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Income Tax Assessment Act 1997

Authoritative Version
  • - C2017C00212
  • In force - Superseded Version
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Act No. 38 of 1997 as amended, taking into account amendments up to Treasury Laws Amendment (Major Bank Levy) Act 2017
An Act about income tax and related matters
Administered by: Treasury
Registered 07 Jul 2017
Start Date 24 Jun 2017
End Date 30 Jun 2017

Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 169

Compilation date:                              24 June 2017

Includes amendments up to:            Act No. 64, 2017

Registered:                                         7 July 2017

This compilation is in 11 volumes

Volume 1:       sections 1‑1 to 36‑55

Volume 2:       sections 40‑1 to 55‑10

Volume 3:       sections 58‑1 to 122‑205

Volume 4:       sections 124‑1 to 152‑430

Volume 5:       sections 164‑1 to 220‑800

Volume 6:       sections 230‑1 to 312‑15

Volume 7:       sections 315‑1 to 420‑70

Volume 8:       sections 615‑1 to 727‑910

Volume 9:       sections 768‑1 to 995‑1

Volume 10:     Endnotes 1 to 3

Volume 11:     Endnote 4

Each volume has its own contents

 

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 24 June 2017 (the compilation date).

The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of provisions of the compiled law.

Uncommenced amendments

The effect of uncommenced amendments is not shown in the text of the compiled law. Any uncommenced amendments affecting the law are accessible on the Legislation Register (www.legislation.gov.au). The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. For more information on any uncommenced amendments, see the series page on the Legislation Register for the compiled law.

Application, saving and transitional provisions for provisions and amendments

If the operation of a provision or amendment of the compiled law is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.

Editorial changes

For more information about any editorial changes made in this compilation, see the endnotes.

Modifications

If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. For more information on any modifications, see the series page on the Legislation Register for the compiled law.

Self‑repealing provisions

If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.

  

  

  


Contents

Chapter 2—Liability rules of general application                      1

Part 2‑10—Capital allowances: rules about deductibility of capital expenditure               1

Division 40—Capital allowances                                                                            1

Guide to Division 40                                                                                                  2

40‑1....................... What this Division is about................................................. 2

40‑10..................... Simplified outline of this Division...................................... 2

Subdivision 40‑A—Objects of Division                                                                 5

40‑15..................... Objects of Division............................................................. 5

Subdivision 40‑B—Core provisions                                                                      6

Guide to Subdivision 40‑B                                                                                        6

40‑20..................... What this Subdivision is about........................................... 6

Operative provisions                                                                                                 7

40‑25..................... Deducting amounts for depreciating assets......................... 7

40‑30..................... What a depreciating asset is............................................... 9

40‑35..................... Jointly held depreciating assets......................................... 10

40‑40..................... Meaning of hold a depreciating asset................................ 11

40‑45..................... Assets to which this Division does not apply................... 14

40‑50..................... Assets for which you deduct under another Subdivision.. 15

40‑53..................... Alterations etc. to certain depreciating assets.................... 15

40‑55..................... Use of the “cents per kilometre” car expense deduction method              16

40‑60..................... When a depreciating asset starts to decline in value.......... 16

40‑65..................... Choice of methods to work out the decline in value.......... 16

40‑70..................... Diminishing value method................................................ 18

40‑72..................... Diminishing value method for post‑9 May 2006 assets.... 19

40‑75..................... Prime cost method............................................................ 20

40‑80..................... When you can deduct the asset’s cost............................... 23

40‑85..................... Meaning of adjustable value and opening adjustable value of a depreciating asset 25

40‑90..................... Debt forgiveness............................................................... 26

40‑95..................... Choice of determining effective life.................................. 27

40‑100................... Commissioner’s determination of effective life................. 35

40‑102................... Capped life of certain depreciating assets.......................... 36

40‑103................... Effective life and remaining effective life of certain vessels 39

40‑105................... Self‑assessing effective life............................................... 40

40‑110................... Recalculating effective life................................................ 41

40‑115................... Splitting a depreciating asset............................................. 44

40‑120................... Replacement spectrum licences......................................... 44

40‑125................... Merging depreciating assets.............................................. 45

40‑130................... Choices............................................................................. 45

40‑135................... Certain anti‑avoidance provisions..................................... 46

40‑140................... Getting tax information from associates............................ 46

Subdivision 40‑C—Cost                                                                                          47

Guide to Subdivision 40‑C                                                                                      47

40‑170................... What this Subdivision is about......................................... 47

Operative provisions                                                                                               48

40‑175................... Cost.................................................................................. 48

40‑180................... First element of cost.......................................................... 49

40‑185................... Amount you are taken to have paid to hold a depreciating asset or to receive a benefit            52

40‑190................... Second element of cost..................................................... 54

40‑195................... Apportionment of cost...................................................... 55

40‑200................... Exclusion from cost.......................................................... 55

40‑205................... Cost of a split depreciating asset....................................... 56

40‑210................... Cost of merged depreciating assets................................... 56

40‑215................... Adjustment: double deduction.......................................... 56

