Division is about
You can deduct certain capital expenditure on assessable income producing buildings and other capital works. This Division sets out the rules for working out those deductions.
Table of sections
43‑2 Key concepts used in this Division
43‑2 Key concepts used in this Division
The following graphic introduces the key concepts used in this Division and shows the relationships between them.
Subdivision 43‑A—Key operative provisions
43‑5 What this Subdivision is about
This Subdivision contains the key operative provisions for this Division, including all of the deduction entitlement provisions. You should read all of this Subdivision to understand how this Division works.
Table of sections
Operative provisions
43‑10 Deductions for capital works
43‑15 Amount you can deduct
43‑20 Capital works to which this Division applies
43‑25 Rate of deduction
43‑30 No deduction until construction is complete
43‑35 Requirement for body corporate to be registered under the Industry Research and Development Act
43‑40 Deduction for destruction of capital works
43‑45 Certain anti‑avoidance provisions
43‑50 Links and signposts to other parts of the Act
43‑55 Anti‑avoidance—arrangement etc. with tax‑exempt entity
43‑10 Deductions for capital works
(1) You can deduct an amount for capital works for an income year.
(2) You can only deduct the amount if:
(a) the capital works have a *construction expenditure area; and
(b) there is a *pool of construction expenditure for that area; and
(c) you use *your area in the income year in the way set out in Table 43‑140 (Current year use).
Note 1: The deduction is limited to capital works to which this Division applies, see section 43‑20.
Note 2: Amongst other things, the definition of your area ensures that only owners and certain lessees of capital works, and certain holders of quasi‑ownership rights over land on which capital works are constructed, can deduct an amount under this Division.
(1) The amount you can deduct is a portion of *your construction expenditure. However, it cannot exceed the amount of *undeducted construction expenditure for *your area.
Note: The limit in this subsection has 2 effects:
- It ensures that not more than 100% of your construction expenditure can be deducted.
- It imposes a time limit on the period over which your construction expenditure can be deducted. For capital works begun before 27 February 1992, that period will be 25 years if the rate of deduction is 4% or 40 years if the rate is 2.5%. For other capital works, the period will be 25 years or 40 years or some period between 25 and 40 years depending on their use.
(2) Your deduction is calculated under section 43‑210 or 43‑215.
43‑20 Capital works to which this Division applies
Buildings
(1) This Division applies to capital works being a building, or an extension, alteration or improvement to a building:
(a) begun in Australia after 21 August 1979; or
(b) begun outside Australia after 21 August 1990.
Note: Section 43‑80 explains when capital works begin.
Structural improvements
(2) This Division also applies to capital works (other than capital works referred to in subsection (1)) begun after 26 February 1992 that are structural improvements, or extensions, alterations or improvements to structural improvements, whether they are in or outside Australia.
(3) Some examples of structural improvements are:
(a) sealed roads, sealed driveways, sealed car parks, sealed airport runways, bridges, pipelines, lined road tunnels, retaining walls, fences, concrete or rock dams and artificial sports fields; and
(b) earthworks that are integral to the construction of a structural improvement (other than a structural improvement described in subsection (4)), for example, embankments, culverts and tunnels associated with a runway, road or railway.
(4) This Division does not apply to structural improvements being:
(a) earthworks that:
(i) are not integral to the installation or construction of a structure; and
(ii) are permanent (assuming they are maintained in reasonably good order and condition); and
(iii) can be economically maintained in reasonably good order and condition for an indefinite period;
for example, unlined channels, unlined basins, earth tanks and dirt tracks; or
(b) earthworks that merely create artificial landscapes, for example, grass golf course fairways and greens, gardens, and grass sports fields.
Environment protection earthworks
(5) This Division also applies to capital works being earthworks, or extensions, alterations or improvements to earthworks, if:
(a) they are constructed as a result of carrying out of *environmental protection activities; and
(b) they can be economically maintained in reasonably good order and condition for an indefinite period; and
(c) they are not integral to the construction of capital works; and
(d) the expenditure on the capital works was incurred after 18 August 1992.
Note: This subsection allows you to deduct an amount for some earthworks that are excluded by paragraph (4)(a) if the earthworks are constructed in carrying out an environmental protection activity.
(1) For capital works begun after 26 February 1992, there is a basic entitlement to a rate of 2.5% for parts used as described in Table 43‑140 (Current year use). The rate increases to 4% for parts used as described in Table 43‑145 (Use in the 4% manner).
(2) For capital works begun before 27 February 1992 and used as described in Table 43‑140, the rate is:
(a) 4% if the capital works were begun after 21 August 1984 and before 16 September 1987; or
(b) 2.5% in any other case.
Note: Section 43‑80 explains when capital works begin.
43‑30 No deduction until construction is complete
You cannot deduct an amount for any period before the completion of construction of the capital works even though you used them, or part of them, before completion.
A body corporate may deduct an amount under this Division on the basis of using capital works for the purpose of carrying on *research and development activities only if the body corporate is registered under section 39J (Registration of eligible companies) or 39P (Joint registration) of the Industry Research and Development Act 1986.
Note: Research and development activities must be carried on in connection with a business carried on for the purpose of producing assessable income, see section 43‑195.
43‑40 Deduction for destruction of capital works
(1) You can deduct an amount if all or a part of *your area is destroyed in an income year and:
(a) you have been allowed, or can claim, a deduction under this Division, or former Division 10C or 10D of Part III of the Income Tax Assessment Act 1936, for your area; and
(b) there is an amount of *undeducted construction expenditure for your area; and
(c) you were using your area in the way that applies to it under Table 43‑140 (Current year use) immediately before the destruction or, if not, neither you nor any other entity used your area for any purpose since it was last used by you in that way.
(2) The deduction is allowable in the income year in which the destruction occurs, and is calculated under section 43‑250.
Note: The effect of this provision is to allow you to deduct an amount in the income year in which the capital works are destroyed for all of your construction expenditure that has not yet been deducted. However, you must reduce the deduction by any insurance and salvage receipts.
43‑45 Certain anti‑avoidance provisions
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 an asset as if you were the owner of the asset instead of any other person.
43‑50 Links and signposts to other parts of the Act
Links
(1) No part of a *pool of construction expenditure can be an allowable deduction, or taken into account in working out the amount of an allowable deduction, under a provision of this Act other than this Division.
(2) No part of an amount incurred by an entity in acquiring capital works for which there is a *pool of construction expenditure can be an allowable deduction, or taken into account in working out the amount of an allowable deduction, under a provision of this Act other than this Division.
(3) You will be taken not to be the owner of any part of capital works that are the subject of a lease to which you have chosen to apply section 104‑115 (CGT event F2). The lessee or sublessee will be taken to be the owner of that part.
Note 1: Choosing to apply section 104‑115 results in the lease being treated for CGT purposes more like an outright disposal.
Note 2: See subsection 43‑180(3) for the effect of the rule in subsection (3) of this section on the need to own 10 apartments, units or flats in an apartment building.
Signposts
(6) There are special record‑keeping rules that apply to this Division in subsection 262A(4AJA) of the Income Tax Assessment Act 1936.
(7) Your deductions under this Division may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245‑E of Schedule 2C to the Income Tax Assessment Act 1936.
(8) 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.
43‑55 Anti‑avoidance—arrangement etc. with tax‑exempt entity
(1) You will not be allowed a deduction under this Division for an income year if the Commissioner is satisfied that:
(a) you entered into an *arrangement with:
(i) an entity to which section 50‑5, 50‑10, 50‑15, 50‑20, 50‑25, 50‑30, 50‑40 or 50‑45 (dealing with *exempt income) applies; or
(ii) an STB (within the meaning of Division 1AB of Part III of the Income Tax Assessment Act 1936) whose *ordinary income and *statutory income is exempt from income tax;
under which you were to pay an amount, or transfer property, directly or indirectly, to the entity; and
(b) the amount of the payment or the value of the property is calculated by reference to the amount of a deduction allowable to you under this Division; and
(c) a purpose of the arrangement that is not a merely incidental purpose is to ensure that the benefit of the deduction would pass wholly or substantially to the entity, whether directly or indirectly.
(2) Subsection (1) applies to *arrangements entered into with an entity referred to in subparagraph (1)(a)(i) after 1 May 1980 that relate to deductions for *hotel buildings or *apartment buildings begun before 1 July 1997.
(3) Subsection (1) also applies to *arrangements entered into with an entity referred to in subparagraph (1)(a)(ii) after 30 June 1994 that relate to deductions for *hotel buildings or *apartment buildings begun before 1 July 1997.
Subdivision 43‑B—Establishing the deduction base
43‑60 What this Subdivision is about
This Subdivision explains the meaning of the terms construction expenditure, construction expenditure area and pool of construction expenditure.
Table of sections
43‑65 Explanatory material
Operative provisions
43‑70 What is construction expenditure?
43‑72 Meaning of forestry road, timber operation and timber mill building
43‑75 Construction expenditure area
43‑80 When capital works begin
43‑85 Pools of construction expenditure
43‑90 Table of intended use at time of completion of construction
43‑95 Meaning of hotel building and apartment building
43‑100 Certificates by Innovation Australia
Expenditure in respect of the construction of capital works is only eligible for a deduction under this Division if there is a construction expenditure area for the capital works. The area defined as the construction expenditure area may comprise the whole of the capital works or only part of them.
Whether there is a construction expenditure area for capital works and how it is identified depends on the following factors:
- the type of expenditure incurred;
- the time when the capital works began;
- the area of the capital works that is to be owned, leased or held by the entity that incurred the expenditure;
- for capital works begun before 1 July 1997, the area of the capital works that was to be used in a particular manner.
A pool of construction expenditure is that part of an amount of construction expenditure that is attributable to a particular construction expenditure area.
43‑70 What is construction expenditure?
(1) Construction expenditure is capital expenditure incurred in respect of the construction of capital works.
(2) Construction expenditure does not include:
(a) expenditure on acquiring land; or
(b) expenditure on demolishing existing structures; or
(c) expenditure on clearing, levelling, filling, draining or otherwise preparing the construction site prior to carrying out excavation works; or
(d) expenditure on landscaping; or
(e) expenditure on *plant; or
(f) expenditure on property for which a deduction is allowable, or would be allowable if the property were for use for the *purpose of producing assessable income, under:
(i) Subdivision 40‑F (about primary production depreciating assets), Subdivision 40‑G (about capital expenditure of primary producers and other landholders), Subdivision 40‑H (about capital expenditure that is immediately deductible) or Subdivision 40‑I (about capital expenditure that is deductible over time); or
(ii) the former Division 330 of this Act or the former Division 10, 10AAA or 10AA of Part III of the Income Tax Assessment Act 1936 (all of which dealt with mining and/or quarrying); or
(iii) section 73A of the Income Tax Assessment Act 1936 (about expenditure on scientific research); or
(iv) the former Subdivision 387‑A of this Act or the former section 75D of the Income Tax Assessment Act 1936 (both of which allowed deductions for capital expenditure to prevent land degradation); or
(v) the former Subdivision 387‑B of this Act or the former section 75B of the Income Tax Assessment Act 1936 (both of which allowed deductions for capital expenditure on facilities to conserve or convey water); or
(vi) the former Subdivision 387‑G of this Act or the former section 124F or 124JA of the Income Tax Assessment Act 1936 (all of which allowed deductions for capital expenditure on forestry roads and/or timber mill buildings); or
(fa) any of these kinds of expenditure if a deduction is allowable for the expenditure, or would be allowable if property had been used for the purpose of producing assessable income:
(i) *mining capital expenditure or *transport capital expenditure;
(ii) expenditure on a *forestry road in connection with carrying on a *timber operation for a *taxable purpose;
(iii) expenditure for the construction or acquisition of a *timber mill building;
(iv) expenditure on a *depreciating asset you can deduct under subsection 40‑80(1) (about exploration and prospecting); or
(g) expenditure on property for which a deduction is allowable, or would be allowable if the property were for use for carrying on *research and development activities, under section 73B, 73BA or 73BH of the Income Tax Assessment Act 1936, or would be allowable under that section of that Act if a company had not chosen a tax offset under section 73I of that Act; or
(h) eligible heritage conservation expenditure within the meaning of the former Subdivision AAD of Division 17 of Part III of the Income Tax Assessment Act 1936.
Note: Paragraph (2)(g) only affects buildings begun before 21 November 1987, that were acquired or constructed under contracts entered into before that date or that were intended before that date to be used exclusively for research and development activities.
43‑72 Meaning of forestry road, timber operation and timber mill building
(1) A forestry road is a road constructed primarily and principally for the purpose of providing access to an area to enable:
(a) trees to be planted or tended in the area; or
(b) timber felled in the area to be removed.
For this purpose, a road includes any bridge, culvert or similar work forming part of the road.
(2) A timber operation is:
(a) planting or tending trees for felling; or
(b) felling standing timber; or
(c) removing felled timber; or
(d) milling felled timber or processing it in another way.
(3) A timber mill building is a building:
(a) for use primarily and principally:
(i) in carrying on your *business of milling timber for a *taxable purpose; or
(ii) as residential accommodation for your employees engaged in connection with the business, or for their dependants; and
(b) located in a forest, and in or adjacent to the area where timber milled in the business is, or is to be, felled.
43‑75 Construction expenditure area
(1) The construction expenditure area of capital works begun after 30 June 1997 is the part of the capital works on which the *construction expenditure was incurred that, at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a *quasi‑ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency.
Note: Section 43‑80 explains when capital works begin.
(2) The construction expenditure area of capital works begun before 1 July 1997 is the part of the capital works on which the *construction expenditure was incurred that:
(a) at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a *quasi‑ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency; and
(b) at the time of completion of construction, was to be used in the way described in Column 3 of Table 43‑90 (intended use at completion) for the time period when the capital works began as set out in Column 1.
(3) There is taken to be a construction expenditure area for capital works purchased by an entity from another entity if:
(a) the capital works would have had a construction expenditure area but for the fact that the other entity did not incur capital expenditure in constructing the capital works; and
(b) the other entity is not an *associate of the entity; and
(c) the other entity constructed the capital works on land that it owned or leased in the course of a business that included the construction and sale of capital works of that kind.
Note: Subsection (3) makes capital works purchased from a speculative builder eligible for deduction in the hands of the first and subsequent purchasers.
(4) The construction of the capital works must be complete before the *construction expenditure area is determined.
(5) Only one *construction expenditure area is created each time an entity constructs capital works.
Example: An entity undertakes the construction of a building. During the course of construction, the entity makes 3 progress payments to the builder. There is still only one construction expenditure area.
(6) A separate *construction expenditure area will be created each time an entity undertakes the construction of capital works.
Example: In the diagram below, area 1 relates to the original construction of a building which gives rise to one construction expenditure area. Area 2 is a subsequent extension of the same building which gives rise to another, while area 3 is a later renovation of the entire building which gives rise to another.
43‑80 When capital works begin
Capital works are taken to begin when the first step in the construction phase starts. For example, the pouring of foundations or sinking of pilings for a building.
Note 1: Capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43‑220.
Note 2: The time when capital works begin is relevant for determining whether the capital works qualify for deduction, the use to which those works must be put, the rate of deduction and the calculation mechanism used. However, the time when capital works begin does not limit what qualifies as construction expenditure.
43‑85 Pools of construction expenditure
(1) A pool of construction expenditure is so much of the *construction expenditure incurred by an entity on capital works as is attributable to the *construction expenditure area.
(2) In applying subsection (1) in a case to which subsection 43‑75(3) (dealing with purchases from speculative builders) applies, assume that the expenditure incurred by the other entity was capital expenditure, but that the limitations in subsection 43‑70(2) (which sets out types of expenditure that are not *construction expenditure) still apply to the other entity’s expenditure.
Note: The builder’s profit margin does not form part of the construction expenditure of the purchaser.