40‑220................... Cost reduced by amounts not of a capital nature............... 57

40‑222................... Cost reduced by water infrastructure improvement expenditure               57

40‑225................... Adjustment: acquiring a car at a discount.......................... 57

40‑230................... Adjustment: car limit......................................................... 58

40‑235................... Adjustment: National Disability Insurance Scheme costs. 58

Subdivision 40‑D—Balancing adjustments                                                        59

Guide to Subdivision 40‑D                                                                                      59

40‑280................... What this Subdivision is about......................................... 59

Operative provisions                                                                                               60

40‑285................... Balancing adjustments...................................................... 60

40‑290................... Reduction for non‑taxable use.......................................... 62

40‑292................... Adjustments—assets used for both general tax purposes and R&D activities         63

40‑293................... Adjustments—partnership assets used for both general tax purposes and R&D activities       65

40‑295................... Meaning of balancing adjustment event........................... 66

40‑300................... Meaning of termination value........................................... 68

40‑305................... Amount you are taken to have received under a balancing adjustment event            70

40‑310................... Apportionment of termination value................................. 72

40‑320................... Car to which section 40‑225 applies................................. 72

40‑325................... Adjustment: car limit......................................................... 72

40‑335................... Deduction for in‑house software where you will never use it  72

40‑340................... Roll‑over relief.................................................................. 73

40‑345................... What the roll‑over relief is................................................ 76

40‑350................... Additional consequences.................................................. 76

40‑360................... Notice to allow transferee to work out how this Division applies            77

40‑362................... Roll‑over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012.................................................................................. 78

40‑363................... Roll‑over relief for interest realignment arrangements...... 79

40‑364................... Interest realignment adjustments....................................... 82

40‑365................... Involuntary disposals........................................................ 84

40‑370................... Balancing adjustments where there has been use of different car expense methods 86

Subdivision 40‑E—Low‑value and software development pools                 88

Guide to Subdivision 40‑E                                                                                      88

40‑420................... What this Subdivision is about......................................... 88

Operative provisions                                                                                               88

40‑425................... Allocating assets to a low‑value pool................................ 88

40‑430................... Rules for assets in low‑value pools.................................. 90

40‑435................... Private or exempt use of assets......................................... 90

40‑440................... How you work out the decline in value of assets in low‑value pools       91

40‑445................... Balancing adjustment events............................................. 92

40‑450................... Software development pools............................................. 92

40‑455................... How to work out your deduction...................................... 93

40‑460................... Your assessable income includes consideration for pooled software       94

Subdivision 40‑F—Primary production depreciating assets                        94

Guide to Subdivision 40‑F                                                                                      94

40‑510................... What this Subdivision is about......................................... 94

Operative provisions                                                                                               95

40‑515................... Water facilities, horticultural plants, fodder storage assets and fencing assets          95

40‑520................... Meaning of water facility, horticultural plant, fodder storage asset and fencing asset            96

40‑525................... Conditions........................................................................ 97

40‑530................... When declines in value start.............................................. 99

40‑535................... Meaning of horticulture and commercial horticulture.... 100

40‑540................... How you work out the decline in value for water facilities 100

40‑545................... How you work out the decline in value for horticultural plants                100

40‑548................... How you work out the decline in value for fodder storage assets            102

40‑551................... How you work out the decline in value for fencing assets 102

40‑555................... Amounts you cannot deduct........................................... 102

40‑560................... Non‑arm’s length transactions........................................ 104

40‑565................... Extra deduction for destruction of a horticultural plant... 104

40‑570................... How this Subdivision applies to partners and partnerships 105

40‑575................... Getting tax information if you acquire a horticultural plant 106

Subdivision 40‑G—Capital expenditure of primary producers and other landholders               107

Guide to Subdivision 40‑G                                                                                   107

40‑625................... What this Subdivision is about....................................... 107

Operative provisions                                                                                             108

40‑630................... Landcare operations........................................................ 108

40‑635................... Meaning of landcare operation...................................... 110

40‑640................... Meaning of approved management plan........................ 111

40‑645................... Electricity and telephone lines......................................... 112

40‑650................... Amounts you cannot deduct under this Subdivision....... 113

40‑655................... Meaning of connecting power to land or upgrading the connection and metering point         114

40‑660................... Non‑arm’s length transactions........................................ 116

40‑665................... How this Subdivision applies to partners and partnerships 116

40‑670................... Approval of persons as farm consultants........................ 116

40‑675................... Review of decisions relating to approvals....................... 117

Subdivision 40‑H—Capital expenditure that is immediately deductible 117

Guide to Subdivision 40‑H                                                                                   117

40‑725................... What this Subdivision is about....................................... 117

Operative provisions                                                                                             118

40‑730................... Deduction for expenditure on exploration or prospecting 118

40‑735................... Deduction for expenditure on mining site rehabilitation.. 120

40‑740................... Meaning of ancillary mining activities and mining building site              121

40‑745................... No deduction for certain expenditure.............................. 122

40‑750................... Deduction for payments of petroleum resource rent tax.. 122