43‑90 Table of intended use at time of completion of construction
Column 1 Date capital works begin | Column 2 Type of capital works | Column 3 Intended use on completion |
Time period 1: 22/8/79 to 19/7/82 (inclusive) | Hotel building | For use by any entity wholly or mainly to operate a hotel, motel or guest house that has at least 10 bedrooms that are for use wholly or mainly to provide short‑term accommodation for travellers. |
| Apartment building | The building consisted of: (a) at least 10 apartments, units or flats each of which was for use wholly or mainly to provide short‑term accommodation for travellers; or (b) at least 10 apartments, units or flats each of which was for use for that purpose and facilities that are wholly or mainly for use in association with providing short‑term accommodation for travellers in those apartments, units or flats. |
Time period 2: 20/7/82 to 17/7/85 (inclusive) | Hotel building | As for time period 1. |
| Apartment building | As for time period 1. |
| Non‑residential building | For: (a) use by the entity that incurred the expenditure for the *purpose of producing assessable income or exempt income; or (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income. |
Time period 3: 18/7/85 to 20/11/87 (inclusive) | Any building | For: (a) use by the entity that incurred the expenditure for the *purpose of producing assessable income or exempt income; or (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income; or (c) use by an entity wholly or mainly for, or in association with, residential accommodation. |
Time period 4: 21/11/87 to 26/2/92 (inclusive) | Any building | For: (a) use by the entity that incurred the expenditure for the *purpose of producing assessable income or exempt income; or (b) disposal by that entity to another entity for use by the other entity for the purpose of producing assessable income or exempt income; or (c) use by an entity wholly or mainly for, or in association with, residential accommodation; or (d) use by the entity that incurred the expenditure to carry on *research and development activities by or for that entity, or for disposal by that entity to another entity for use by the other entity for carrying on research and development activities by or for the other entity. |
Time period 5: 27/2/92 to 18/8/92 (inclusive) | Hotel building | As for time period 1. |
| Apartment building | As for time period 1. |
| Other buildings | As for any building in time period 4. |
| Structural improvements | As for any building in time period 4. |
Time period 6: 19/8/92 to 30/6/97 (inclusive) | Hotel building | As for time period 1. |
| Apartment building | As for time period 1. |
| Other buildings | As for any building in time period 4. |
| Structural improvements | As for any building in time period 4. |
| Environment protection earthworks | As for any building in time period 4. |
Note: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43‑E (sections 43‑155 to 43‑195). For example:
- Research and development activities must be carried on in connection with a business carried on for the purpose of producing assessable income, see section 43‑195.
- Certain facilities that are not commonly provided in a hotel, motel or guest house in Australia are taken not to be used or for use to operate a hotel, motel or guest house, see subsection 43‑180(6).
43‑95 Meaning of hotel building and apartment building
(1) A hotel building is:
(a) a building begun after 21 August 1979 and before 18 July 1985, or after 26 February 1992 and before 1 July 1997, that, at the time of completion of its construction, was intended to be used in the way referred to in Column 3 of Table 43‑90 (intended use at completion) for a hotel building; or
(b) a building begun after 30 June 1997 and that, in the income year, is used in the way referred to in Column 3 (time period 2) of Table 43‑145 (use in the 4% manner) for a hotel building.
(2) An apartment building is:
(a) a building begun after 21 August 1979 and before 18 July 1985, or after 26 February 1992 and before 1 July 1997, that, at the time of completion of its construction, was intended to be used in the way referred to in Column 3 of Table 43‑90 for an apartment building; or
(b) a building begun after 30 June 1997 and that, in the income year, is used in the way referred to in Column 3 (time period 2) of Table 43‑145 for an apartment building.
43‑100 Certificates by Innovation Australia
A certificate by*Innovation Australia stating that activities carried on by or for an entity were or were not *research and development activities is conclusive for the purposes of this Division.
Subdivision 43‑C—Your area and your construction expenditure
43‑105 What this Subdivision is about
This Subdivision explains your area and your construction expenditure.
Table of sections
43‑110 Explanatory material
Operative provisions
43‑115 Your area and your construction expenditure—owners
43‑120 Your area and your construction expenditure—lessees and
quasi‑ownership right holders
43‑125 Lessees’ or right holders’ pools can revert to owner
43‑130 Identifying your area on acquisition or disposal
You can only get a deduction under this Division for an income year if you own, lease or hold part of a construction expenditure area of capital works. The area you own, lease or hold is called your area.
In working out your deductions, you must identify your area for each construction expenditure area of the capital works.
Your area may comprise the whole of the construction expenditure area or part of it.
Note: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240‑20(2)).
43‑115 Your area and your construction expenditure—owners
(1) Your area is the part of the *construction expenditure area that you own.
(2) Your construction expenditure is the portion of the *pool of construction expenditure that is attributable to your area.
43‑120 Your area and your construction expenditure—lessees and quasi‑ownership right holders
Own expenditure
(1) Your area is the part of the *construction expenditure area that you lease, or hold under a *quasi‑ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and that:
(a) is attributable to a *pool of construction expenditure that you incurred; and
(b) you have continuously leased or held since the construction was completed.
Earlier lessees’ or holders’ expenditure
(2) Your area is the part of the *construction expenditure area that you lease, or hold under a *quasi‑ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and that:
(a) is attributable to a *pool of construction expenditure incurred by another lessee or holder of a quasi‑ownership right over land; and
(b) has been continuously leased or held since the construction was completed by the lessee or holder who incurred the expenditure or an assignee of that lessee’s lease or that holder’s quasi‑ownership right over land.
(3) Your construction expenditure is the portion of the *pool of construction expenditure that is attributable to your area.
43‑125 Lessees’ or right holders’ pools can revert to owner
(1) An amount that relates to a *pool of construction expenditure that arises as a result of expenditure incurred by a lessee or a holder of a *quasi‑ownership right over land:
(a) can only be deducted by a lessee or a holder of a quasi‑ownership right over land who satisfies subsection 43‑120(1) or (2); and
(b) cannot be deducted by the owner of the capital works while there is a lessee or a holder of a quasi‑ownership right over land who satisfies that subsection.
(2) The owner of the capital works may deduct an amount that relates to that pool if there is no longer a lessee or a holder of a *quasi‑ownership right over land who satisfies subsection 43‑120(1) or (2).
43‑130 Identifying your area on acquisition or disposal
There will be a separate *your area at each time in an income year when you:
(a) acquire an additional part of a *construction expenditure area; or
(b) dispose of some but not all of a construction expenditure area.
Example: You own half of a building (part A) throughout the income year, and you acquire the other half (part B) on 1 January. This section ensures that part A is your area for the entire year and that part B is your area for the second 6 months of the year.
Note: This ensures that the same area is not counted twice in calculating your deduction. You will have to make separate deduction calculations if you have identified more than one area as your area of the capital works.
Subdivision 43‑D—Deductible uses of capital works
43‑135 What this Subdivision is about
You can only get a deduction under this Division if you use your area in a way described in Table 43‑140 or 43‑145 of this Subdivision.
Table of sections
Operative provisions
43‑140 Using your area in a deductible way
43‑145 Using your area in the 4% manner
43‑150 Meaning of industrial activities
43‑140 Using your area in a deductible way
(1) The following table sets out the way you must use *your area in an income year for a deduction to be allowed under section 43‑10 (the main deduction provision). The relevant use depends on the time when the capital works began (Column 1) and the type of capital works (Column 2). Column 3 sets out the use.
Table 43‑140—Current year use | ||
Column 1 Date capital works begin | Column 2 Type of capital works | Column 3 Use of your area at some time in the income year |
Time period 1: After 30/6/97 | Any capital works | You use *your area for the purpose of: (a) producing assessable income; or (b) carrying on *research and development activities. |
Time period 2: 27/2/92 to 30/6/97 (inclusive) | *Hotel building | You use *your area for the *purpose of producing assessable income. |
| *Apartment building | You use *your area for the *purpose of producing assessable income. |
| Other capital works | You use *your area for the purpose of: (a) producing assessable income; or (b) carrying on *research and development activities. |
Time period 3: Before 27/2/92 | *Hotel building | You use *your area for the *purpose of producing assessable income and: (a) all or part of that area is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short‑term accommodation for travellers. |
| *Apartment building | You use *your area for the *purpose of producing assessable income and: (a) that area is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short‑term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short‑term accommodation for travellers; or (b) that area is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short‑term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). |
| Other capital works | You use *your area for the purpose of: (a) producing assessable income; or (b) carrying on *research and development activities. |
Note 1: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43‑E (sections 43‑155 to 43‑195). For example:
- Your area is taken to be used, for use or available for use for a purpose or in a way if it is maintained ready for use for that purpose or in that way. See section 43‑160.