40‑755................... Environmental protection activities................................. 123

40‑760................... Limits on deductions from environmental protection activities 124

40‑765................... Non‑arm’s length transactions........................................ 125

Subdivision 40‑I—Capital expenditure that is deductible over time         125

Guide to Subdivision 40‑I                                                                                     125

40‑825................... What this Subdivision is about....................................... 125

Operative provisions                                                                                             126

40‑830................... Project pools................................................................... 126

40‑832................... Project pools for post‑9 May 2006 projects.................... 128

40‑835................... Reduction of deduction................................................... 128

40‑840................... Meaning of project amount............................................ 129

40‑845................... Project life....................................................................... 130

40‑855................... When you start to deduct amounts for a project pool...... 130

40‑860................... Meaning of mining capital expenditure.......................... 130

40‑865................... Meaning of transport capital expenditure...................... 132

40‑870................... Meaning of transport facility.......................................... 133

40‑875................... Meaning of processed minerals and minerals treatment 133

40‑880................... Business related costs..................................................... 134

40‑885................... Non‑arm’s length transactions........................................ 138

Subdivision 40‑J—Capital expenditure for the establishment of trees in carbon sink forests   138

Guide to Subdivision 40‑J                                                                                    138

40‑1000................. What this Subdivision is about....................................... 138

Operative provisions                                                                                             139

40‑1005................. Deduction for expenditure for establishing trees in carbon sink forests   139

40‑1010................. Expenditure for establishing trees in carbon sink forests 141

40‑1015................. Carbon sequestration by trees........................................ 143

40‑1020................. Certain expenditure disregarded...................................... 143

40‑1025................. Non‑arm’s length transactions........................................ 143

40‑1030................. Extra deduction for destruction of trees in carbon sink forest  144

40‑1035................. Getting information if you acquire a carbon sink forest.. 145

Subdivision 40‑K—Farm‑in farm‑out arrangements                                   146

Guide to Subdivision 40‑K                                                                                   146

40‑1095................. What this Subdivision is about....................................... 146

Farm‑in farm‑out arrangements and exploration benefits                         147

40‑1100................. Meaning of farm‑in farm‑out arrangement and exploration benefit        147

Consequences for transferors                                                                             149

40‑1105................. Treatment of certain exploration benefits received under farm‑in farm‑out arrangements        149

40‑1110................. Cost of split interests resulting from farm‑in farm‑out arrangements       149

40‑1115................. Deductions relating to receipt of exploration benefits..... 150

40‑1120................. Cost base and reduced cost base of exploration benefits etc. 151

40‑1125................. Effect of exploration benefits on the cost of mining, quarrying or prospecting information     151

Consequences for transferees                                                                              151

40‑1130................. Consequences of certain exploration benefits provided under farm‑in farm‑out arrangements                151

Division 41—Additional deduction for certain new business investment              153

Guide to Division 41                                                                                              153

41‑1....................... What this Division is about............................................. 153

Operative provisions                                                                                             154

41‑5....................... Object of Division.......................................................... 154

41‑10..................... Entitlement to deduction for investment.......................... 154

41‑15..................... Amount of deduction...................................................... 155

41‑20..................... Recognised new investment amount............................... 157

41‑25..................... Investment commitment time.......................................... 158

41‑30..................... First use time.................................................................. 160

41‑35..................... New investment threshold.............................................. 160

Division 43—Deductions for capital works                                                  161

Guide to Division 43                                                                                              161

43‑1....................... What this Division is about............................................. 161

43‑2....................... Key concepts used in this Division................................. 161

Subdivision 43‑A—Key operative provisions                                                 163

Guide to Subdivision 43‑A                                                                                    163

43‑5....................... What this Subdivision is about....................................... 163

Operative provisions                                                                                             163

43‑10..................... Deductions for capital works.......................................... 163

43‑15..................... Amount you can deduct.................................................. 164

43‑20..................... Capital works to which this Division applies.................. 164

43‑25..................... Rate of deduction............................................................ 166

43‑30..................... No deduction until construction is complete................... 166

43‑35..................... Requirement for registration under the Industry Research and Development Act    166

43‑40..................... Deduction for destruction of capital works..................... 167

43‑45..................... Certain anti‑avoidance provisions................................... 167

43‑50..................... Links and signposts to other parts of the Act.................. 168

43‑55..................... Anti‑avoidance—arrangement etc. with tax‑exempt entity 169

Subdivision 43‑B—Establishing the deduction base                                      170

Guide to Subdivision 43‑B                                                                                    170

43‑60..................... What this Subdivision is about....................................... 170

43‑65..................... Explanatory material....................................................... 170

Operative provisions                                                                                             171

43‑70..................... What is construction expenditure?.................................. 171

43‑72..................... Meaning of forestry road, timber operation and timber mill building     173

43‑75..................... Construction expenditure area......................................... 173

43‑80..................... When capital works begin............................................... 175

43‑85..................... Pools of construction expenditure................................... 176

43‑90..................... Table of intended use at time of completion of construction 176

43‑95..................... Meaning of hotel building and apartment building......... 179

43‑100................... Certificates by Innovation and Science Australia............ 180

Subdivision 43‑C—Your area and your construction expenditure           180

Guide to Subdivision 43‑C                                                                                    180

43‑105................... What this Subdivision is about....................................... 180

43‑110................... Explanatory material....................................................... 181

Operative provisions                                                                                             181

43‑115................... Your area and your construction expenditure—owners.. 181

43‑120................... Your area and your construction expenditure—lessees and quasi‑ownership right holders     181

43‑125................... Lessees’ or right holders’ pools can revert to owner...... 182

43‑130................... Identifying your area on acquisition or disposal............. 183

Subdivision 43‑D—Deductible uses of capital works                                    183

Guide to Subdivision 43‑D                                                                                    183

43‑135................... What this Subdivision is about....................................... 183

Operative provisions                                                                                             184

43‑140................... Using your area in a deductible way............................... 184

43‑145................... Using your area in the 4% manner.................................. 186

43‑150................... Meaning of industrial activities...................................... 190

Subdivision 43‑E—Special rules about uses                                                    192

Guide to Subdivision 43‑E                                                                                    192

43‑155................... What this Subdivision is about....................................... 192

Operative provisions                                                                                             193

43‑160................... Your area is used for a purpose if it is maintained ready for use for the purpose     193

43‑165................... Temporary cessation of use............................................ 193

43‑170................... Own use—capital works other than hotel and apartment buildings          194

43‑175................... Own use—hotel and apartment buildings....................... 194

43‑180................... Special rules for hotel and apartment buildings............... 195

43‑185................... Residential or display use............................................... 196

43‑190................... Use of facilities not commonly provided, and of certain buildings used to operate a hotel, motel or guest house........................................................................................ 197

43‑195................... Use for R&D activities must be in connection with a business                198

Subdivision 43‑F—Calculation of deduction                                                  198

Guide to Subdivision 43‑F                                                                                    198

43‑200................... What this Subdivision is about....................................... 198

43‑205................... Explanatory material....................................................... 199

Operative provisions                                                                                             200

43‑210................... Deduction for capital works begun after 26 February 1992 200

43‑215................... Deduction for capital works begun before 27 February 1992  202

43‑220................... Capital works taken to have begun earlier for certain purposes                203

Subdivision 43‑G—Undeducted construction expenditure                          204

Guide to Subdivision 43‑G                                                                                   204

43‑225................... What this Subdivision is about....................................... 204

Operative provisions                                                                                             205

43‑230................... Calculating undeducted construction expenditure—common step            205

43‑235................... Post‑26 February 1992 undeducted construction expenditure  205

43‑240................... Pre‑27 February 1992 undeducted construction expenditure 206

Subdivision 43‑H—Balancing deduction on destruction of capital works 207

Guide to Subdivision 43‑H                                                                                   207

43‑245................... What this Subdivision is about....................................... 207

Operative provisions                                                                                             208

43‑250................... The amount of the balancing deduction........................... 208

43‑255................... Amounts received or receivable...................................... 208

43‑260................... Apportioning amounts received for destruction.............. 209

Division 45—Disposal of leases and leased plant                                       210

Guide to Division 45                                                                                              210

45‑1....................... What this Division is about............................................. 210

Operative provisions                                                                                             211

45‑5....................... Disposal of leased plant or lease..................................... 211

45‑10..................... Disposal of interest in partnership.................................. 213

45‑15..................... Disposal of shares in 100% subsidiary that leases plant. 215

45‑20..................... Disposal of shares in 100% subsidiary that leases plant in partnership    216

45‑25..................... Group members liable to pay outstanding tax................. 217

45‑30..................... Reduction for certain plant acquired before 21.9.99........ 218

45‑35..................... Limit on amount included for plant for which there is a CGT exemption 219

45‑40..................... Meaning of plant and written down value....................... 219

Part 2‑15—Non‑assessable income                                                                          222

Division 50—Exempt entities                                                                                222

Subdivision 50‑A—Various exempt entities                                                    222

50‑1....................... Entities whose ordinary income and statutory income is exempt              223

50‑5....................... Charity, education and science........................................ 223

50‑10..................... Community service......................................................... 224

50‑15..................... Employees and employers.............................................. 224

50‑25..................... Government.................................................................... 225

50‑30..................... Health............................................................................. 225

50‑35..................... Mining............................................................................ 226

50‑40..................... Primary and secondary resources, and tourism............... 226

50‑45..................... Sports, culture and recreation.......................................... 228

50‑47..................... Special condition for all items......................................... 228

50‑50..................... Special conditions for item 1.1........................................ 228

50‑52..................... Special condition for item 1.1......................................... 229

50‑55..................... Special conditions for items 1.3, 1.4, 6.1 and 6.2........... 229

50‑65..................... Special conditions for item 1.6........................................ 230

50‑70..................... Special conditions for items 1.7, 2.1, 9.1 and 9.2........... 231

50‑72..................... Special condition for item 4.1......................................... 231

50‑75..................... Certain distributions may be made overseas................... 232