- Research and development activities must be carried on in connection with a business carried on for the purpose of producing assessable income, see section 43‑195.
Note 2: If Division 250 applies to you and an asset that is a capital work:
(a) if section 250‑150 applies—you are taken to be using the capital work for the purpose of producing assessable income, or for the purpose of carrying on research and development activities, to the extent specified in a determination made under subsection 250‑150(3); or
(b) otherwise—you are taken not to be using the capital work for such a purpose.
(2) This Division applies to an entity as if the entity used property for the *purpose of producing assessable income if the entity uses the property for:
(a) *environmental protection activities; or
(b) the environmental impact assessment of a project;
unless a provision of this Act expressly provides that that use is not for the purpose of producing assessable income.
43‑145 Using your area in the 4% manner
You use a part of *your area in the 4% manner if you use it as described in the following Table. The relevant use depends on the time when the capital works began (Column 1) and the type of capital works (Column 2). Column 3 sets out the use.
Table 43‑145—Use in the 4% manner | ||
Column 1 | Column 2 | Column 3 |
Time period 1: After 30/6/97 | Capital works that are buildings | You use the part of *your area for the *purpose of producing assessable income and: (a) that part is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short‑term accommodation for travellers. |
|
| You use the part of *your area for the *purpose of producing assessable income and: (a) that part is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short‑term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short‑term accommodation for travellers; or (b) that part is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short‑term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). |
|
| You use the part of *your area for the *purpose of producing assessable income, and that part is used by any entity: (a) wholly or mainly for *industrial activities; or (b) to provide meal rooms, rest rooms, first aid rooms, change rooms or similar facilities that are wholly or mainly for use by: (i) workers employed wholly or mainly to undertake the work directly involved in carrying out industrial activities; or (ii) the immediate supervisors of those workers; or (c) wholly or mainly as office accommodation for the immediate supervisors of those workers. |
Time period 2: 27/2/92 to 30/6/97 (inclusive) | *Hotel building | You use the part of *your area for the *purpose of producing assessable income and: (a) that part is used by any entity wholly or mainly to operate a hotel, motel or guest house; and (b) that hotel, motel or guest house has at least 10 bedrooms that are used or available for use wholly to provide short‑term accommodation for travellers. |
| *Apartment building | You use the part of *your area for the *purpose of producing assessable income and: (a) that part is, is part of or contains an apartment, unit or flat that is used or available for use by any entity wholly to provide short‑term accommodation for travellers, and you own or lease at least 9 other apartments, units or flats in the building that are used or available for use by any entity wholly to provide short‑term accommodation for travellers; or (b) that part is, is part of or contains a facility that is used or available for use by any entity wholly or mainly in association with providing short‑term accommodation for travellers in apartments, units or flats in the building that are used in the way described in paragraph (a). |
| Other buildings | You use the part of *your area for the *purpose of producing assessable income, and that part is used by any entity: (a) wholly or mainly for *industrial activities; or (b) to provide meal rooms, rest rooms, first aid rooms, change rooms or similar facilities that are wholly or mainly for use by: (i) workers employed wholly or mainly to undertake the work directly involved in carrying out industrial activities; or (ii) the immediate supervisors of those workers; or (c) wholly or mainly as office accommodation for the immediate supervisors of those workers. |
Note: There are special rules that explain or qualify the uses described in Column 3 of this Table. These rules are set out in Subdivision 43‑E (sections 43‑155 to 43‑195). For example:
- Your area is taken to be used, for use or available for use for a purpose or in a way if it is maintained ready for use for that purpose or in that way. See section 43‑160.
- A suite of rooms in a hotel building may be treated as one bedroom, see subsection 43‑180(2).
43‑150 Meaning of industrial activities
Industrial activities means:
(a) any of the following activities (core activities):
(i) operations where manufactured items are derived from other goods even if those manufactured items are themselves used as parts or materials in the manufacture of other items;
(ii) operations (other than packing, placing in containers or labelling) by which manufactured items are brought into or maintained in the form or condition in which they are sold or used, even if they are for sale or use as parts or materials in the manufacture of other items;
(iii) the separation of a metal or a compound of a metal from its ore (not including crushing, grinding, breaking, screening or sizing to facilitate that separation) or the treatment or processing of a metal or a compound of a metal after its separation;
(iv) for a metal or a compound of a metal not requiring separation—applying to the metal or compound a treatment or process which, if the metal or compound had required separation, would not have been applied until after the separation;
(v) refining *petroleum;
(vi) scouring or carbonising wool;
(vii) milling timber;
(viii) freezing primary products;
(ix) printing, lithographing or engraving, or a similar process, in the course of carrying on a business as a publisher, printer, lithographer or engraver;
(x) curing meat or fish;
(xi) producing chilled or frozen meat;
(xii) pasteurising milk;
(xiii) canning or bottling foodstuffs;
(xiv) producing electric current, hydraulic power, steam, compressed air or gases (other than natural gas) for the purpose of sale, or use wholly or mainly in carrying on another activity mentioned in this paragraph; or
(b) any of the following activities:
(i) the packing, placing in containers or labelling of any goods resulting from the carrying on of core activities;
(ii) the disposal of waste substances resulting from the carrying on of core activities;
(iii) the cleansing or sterilising of bottles, vats or other containers used by the entity to store goods to be used in carrying on core activities or goods resulting from the carrying on of core activities;
(iv) the assembly, maintenance, cleansing, sterilising or repair of property used in carrying on core activities;
(v) the storage, within premises in which core activities are carried on, or premises contiguous to those premises, of goods in carrying on core activities, goods in relation to which core activities have commenced but not finally been completed or goods resulting from core activities;
but does not include the preparation of food or drink (whether for consumption on the premises where it is prepared or elsewhere) in, or in premises occupied in connection with, a hotel, motel, boarding house, catering establishment, restaurant, cafe, milk‑bar, coffee shop, retail shop or similar establishment.
Subdivision 43‑E—Special rules about uses
43‑155 What this Subdivision is about
This Subdivision contains special rules about uses of capital works. It is relevant to whether you can get a deduction for capital works and also to the rate of that deduction. The rules in this Subdivision affect the uses of capital works described in Tables 43‑90, 43‑140 and 43‑145.
Table of sections
Operative provisions
43‑160 Your area is used for a purpose if it is maintained ready for use for the purpose
43‑165 Temporary cessation of use
43‑170 Own use—capital works other than hotel and apartment buildings
43‑175 Own use—hotel and apartment buildings
43‑180 Special rules for hotel and apartment buildings
43‑185 Residential or display use
43‑190 Use of facilities not commonly provided, and of certain buildings used to operate a hotel, motel or guest house
43‑195 Use for research and development activities must be in connection with a business
43‑160 Your area is used for a purpose if it is maintained ready for use for the purpose
A part of *your area is taken to be used, for use or available for use for a particular purpose or in a particular manner at a time if, at that time:
(a) it was maintained ready for use for that purpose or in that manner; and
(b) it was not used or for use for any other purpose or in any other manner; and
(c) its use or intended use for that purpose or in that manner had not been abandoned.
Note 1: Construction must be complete before you can deduct an amount, see section 43‑30.
Note 2: This section affects Tables 43‑140 and 43‑145.
43‑165 Temporary cessation of use
A part of *your area is taken to be used, for use or available for use for a particular purpose or in a particular manner if its use for that purpose or in that manner temporarily ceases because of:
(a) the construction of an extension, alteration or improvement, or the making of repairs; or
(b) seasonal or climatic factors.
Note: This section affects Tables 43‑140 and 43‑145.
43‑170 Own use—capital works other than hotel and apartment buildings
(1) A part of capital works, other than a *hotel building or an *apartment building, is taken not to be used for the *purpose of producing assessable income if that part is for use mainly for, or in association with, residential accommodation by you or an *associate.
Note: This subsection affects Tables 43‑140 and 43‑145.
(2) Subsection (1) does not apply to use by an *associate under an *arrangement:
(a) to which you and the associate are parties; and
(b) that is of a kind that the parties could reasonably be expected to have entered into if they had been dealing with each other at arm’s length; and
(c) that was not entered into for the purpose of obtaining a deduction under this Division.
(3) If property that constitutes the whole or part of capital works, other than a *hotel building or an *apartment building, is part of an individual’s home, the property is taken to be used, or for use, wholly or mainly for or in association with residential accommodation.
Note: This subsection affects Tables 43‑90 and 43‑140.
43‑175 Own use—hotel and apartment buildings
(1) An entity is taken not to have used a bedroom in a *hotel building, or an apartment, unit or flat in an *apartment building, for the *purpose of producing assessable income at a time if, at that time, the bedroom, apartment, unit or flat is used, or reserved for use, by:
(a) the entity; or
(b) if the entity is a partnership—any of the partners in the partnership.
Note: This subsection affects Tables 43‑140 and 43‑145.
(2) Also, an entity is taken not to use a bedroom in a *hotel building, or an apartment, unit or flat in an *apartment building for any purpose at a time if:
(a) at that time, a right to use or occupy the bedroom, apartment, unit or flat was vested in the entity; and
(b) that right was vested in the entity because the entity was, at that time, a member of a company, a beneficiary of a trust estate or a partner in a partnership.
Note: This subsection affects Tables 43‑90, 43‑140 and 43‑145.
43‑180 Special rules for hotel and apartment buildings
Rules about counting rooms or apartments etc.
(1) A bedroom in a *hotel building, or an apartment, unit or flat in an *apartment building, is taken to be used or available for use wholly for short‑term accommodation for travellers in a period if it is used or available for use mainly for short‑term accommodation for travellers in that period.
Note: This subsection ensures that a limited period of non‑short‑term traveller accommodation use will be disregarded in counting the number of rooms provided the bedroom, apartment, unit or flat is used mainly for short‑term traveller accommodation.
(2) For the purpose of counting the number of bedrooms in a *hotel building, if 2 or more rooms that are bedrooms or include a bedroom are for use together as a suite of rooms, the suite is taken to constitute one bedroom.
(3) Despite subsection 43‑50(3) (which treats you as not being the owner of certain capital works), you can still count an apartment, unit or flat in relation to which CGT event F2 has happened in working out whether you own or lease at least 10 apartments, units or flats in an *apartment building if you own or lease at least one other apartment, unit or flat in the building.
Note 1: CGT event F2 results in a lease with a term of 50 years or more being treated for CGT purposes more like an outright disposal.
Note 2: Subsection 43‑50(3) treats you as not being the owner of capital works that are the subject of such a lease.
Rules about hotel or apartment complexes
(4) A group of buildings that constitutes a complex of buildings is taken to be one *hotel building or *apartment building, and none of the buildings in the group is taken to be a separate building.
(5) The construction of a *hotel building or *apartment building is taken to be an extension of another building if, after completion of the construction, those buildings are taken to be one building under subsection (4).
Note: Subsections (4) and (5) ensure that a hotel or apartment building that provides short‑term traveller accommodation in detached buildings will be treated as a single building so that the 10 hotel room/apartment test is applied to the complex as a whole. It also has the effect that the complex as a whole must be completed before there can be a construction expenditure area.
Rules about facilities not commonly provided in Australia
(6) If a *hotel building contains a facility of a kind that is not commonly provided in a hotel, motel or guest house in Australia, the facility is taken not to be used or for use to operate a hotel, motel or guest house.
(7) If an *apartment building contains a facility of a kind that is not commonly provided in a hotel, motel or guest house in Australia, the facility is taken not to be a facility for use in association with providing short‑term accommodation for travellers in apartments, units or flats.
Note: Subsections (6) and (7) exclude areas such as casinos from the construction expenditure area of a hotel building or apartment building.
43‑185 Residential or display use
(1) A building, other than a *hotel building or an *apartment building, or an extension, alteration or improvement to such a building, begun after 19 July 1982 and before 18 July 1985 is taken not to be used for the *purpose of producing assessable income or exempt income if it is used or for use wholly or mainly for exhibition or display in connection with:
(a) the sale of all or part of any building; or
(b) the lease of all or part of any building for use wholly or mainly for or in association with residential accommodation.
Note: Subsection (1) affects time period 2 in Table 43‑90 and time period 3 in Table 43‑140.
(2) A building, other than a *hotel building or an *apartment building, begun after 19 July 1982 and before 18 July 1985 is taken not to be used for the *purpose of producing assessable income if it is used or available for use wholly or mainly for or in association with residential accommodation.
Note: Subsection (2) affects time period 2 in Table 43‑90 and time period 3 in Table 43‑140.
(3) A building, other than a *hotel building or an *apartment building, begun after 17 July 1985 and before 1 July 1997 is taken not to be used for the *purpose of producing assessable income if it is used or for use wholly or mainly for exhibition or display in connection with the sale of all or part of any building.
Note: Subsection (3) affects time periods 2 and 3 in Table 43‑140.
(1) A facility in a *hotel building or an *apartment building that is not commonly provided in a hotel, motel or guest house in Australia is taken not to be used, or for use, for or in association with residential accommodation if the facility is part of a building begun after 19 July 1982 and before 18 July 1985.
Note: This subsection means that, for time period 2 in Table 43‑90, a facility referred to in subsection 43‑180(6) or (7) (dealing with facilities not commonly provided in Australia) is taken to be a non‑residential building if it satisfies the use test in Column 3 of that table for a building of that kind, and is therefore eligible for deduction even though it would ordinarily be taken to be used for residential accommodation.
(2) A building, other than a *hotel building or an *apartment building, begun after 19 July 1982 and before 18 July 1985 that is used, or for use, wholly or mainly for the purpose of operating a hotel, motel or guest house is taken to be used or for use wholly or mainly for, or in association with, residential accommodation.
Note: This subsection ensures that hotels, motels and guest houses begun in the specified time period that do not satisfy the tests for hotel and apartment buildings (for example, because they had fewer than 10 bedrooms or apartments) do not qualify for a deduction under this Division.
43‑195 Use for research and development activities must be in connection with a business
You are taken not to use capital works for *research and development activities unless you do so in connection with a business that you carry on for the *purpose of producing assessable income.
Note: This section affects Tables 43‑90 and 43‑140.
Subdivision 43‑F—Calculation of deduction
43‑200 What this Subdivision is about
This Subdivision shows you how to calculate the amount of a deduction under section 43‑10. The calculations must be made separately for each area that is identified as your area.
There are 2 separate calculation provisions: One for capital works begun before 27 February 1992; and the other for capital works begun after 26 February 1992.
Table of sections
43‑205 Explanatory material
Operative provisions
43‑210 Deduction for capital works begun after 26 February 1992
43‑215 Deduction for capital works begun before 27 February 1992
43‑220 Capital works taken to have begun earlier for certain purposes
Capital works begun before 27 February 1992
The calculation for these works is based on *your construction expenditure and the applicable rate of deduction. There can be only one rate of deduction that applies to *your area. However, reductions of deductions may apply.
You must reduce your deduction for any period in the income year that you did not own *your area and use it in the way described in Table 43‑140 (Current year use). Because there are 2 use tests in Table 43‑140 for *hotel buildings and *apartment buildings (a general income producing test and a more specific hotel and short‑term traveller accommodation use test), there are 2 reduction steps.
The first step reduces your deduction if part of *your area was not used as a *hotel building or *apartment building. The second step reduces the deduction to the extent that your area is used only partly for the *purpose of producing assessable income. This occurs, for example, if you *derive both assessable and exempt income, or if part of your area is not used to produce assessable income for all or part of the period it was used as a hotel building or apartment building.