Subdivision 50‑B—Endorsing charitable entities as exempt from income tax              232

Guide to Subdivision 50‑B                                                                                    232

50‑100................... What this Subdivision is about....................................... 232

Endorsing charitable entities as exempt from income tax                          233

50‑105................... Endorsement by Commissioner...................................... 233

50‑110................... Entitlement to endorsement............................................. 233

Division 51—Exempt amounts                                                                             235

51‑1....................... Amounts of ordinary income and statutory income that are exempt         235

51‑5....................... Defence........................................................................... 236

51‑10..................... Education and training.................................................... 238

51‑30..................... Welfare........................................................................... 241

51‑32..................... Compensation payments for loss of tax exempt payments 244

51‑33..................... Compensation payments for loss of pay and/or allowances as a Defence reservist  245

51‑35..................... Payments to a full‑time student at a school, college or university             246

51‑40..................... Payments to a secondary student.................................... 247

51‑42..................... Bonuses for early completion of an apprenticeship......... 247

51‑43..................... Income collected or derived by copyright collecting society 247

51‑45..................... Income collected or derived by resale royalty collecting society               248

51‑50..................... Maintenance payments to a spouse or child.................... 249

51‑52..................... Income derived from eligible venture capital investments by ESVCLPs  249

51‑54..................... Gain or profit from disposal of eligible venture capital investments         251

51‑55..................... Gain or profit from disposal of venture capital equity..... 253

51‑57..................... Interest on judgment debt relating to personal injury...... 253

51‑60..................... Prime Minister’s Prizes.................................................. 254

51‑100................... Shipping......................................................................... 254

51‑105................... Shipping activities........................................................... 255

51‑110................... Core shipping activities.................................................. 255

51‑115................... Incidental shipping activities........................................... 257

51‑120................... Interest on unclaimed money and property..................... 257

Division 52—Certain pensions, benefits and allowances are exempt from income tax 258

Guide to Division 52                                                                                              258

52‑1....................... What this Division is about............................................. 258

Subdivision 52‑A—Exempt payments under the Social Security Act 1991 259

Guide to Subdivision 52‑A                                                                                    259

52‑5....................... What this Subdivision is about....................................... 259

Operative provisions                                                                                             260

52‑10..................... How much of a social security payment is exempt?........ 260

52‑15..................... Supplementary amounts of payments............................. 276

52‑20..................... Tax‑free amount of an ordinary payment after the death of your partner  279

52‑25..................... Tax‑free amount of certain bereavement lump sum payments  281

52‑30..................... Tax‑free amount of certain other bereavement lump sum payments         283

52‑35..................... Tax‑free amount of a lump sum payment made because of the death of a person you are caring for       285

52‑40..................... Provisions of the Social Security Act 1991 under which payments are made           286

Subdivision 52‑B—Exempt payments under the Veterans’ Entitlements Act 1986       290

Guide to Subdivision 52‑B                                                                                    290

52‑60..................... What this Subdivision is about....................................... 290

Operative provisions                                                                                             290

52‑65..................... How much of a veterans’ affairs payment is exempt?..... 290

52‑70..................... Supplementary amounts of payments............................. 295

Subdivision 52‑C—Exempt payments made because of the Veterans’ Entitlements (Transitional Provisions and Consequential Amendments) Act 1986                                298

Guide to Subdivision 52‑C                                                                                    298

52‑100................... What this Subdivision is about....................................... 298

Operative provisions                                                                                             299

52‑105................... Supplementary amount of a payment made under the Repatriation Act 1920 is exempt           299

52‑110................... Other exempt payments.................................................. 300

Subdivision 52‑CA—Exempt payments under the Military Rehabilitation and Compensation Act 2004               300

Guide to Subdivision 52‑CA                                                                                 300

52‑112................... What this Subdivision is about....................................... 300

Operative provisions                                                                                             301

52‑114................... How much of a payment under the Military Rehabilitation and Compensation Act is exempt?               301

Subdivision 52‑CB—Exempt payments under the Australian Participants in British Nuclear Tests (Treatment) Act 2006                                                                                              305

52‑117................... Payments of travelling expenses are exempt................... 305

Subdivision 52‑E—Exempt payments under the ABSTUDY scheme        305

Guide to Subdivision 52‑E                                                                                    305

52‑130................... What this Subdivision is about....................................... 305

Operative provisions                                                                                             306

52‑131................... Payments under ABSTUDY scheme............................. 306

52‑132................... Supplementary amount of payment................................. 308

52‑133................... Tax‑free amount of ordinary payment on death of partner if no bereavement payment payable               309

52‑134................... Tax‑free amount if you receive a bereavement lump sum payment          309

Subdivision 52‑F—Exemption of Commonwealth education or training payments     310

52‑140................... Supplementary amount of a Commonwealth education or training payment is exempt            310

52‑145................... Meaning of Commonwealth education or training payment 312

Subdivision 52‑G—Exempt payments under the A New Tax System (Family Assistance) (Administration) Act 1999                                                                                                       313

52‑150................... Family assistance payments are exempt.......................... 313