Capital works begun after 26 February 1992
The calculation for these works is based on a portion of *your construction expenditure and the applicable rate of deduction. There can be 2 rates of deduction for your area depending on the way you use it.
If 2 rates apply, there will be a separate calculation for the part of *your area used in the way described in Table 43‑140 and for the part of *your area used in the way described in Table 43‑145 (Use in the 4% manner). A gross deduction and subsequent reduction is calculated for each.
The reduction is the same as the second reduction for capital works begun before 27 February 1992.
43‑210 Deduction for capital works begun after 26 February 1992
Step 1 Calculate the amount worked out using the formula:
where:
portion of your CE is the portion of *your construction expenditure that is attributable to the part of *your area that you used in the *4% manner.
days used is the number of days in the income year that:
(a) you owned or were the lessee of that part of *your area and used it in the *4% manner; or
(b) you were the holder of that part of *your area under a *quasi‑ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and used that part of your area in the 4% manner.
Step 2 Reduce the Step 1 amount by the extent to which the part referred to in Step 1 was used only partly for the *purpose of producing assessable income.
Note: This Step applies if:
- part of your income from the part referred to in Step 1 is exempt income; or
- part of the part referred to in Step 1 was not used for the purpose of producing assessable income or was not available for that use; or
- the part of the part referred to in Step 1 was not used for such a purpose during a part of the days used period.
Step 3 Calculate the amount worked out using the formula:
where:
portion of your CE is the portion of *your construction expenditure that is attributable to the part of *your area that you did not use in the *4% manner but was used as described in Table 43‑140 (Current year use).
days used is the number of days in the income year that:
(a) you owned or were the lessee of that part of *your area and used it in that manner; or
(b) you were the holder of that part of *your area under a *quasi‑ownership right over land granted by an *exempt Australian government agency or an *exempt foreign government agency, and used that part of your area in that manner.
Step 4 Reduce the Step 3 amount by the extent to which the part referred to in Step 3:
(a) for a *hotel building or *apartment building—was used only partly for the *purpose of producing assessable income; or
(b) for any other capital works—was used only partly for the purpose of *producing assessable income or carrying on *research and development activities.
Note: This Step applies if:
- part of your income from the part referred to in Step 3 is exempt income; or
- part of the part referred to in Step 3 was not used for the purpose of producing assessable income (or research and development activities) or was not available for that use; or
- the part of the part referred to in Step 3 was not used for such a purpose during a part of the days used period.
Step 5 Add the Step 2 and Step 4 amounts.
Step 6 The amount of your allowable deduction is the lesser of your Step 5 amount or the *undeducted construction expenditure for *your area.
43‑215 Deduction for capital works begun before 27 February 1992
Step 1 Calculate the amount worked out using the formula:
where:
your CE is *your construction expenditure.
days used is the number of days in the income year that you owned or were the lessee of *your area and used it in the way that applies to the capital works under Table 43‑140 (Current year use).
applicable rate is:
(a) 0.04 if the capital works began after 21 August 1984 and before 16 September 1987; or
(b) 0.025 in any other case.
Note: For the purpose of working out the applicable rate, capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43‑220.
Step 2 This step applies only to *hotel buildings and *apartment buildings. Reduce the Step 1 amount by the extent to which:
(a) for a hotel building—any part of *your area was not used wholly or mainly to operate a hotel, motel or guest house; or
(b) for an apartment building—any part of *your area was not used wholly for or in association with providing short‑term accommodation for travellers.
Step 3 Reduce the Step 1 or 2 amount by the extent to which:
(a) for a *hotel building or *apartment building—*your area was used only partly for the *purpose of producing assessable income; or
(b) for any other capital works—*your area was used only partly for the *purpose of producing assessable income or carrying on *research and development activities.
Note: This Step applies if:
- part of your income from the capital works is exempt income; or
- part of the capital works were not used for the purpose of producing assessable income or were not available for that use; or
- the capital works were not used for such a purpose during a part of the days used period.
Step 4 The amount of your allowable deduction is the lesser of your Step 3 amount or the *undeducted construction expenditure for *your area.
43‑220 Capital works taken to have begun earlier for certain purposes
(1) A building, other than a *hotel building or an *apartment building, or an extension, alteration or improvement to such a building, begun after 15 September 1987 is taken to have begun before 16 September 1987 if:
(a) the construction was under a contract that was entered into before 16 September 1987, or was under 2 or more contracts any of which was entered into before that date; or
(b) money was borrowed for a purpose that included the purpose of financing the construction under a contract or contracts entered into before 16 September 1987 by an entity that was, or by entities each of which was, a *qualifying investor, and that money was used to finance the construction.
(2) An entity is a qualifying investor for the construction of a building if:
(a) at the end of 15 September 1987, the entity was the owner or lessee of the land on which the building was constructed; or
(b) the entity became the owner or lessee of the land under a contract entered into before 16 September 1987.
(3) An entity is a qualifying investor for the construction of an extension, alteration or improvement to a building if:
(a) at the end of 15 September 1987, the entity was the owner or lessee of the building, or the part of the building to which the extension, alteration or improvement was made; or
(b) the entity became the owner or lessee of the building or that part under a contract entered into before 16 September 1987.
Subdivision 43‑G—Undeducted construction expenditure
43‑225 What this Subdivision is about
The undeducted construction expenditure for your area is the part of your construction expenditure you have left to write off. It is used to work out:
• the number of years in which you can deduct amounts for your construction expenditure; and
• the amount that you can deduct under section 43‑40 if your area or a part is destroyed.
Table of sections
Operative provisions
43‑230 Calculating undeducted construction expenditure—common step
43‑235 Post‑26 February 1992 undeducted construction expenditure
43‑240 Pre‑27 February 1992 undeducted construction expenditure
43‑230 Calculating undeducted construction expenditure—common step
(1) Identify the date when the capital works began.
Note 1: The date determines whether your calculation is to be made under section 43‑235 (for post‑26/2/92 expenditure) or 43‑240 (for pre‑27/2/92 expenditure).
Note 2: Section 43‑80 explains when capital works begin.
(2) If you are calculating a deduction under Subdivision 43‑F, identify the period (use period) that:
(a) started when *your area, or a part of it, was first used by any entity for any purpose after completion of the relevant construction; and
(b) ended at the end of the preceding income year or, if you acquired your area during the income year, at the end of the day before the time of the acquisition.
(3) If you are calculating a deduction under Subdivision 43‑H, identify the period (use period) that started at the time described in paragraph (2)(a) and ended at the time of the destruction.
43‑235 Post‑26 February 1992 undeducted construction expenditure
Step 1 Calculate for each day in the use period the amount worked out using the formula:
where:
portion of your CE is the portion of *your construction expenditure that is attributable to the part of *your area that you used in the *4% manner.
Step 2 Calculate for each day in the use period the amount worked out using the formula:
where:
portion of your CE is the portion of *your construction expenditure that is attributable to the part of *your area that you did not use in the *4% manner.
Step 3 Add the aggregate of the amounts calculated under Steps 1 and 2.
Step 4 Deduct the sum of those amounts from *your construction expenditure. The result is the undeducted construction expenditure for *your area.
43‑240 Pre‑27 February 1992 undeducted construction expenditure
Step 1 Calculate for each day in the use period the amount worked out using the formula:
where:
your CE is *your construction expenditure.
applicable rate is:
(a) 0.04 if the capital works began after 21 August 1984 and before 16 September 1987; or
(b) 0.025 in any other case.
Note: For the purpose of working out the applicable rate, capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43‑220.
Step 2 Deduct the sum of the amounts calculated under Step 1 from *your construction expenditure. The result is the undeducted construction expenditure for *your area.
Subdivision 43‑H—Balancing deduction on destruction of capital works
43‑245 What this Subdivision is about
You may deduct an amount for the undeducted construction expenditure for your area if your area or part of it is destroyed in the circumstances described in section 43‑40.
This Subdivision shows you how to work out that deduction.
The calculations in this Subdivision are made separately for each part of the capital works that is identified as your area.