Subdivision 52‑H—Other exempt payments                                                   313

52‑160................... Economic security strategy payments are exempt........... 313

52‑162................... ETR payments are exempt.............................................. 313

52‑165................... Household stimulus payments are exempt...................... 314

52‑170................... Outer Regional and Remote payments under the Helping Children with Autism package are exempt     314

52‑172................... Outer Regional and Remote payments under the Better Start for Children with Disability initiative are exempt........................................................................................ 314

52‑175................... Continence aids payments are exempt............................. 314

52‑180................... National Disability Insurance Scheme amounts are exempt 314

Division 53—Various exempt payments                                                         315

Guide to Division 53                                                                                              315

53‑1....................... What this Division is about............................................. 315

Operative provisions                                                                                             315

53‑10..................... Exemption of various types of payments........................ 315

53‑20..................... Exemption of similar Australian and United Kingdom veterans’ payments             317

Division 54—Exemption for certain payments made under structured settlements and structured orders                                                                                                                    318

Guide to Division 54                                                                                              318

54‑1....................... What this Division is about............................................. 318

Subdivision 54‑A—Definitions                                                                            318

Operative provisions                                                                                             319

54‑5....................... Definitions...................................................................... 319

54‑10..................... Meaning of structured settlement and structured order. 319

Subdivision 54‑B—Tax exemption for personal injury annuities             322

Operative provisions                                                                                             322

54‑15..................... Personal injury annuity exemption for injured person.... 322

54‑20..................... Lump sum compensation etc. would not have been assessable                322

54‑25..................... Requirements of the annuity instrument.......................... 323

54‑30..................... Requirements for payments of the annuity...................... 323

54‑35..................... Payments during the guarantee period on the death of the injured person                324

54‑40..................... Requirement for minimum monthly level of support...... 326

Subdivision 54‑C—Tax exemption for personal injury lump sums          328

Operative provisions                                                                                             328

54‑45..................... Personal injury lump sum exemption for injured person 328

54‑50..................... Lump sum compensation would not have been assessable 329

54‑55..................... Requirements of the instrument under which the lump sum is paid         329

54‑60..................... Requirements for payments of the lump sum.................. 329

Subdivision 54‑D—Miscellaneous                                                                      330

Operative provisions                                                                                             331

54‑65..................... Exemption for certain payments to reversionary beneficiaries  331

54‑70..................... Special provisions about trusts....................................... 331

54‑75..................... Minister to arrange for review and report....................... 332

Division 55—Payments that are not exempt from income tax           334

Guide to Division 55                                                                                              334

55‑1....................... What this Division is about............................................. 334

Operative provisions                                                                                             334

55‑5....................... Occupational superannuation payments.......................... 334

55‑10..................... Education entry payments............................................... 335


Chapter 2Liability rules of general application

Part 2‑10Capital allowances: rules about deductibility of capital expenditure

Division 40Capital 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‑K     Farm‑in farm‑out arrangements


Guide to Division 40

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
Subordinate topics
Rules

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:

·         expenses you incur to start holding the asset; and

·         additional expenses that contribute to its present condition and location (e.g. improvements).

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:

·         water facilities immediately; or

·         horticultural plants over a period that relates to the effective life of the plant; or

·         fodder storage assets over 3 income years; or

·         fencing assets immediately.

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:

·         landcare operations immediately; or

·         electricity and telephone lines over 10 income years.

Subdivision 40‑G

2.2

Capital expenditure that is immediately deductible

You can get an immediate deduction for certain capital expenditure on:

·         exploration or prospecting; and

·         rehabilitation of mine and quarry sites; and

·         paying petroleum taxes; and

·         environmental protection activities.

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‑AObjects of Division

Table of sections

40‑15        Objects of Division

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‑BCore provisions

Guide to Subdivision 40‑B

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 the “cents per kilometre” car expense deduction method

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

40‑103      Effective life and remaining effective life of certain vessels

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

Operative provisions

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.

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 1:       Where you have had a deduction under this Division an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.

Note 2:       When this Division notionally applies under section 355‑310 (about depreciating assets used for R&D activities), the taxable purpose is sometimes only the purpose of conducting R&D activities.

             (8)  If Division 250 applies to you and an asset that is a *depreciating asset:

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

                     (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 41, 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 *car in respect of which a lease has been granted that was a *luxury car when the lessor first leased it

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 and quarrying 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)  former Division 10BA of Part III of the Income Tax Assessment Act 1936 (about Australian films); or

                     (b)  former 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, *fodder storage asset or *fencing asset.

             (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 the “cents per kilometre” car expense deduction method

                   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 for the car for that year.

Note:          See Subdivision 28‑C for that method.

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: also notionally deductible under R&D provisions

             (6)  If:

                     (a)  only one of the following events has happened:

                              (i)  you have deducted one or more amounts under this Division for an asset;

                             (ii)  you have been entitled under section 355‑100 (about R&D) to one or more *tax offsets because you can deduct one or more amounts under section 355‑305 for an asset; but

                     (b)  later, the other event happens for the asset;

then, for the purposes of working out the deduction for the later event, you must choose the same method that you chose for the first event.