Table of sections
Operative provisions
43‑250 The amount of the balancing deduction
43‑255 Amounts received or receivable
43‑260 Apportioning amounts received for destruction
43‑250 The amount of the balancing deduction
Method statement
Step 1. Calculate the amount (if any) by which the *undeducted construction expenditure for the part of *your area that was destroyed exceeds the amounts you have received or have a right to receive for the destruction of that part.
Step 2. Reduce the amount at Step 1 if one or more of these happened to that part of *your area:
(a) Step 2 or 4 in section 43‑210, or Step 2 or 3 in section 43‑215, applied to you or another person for it;
(b) you were, or another person was, not allowed a deduction for it under this Division;
(c) a deduction for it was not allowed or was reduced (for you or another person) under former Division 10C or 10D of Part III of the Income Tax Assessment Act 1936.
The reduction under this step must be reasonable.
43‑255 Amounts received or receivable
The amounts you have received or have a right to receive for the destruction of that part of *your area include:
(a) an amount received under an insurance policy or otherwise for the destruction of that part; and
(b) an amount received for disposing of property that was included in that part of your area, less any demolition expenditure incurred on the property.
43‑260 Apportioning amounts received for destruction
If an amount received or receivable in respect of the destruction of property relates to both the part of *your area for which you are claiming the balancing deduction and to property:
(a) the cost of which did not form part of *your construction expenditure; or
(b) that is capital works that was not part of your area;
you must apportion the amount received or receivable to the amount that is attributable to the part of your area that was destroyed. The apportionment must be reasonable.
Division 45—Disposal of leases and leased plant
45‑1 What this Division is about
This Division is designed to prevent tax being avoided through:
(a) the disposal of leased plant, or an interest in leased plant; or
(b) the disposal of a partnership interest in a partnership that leased plant; or
(c) the disposal of shares in a 100% subsidiary that leased plant;
where amounts have been deducted for the decline in value of the plant.
It includes amounts in assessable income. Any benefit received, and any reduction in a liability, is taken into account in calculating the amounts included.
Where the disposal of shares in a 100% subsidiary is involved, the companies in the former wholly‑owned group may be made jointly and severally liable for tax that the former subsidiary does not pay.
Table of sections
Operative provisions
45‑5 Disposal of leased plant or lease
45‑10 Disposal of interest in partnership
45‑15 Disposal of shares in 100% subsidiary that leases plant
45‑20 Disposal of shares in 100% subsidiary that leases plant in partnership
45‑25 Group members liable to pay outstanding tax
45‑30 Reduction for certain plant acquired before 21.9.99
45‑35 Limit on amount included for plant for which there is a CGT exemption
45‑40 Meaning of plant and written down value
45‑5 Disposal of leased plant or lease
(1) An amount is included in your assessable income if:
(a) you have deducted or can deduct an amount for the decline in value of *plant; and
(b) for most of the time when you *held the plant, you leased it to another entity; and
(c) all or part of the lease period occurred on or after 22 February 1999; and
(d) on or after that day, you dispose of the plant or an interest in the plant, and that disposal constitutes a *balancing adjustment event; and
(e) the sum of the following amounts is more than the plant’s *written down value or of that part of it that is attributable to that interest:
(i) the money you receive or are entitled to receive for the disposal;
(ii) the amount of any reduction in a liability of yours as a result of the disposal;
(iii) the *market value of any other benefit you receive or are entitled to receive as a result of the disposal.
(2) The amount included is the excess referred to in paragraph (1)(e). It is included for the income year in which the disposal occurred.
Example: Sean owns a leased asset. The asset has a written down value of $20,000. He has an outstanding loan for the asset of $60,000.
Sean sells a 50% interest in the asset to Leprechaun Pty Ltd for $40,000. Leprechaun agrees to take over 50% of Sean’s obligation to make debt service payments.
The excess referred to in paragraph 45‑5(1)(e) is:
That amount is included in Sean’s assessable income.
This amount would be reduced if part of it is included in Sean’s assessable income under another provision (see subsection 45‑5(5)).
Note 1: There is a reduction of the amount included for certain plant acquired before 21 September 1999: see section 45‑30.
Note 2: There is a limit on the amount included for plant for which there is a CGT exemption: see section 45‑35.
(3) An amount is also included in your assessable income if:
(a) you have deducted or can deduct an amount for the *plant’s decline in value; and
(b) for most of the time when you *held the plant, you leased it to another entity; and
(c) all or part of the lease period occurred on or after 22 February 1999; and
(d) on or after that day, you dispose of:
(i) your interest in the plant, or part of it; or
(ii) a right under, or an interest in, the lease;
and that disposal does not constitute a *balancing adjustment event.
(4) The amount included is the sum of the following amounts:
(a) the money you receive or are entitled to receive for the disposal;
(b) the amount of any reduction in a liability of yours as a result of the disposal;
(c) the *market value of any other benefit you receive or are entitled to receive as a result of the disposal;
It is included for the income year in which the disposal occurred.
(5) However, an amount is not included in your assessable income under this section to the extent that:
(a) it is included in that assessable income under a provision of this Act outside this Division; or
(b) you apply it under section 40‑365 (about offsetting balancing adjustments); or
(c) roll‑over relief is available for the disposal under section 40‑340.
Note: There are special rules for disposals between 22 February 1999 and 21 September 1999: see Division 45 of the Income Tax (Transitional Provisions) Act 1997.
45‑10 Disposal of interest in partnership
(1) An amount is included in your assessable income if:
(a) a partnership of which you are (or were) a member has deducted or can deduct an amount for the decline in value of *plant; and
(b) the deductions have been or would be reflected in your interest in the partnership net income or partnership loss; and
(c) for most of the time when the partnership *held the plant, it leased it to another entity; and
(d) all or part of the lease period occurred on or after 22 February 1999; and
(e) on or after that day, you dispose of your interest in the plant, or part of it, and that disposal constitutes a *balancing adjustment event; and
(f) the sum of the following amounts is more than that part of the plant’s *written down value that is attributable to that interest:
(i) the money you receive or are entitled to receive for the disposal;
(ii) the amount of any reduction in a liability of yours as a result of the disposal;
(iii) the *market value of any other benefit you receive or are entitled to receive as a result of the disposal.
(2) The amount included is the excess referred to in paragraph (1)(f). It is included for the income year in which the disposal occurred.
Example: Chris has a 50% share in a partnership formed to lease an asset. The asset has a written down value of $124,000 (of which Chris’ share is $62,000).
Chris assigns his partnership share to another entity for $34,000 plus the other entity agreeing to take over Chris’ obligations to service his share of the partnership debt (which is $165,000). The total consideration is:
The amount assessable under section 45‑10 is the excess referred to in paragraph 45‑10(1)(f), which is:
This amount would be reduced if part of it is included in Chris’ assessable income under another provision (see subsection 45‑10(5)).
Note 1: There is a reduction of the amount included for certain plant acquired before 21 September 1999: see section 45‑30.
Note 2: There is a limit on the amount included for plant for which there is a CGT exemption: see section 45‑35.
(3) An amount is also included in your assessable income if:
(a) a partnership of which you are (or were) a member has deducted or can deduct an amount for the decline in value of *plant; and
(b) the deductions have been or would be reflected in your interest in the partnership net income or partnership loss; and
(c) for most of the time when the partnership *held the plant, it leased it to another entity; and
(d) all or part of the lease period occurred on or after 22 February 1999; and
(e) on or after that day, you dispose of:
(i) your interest in the plant, or part of it; or
(ii) a right under, or an interest in, the lease;
and that disposal does not constitute a *balancing adjustment event.
(4) The amount included is the sum of the following amounts:
(a) the money you receive or are entitled to receive for the disposal;
(b) the amount of any reduction in a liability of yours as a result of the disposal;
(c) the *market value of any other benefit you receive or are entitled to receive as a result of the disposal.
It is included for the income year in which the disposal occurred.
(5) However, an amount is not included in your assessable income under this section to the extent that:
(a) it is included in that assessable income under a provision of this Act outside this Division; or
(b) you apply it under section 40‑365 (about offsetting balancing adjustments).
Note: There are special rules for disposals between 22 February 1999 and 21 September 1999: see Division 45 of the Income Tax (Transitional Provisions) Act 1997.
45‑15 Disposal of shares in 100% subsidiary that leases plant
(1) A company (the former subsidiary) is treated as if it had disposed of *plant, received its *market value for that disposal and immediately reacquired it for the same amount if:
(a) the former subsidiary has deducted or can deduct an amount for the decline in value of the plant; and
(b) the former subsidiary was a *100% subsidiary of another company in a *wholly‑owned group at a time when it *held the plant; and
(c) for most of the time when the former subsidiary held the plant, the plant was leased to another entity; and
(d) the main *business of the former subsidiary was to lease assets; and
(e) all or part of the lease period occurred on or after 22 February 1999; and
(f) on or after that day, the direct or indirect beneficial ownership of more than 50% of the *shares in the former subsidiary is acquired by an entity or entities none of which is a member of the wholly‑owned group; and
(g) the plant’s *written down value at the time of that acquisition is less than its market value at that time.
(2) However, the former subsidiary is not treated as if it had disposed of *plant and reacquired it if the main business of each of the entities that acquired the direct or indirect beneficial ownership of *shares in the former subsidiary is the same as the main business of the *wholly‑owned group of which the former subsidiary was a member.
(3) The disposal and reacquisition of the *plant:
(a) is taken to have occurred when that direct or indirect beneficial ownership was acquired; and
(b) is taken not to have affected any lease of the plant.
45‑20 Disposal of shares in 100% subsidiary that leases plant in partnership
(1) A company (also the former subsidiary) is treated as if it had disposed of its interest in *plant, received its *market value for that disposal and immediately reacquired it for the same amount if:
(a) a partnership of which the former subsidiary is (or was) a member has deducted or can deduct an amount for the decline in value of the plant; and
(b) the former subsidiary was a *100% subsidiary of another company in a *wholly‑owned group at a time when:
(i) it was a member of that partnership; and
(ii) the partnership *held the plant; and
(c) for most of the time when the partnership held the plant, the plant was leased to another entity; and
(d) the main *business of the partnership was to lease assets; and
(e) all or part of the lease period occurred on or after 22 February 1999; and
(f) on or after that day, the direct or indirect beneficial ownership of more than 50% of the *shares in the former subsidiary is acquired by an entity or entities none of which is a member of the wholly‑owned group; and
(g) the plant’s *written down value at the time of that acquisition is less than its market value at that time.
(2) However, the former subsidiary is not treated as if it had disposed of the interest and reacquired it if the main business of each of the entities that acquired the direct or indirect beneficial ownership of *shares in the former subsidiary is the same as the main business of the *wholly‑owned group of which the former subsidiary was a member.
(3) The disposal and reacquisition of the interest:
(a) is taken to have occurred when that direct or indirect beneficial ownership was acquired; and
(b) is taken not to have affected any lease of the plant.
45‑25 Group members liable to pay outstanding tax
(1) The consequences specified in subsection (2) apply if:
(a) an amount is included in the former subsidiary’s assessable income for an income year because of section 45‑15 or 45‑20; and
(b) the former subsidiary is liable to pay an amount of income tax for that income year; and
(c) the former subsidiary does not pay all of that income tax within 6 months after it became payable.
(2) The consequences are that:
(a) the former subsidiary remains liable to pay the outstanding amount of income tax (reduced by any payments of tax imposed by the New Business Tax System (Former Subsidiary Tax Imposition) Act 1999); and
(b) each company that was, just before the time when the direct or indirect beneficial ownership referred to in paragraph 45‑15(1)(f) or 45‑20(1)(f) was acquired, a member of the former subsidiary’s former *wholly‑owned group, is jointly and severally liable to pay tax imposed by the New Business Tax System (Former Subsidiary Tax Imposition) Act 1999.
45‑30 Reduction for certain plant acquired before 21.9.99
(1) The amount included in your assessable income under subsection 45‑5(2) or 45‑10(2) is reduced if:
(a) you acquired the *plant at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999 and you disposed of the plant or an interest in it after that time; and
(b) the sum of the amounts (your proceeds) referred to in paragraph 45‑5(1)(e) or 45‑10(1)(f) is more than the plant’s *cost, or that part of it that is attributable to the interest you disposed of.
(2) The amount included is reduced by the lesser of:
(a) the amount (if any) by which the *plant’s *cost base exceeds its *cost, or that part of the excess that is attributable to the interest you disposed of; and
(b) the difference between your proceeds and the plant’s cost, or that part of its cost that is attributable to the interest you disposed of.
(3) However, the amount is not reduced under this section if:
(a) the *plant was a *pre‑CGT asset at the time of the *balancing adjustment event; or
(b) a *capital gain or *capital loss from the plant or interest would be disregarded because of a provision listed in the table in this subsection if:
(i) you had made the gain or loss from *CGT event A1; and
(ii) that CGT event had happened at the time of the balancing adjustment event.
Plant for which a reduction is not made under this section | ||
Item | Provision | Subject matter |
1 | section 118‑5 | cars, motor cycles and valour decorations |
2 | section 118‑10 | collectables and personal use assets |
3 | section 118‑12 | plant used to produce exempt income |
45‑35 Limit on amount included for plant for which there is a CGT exemption
(1) For *plant to which subsection 45‑30(3) applies there is a limit on the amount that can be included in your assessable income under subsection 45‑5(2) or 45‑10(2).
(2) The limit for subsection 45‑5(2) is the lesser of:
(a) the excess referred to in paragraph 45‑5(1)(e); and
(b) the amounts you have deducted or can deduct for the decline in value of the *plant or, if you disposed of an interest in the plant, so much of those amounts as is attributable to that interest.
(3) The limit for subsection 45‑10(2) is the lesser of:
(a) the excess referred to in paragraph 45‑10(1)(f); and
(b) that part of the amounts the partnership has deducted or can deduct for the decline in value of the *plant that has been or would be reflected in your interest in the partnership net income or partnership loss (your partnership amount) or, if you disposed of part of your interest in the plant, so much of your partnership amount as is attributable to that part of that interest.
45‑40 Meaning of plant and written down value
(1) Plant includes:
(a) articles, machinery, tools and rolling stock; and
(b) animals used as beasts of burden or working beasts in a *business, other than a *primary production business; and
(c) fences, dams and other structural improvements, other than those used for domestic or residential purposes, on land that is used for agricultural or pastoral operations; and
(d) structural improvements, other than a *forestry road or structural improvements used for domestic or residential purposes, on land used in a business involving:
(i) planting or tending trees in a plantation or forest that are intended to be felled; or
(ii) felling trees in a plantation or forest; or
(iii) transporting trees, or parts of trees, that you felled in a plantation or forest to the place where they are first to be milled or processed, or from which they are to be transported to the place where they are first to be milled or processed; and
(e) structural improvements, other than those used for domestic or residential purposes, that are used wholly for operations (carried out in the course of a business) relating directly to:
(i) taking or culturing pearls or pearl shell; or
(ii) taking or catching trochus, bêche‑de‑mer or green snails;
and that are situated at or near a port or harbour from which the business is conducted; and
(f) structural improvements that are excluded from paragraph (c), (d) or (e) because they are used for domestic or residential purposes if they are provided for the accommodation of employees, tenants or sharefarmers who are engaged in or in connection with the activities referred to in that paragraph.
(2) Plant also includes plumbing fixtures and fittings (including wall and floor tiles) provided by an entity mainly for:
(a) either or both:
(i) employees in a *business carried on by the entity for the *purpose of producing assessable income; or
(ii) employees in a business carried on for that purpose by a company that is a member of the same *wholly‑owned group of which the entity is a member; or
(b) *children of any of those employees.
(3) The written down value of a *depreciating asset is its *cost less the sum of:
(a) the amounts you have deducted or can deduct for its decline in value; and
(b) if section 40‑340 applied to your acquisition of it—the amounts the transferor, and earlier successive transferors, deducted or can deduct for its decline in value.