Note 1:       Deductions under section 355‑305 (about decline in value of tangible depreciating assets used for R&D activities) are worked out using a notional application of this Division.

Note 2:       This subsection applies with changes if you have or could have deducted an amount under former section 73BA of the Income Tax Assessment Act 1936 for the asset (see section 40‑67 of the Income Tax (Transitional Provisions) Act 1997).

             (7)  If:

                     (a)  the events in paragraph (6)(a) could both arise for the same period for an asset; and

                     (b)  neither event has already arisen for the asset;

then you must choose the same method for the purposes of working out the deduction for each event.

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 1:       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.

Note 2:       The effective life of a vessel can change in some cases: see subsection 40‑103(2).

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 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:

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 for that income year.

40‑75  Prime cost method

             (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

                     (d)  in which the *remaining effective life of the asset is calculated under section 40‑103; 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 1:       For recalculating a depreciating asset’s effective life: see section 40‑110.

Note 2:       You may also adjust the formula for an income year if you had undeducted core technology expenditure for the asset at the end of your last income year commencing before 1 July 2011 (see section 355‑605 of the Income Tax (Transitional Provisions) Act 1997).

             (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 and quarrying 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 and quarrying 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; and

                     (d)  in a case where the asset is a *mining, quarrying or prospecting right—you acquired the asset from an *Australian government agency or a *government entity; and

                     (e)  in a case where the asset is *mining, quarrying or prospecting information:

                              (i)  you acquired the asset from an Australian government agency or a government entity; or

                             (ii)  the asset is a geophysical or geological data package you acquired from an entity to which subsection (1AA) applies; or

                            (iii)  you created the asset, or contributed to the cost of its creation; or

                            (iv)  you caused the asset to be created, or contributed to the cost of it being created, by an entity to which subsection (1AA) applies.

       (1AA)  This subsection applies to an entity if, at the time of the acquisition referred to in subparagraph (1)(e)(ii) or the creation referred to in subparagraph (1)(e)(iv), the entity predominantly carries on a *business of providing *mining, quarrying or prospecting information to other entities that:

                     (a)  carry on *mining and quarrying operations; or

                     (b)  it would be reasonable to conclude propose to carry on such operations; or

                     (c)  carry on a business of, or a business that included, *exploration or prospecting for *minerals or quarry materials obtainable by such operations.

       (1AB)  If an amount is included in the second element of the *cost of a *depreciating asset, subsection (1) applies in relation to that amount only if:

                     (a)  your first use of the asset, after the inclusion of the amount in the second element, is for *exploration or prospecting for *minerals, or quarry materials, obtainable by *mining and quarrying operations; and

                     (b)  at the time of that first use:

                              (i)  you satisfy paragraph (1)(b) as if that first use was your first use of the asset; and

                             (ii)  you satisfy paragraph (1)(c) as if the time of that first use was the asset’s *start time; and

                     (c)  if the amount relates to a *mining, quarrying or prospecting right—after the inclusion of the amount in the second element, you satisfy paragraph (1)(d) in relation to the right; and

                     (d)  if the amount relates to *mining, quarrying or prospecting information—after the inclusion of the amount in the second element:

                              (i)  you satisfy paragraph (1)(e) in relation to the information; or

                             (ii)  you would satisfy that paragraph, in relation to the economic benefit that resulted in the inclusion of the amount in the second element, if that economic benefit were the asset referred to in that paragraph.

       (1AC)  If subsection (1) does not apply to a *depreciating asset:

                     (a)  the fact that subsection (1) does not apply to the asset does not prevent the application of subsection (1AB) to an amount included in the second element of the *cost of the asset; but

                     (b)  subsection (1) only affects the asset’s decline in value to the extent that the asset’s cost consists of that amount.

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:

(a)    Subdivision 27‑B;

(b)    subsection 40‑90(3);

(c)    subsection 40‑285(4);

(d)    paragraph 40‑365(5)(b);

(e)    section 775‑70;

(f)    section 775‑75;

(g)    section 355‑605 of the Income Tax (Transitional Provisions) Act 1997.

40‑90  Debt forgiveness

             (1)  This section applies if an amount (the debt forgiveness amount) is applied in reduction of expenditure for a *depreciating asset in an income year under section 245‑155 or 245‑157.

             (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

5 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.

Exceptions: mining, quarrying or prospecting rights and mining, quarrying or prospecting information

           (10)  Subject to subsection (12), the effective life of:

                     (a)  a *mining, quarrying or prospecting right; or

                     (b)  *mining, quarrying or prospecting information;

is the period you work out yourself by estimating the period (in years, including fractions of years) set out in column 2 of this table:

 

Effective life of certain mining, quarrying or prospecting rights and mining, quarrying or prospecting information

Item

Column 1
For this asset:

Column 2
Estimate the period until the end of:

1

A *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, relating to *mining and quarrying operations (except obtaining *petroleum or quarry materials)

The life of the mine or proposed mine to which the right or information 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, or *mining, quarrying or prospecting information, relating to *mining and quarrying operations to obtain *petroleum

The life of the petroleum field or proposed petroleum field to which the right or information relates or, if there is more than one, the life of the petroleum field that has the longest estimated life

3

A *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, relating to *mining and quarrying operations to obtain quarry materials

The life of the quarry or proposed quarry to which the right or information relates or, if there is more than one, the life of the quarry that has the longest estimated life

        (10A)  However, if the only reason that subsection 40‑80(1) does not apply to the *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, is that the right or information does not meet the requirements of paragraph 40‑80(1)(d) or (e), the effective life of the right or information is the shorter of:

                     (a)  the period that would, apart from this subsection, be the effective life of the information or right under subsection (10); and

                     (b)  15 years.

           (11)  You work out the period in subsection (10):

                     (a)  as from the *start time of the *mining, quarrying or prospecting right or *mining, quarrying or prospecting information; 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.

           (12)  The effective life of a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, is 15 years if the right or information does not relate to:

                     (a)  a mine or proposed mine; or

                     (b)  a petroleum field or proposed petroleum field; or

                     (c)  a quarry or proposed 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.

Criteria for making a determination

             (4)  The Commissioner is to make a determination of the effective life of a *depreciating asset in accordance with subsections (5) and (6).

             (5)  Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes:

                     (a)  a *taxable purpose;

                     (b)  the purpose of producing *exempt income or *non‑assessable non‑exempt income;

                     (c)  the purpose of conducting *R&D activities, assuming that this is reasonably likely.

             (6)  Secondly, if relevant for the asset:

                     (a)  assume the asset will be subject to wear and tear at a rate that is reasonable for the Commissioner to assume; and

                     (b)  assume the asset will be maintained in reasonably good order and condition; and

                     (c)  have regard to the period within which the asset is likely to be scrapped, sold for no more than scrap value or abandoned.

However, for paragraph (c), disregard reasons attributable to the technical risk in conducting *R&D activities if it is reasonably likely that the asset will be used for such activities.

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 and quarrying 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

10

Vessel for which you have a certificate under Part 2 of the Shipping Reform (Tax Incentives) Act 2012

10 years

          (4A)  Item 10 of the table in subsection 40‑102(4) does not apply to a vessel if:

                     (a)  *ordinary income that you *derive, or your *statutory income, in relation to the vessel; or

                     (b)  ordinary income that your *associate derives, or your associate’s statutory income, in relation to the vessel;

is exempt from income tax under section 51‑100 for the income year for which you are working out the vessel’s decline in value.

             (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

2/3 years

8

Tractor

Primary production sector

2/3 years

40‑103  Effective life and remaining effective life of certain vessels

             (1)  If, at a particular time, item 10 of the table in subsection 40‑102(4):

                     (a)  starts to apply to a vessel (whether or not that item has previously applied to the vessel); or

                     (b)  ceases to apply to a vessel (whether or not that item subsequently applies to the vessel);

at that time the effective life of the vessel changes accordingly.

             (2)  If subsection (1) applies and the decline in value of the vessel is worked out using the *prime cost method, the remaining effective life of the vessel just after that time is:

where:

alternative effective life is:

                     (a)  if that item starts to apply to the vessel at that time—what would have been the *effective life of the vessel just before that time if that item had applied to the vessel; or

                     (b)  if that item ceases to apply to the vessel at that time—what would have been the effective life of the vessel just before that time if that item had not applied to the vessel.

unadjusted effective life is what was the *effective life of the vessel just before that time.

unadjusted remaining effective life is what was the *remaining effective life of the vessel just before that time.

Example:    Assume that item 10 of the table in subsection 40‑102(4) ceases to apply to a vessel after having applied to the vessel for 7 years, and again starts to apply after another 4 years. Assume further that the effective life of a vessel of that kind has been determined under section 40‑100 to be 20 years.

                   The remaining effective life of the vessel just before that item ceases to apply to the vessel is 3 years. Its alternative effective life is 20 years, and its unadjusted effective life is 10 years. Its remaining effective life just after that time is therefore 6 years.

                   The remaining effective life of the vessel just before that item again starts to apply to the vessel is 2 years. Its alternative effective life is 10 years, and its unadjusted effective life is 20 years. Its remaining effective life just after that time is therefore 1 year.

40‑105  Self‑assessing effective life

             (1)  You work out the effective life of a *depreciating asset yourself in accordance with this section.

          (1A)  Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes:

                     (a)  a *taxable purpose;

                     (b)  the purpose of producing *exempt income or *non‑assessable non‑exempt income;

                     (c)  the purpose of conducting *R&D activities, assuming that this is reasonably likely.

          (1B)  Secondly, if relevant for the asset:

                     (a)  have regard to the wear and tear you reasonably expect from your expected circumstances of use; and

                     (b)  assume that the asset will be maintained in reasonably good order and condition.

             (2)  If, in working out that period, you decide that the asset would be likely to be:

                     (a)  scrapped; or

                     (b)  sold for no more than scrap value or abandoned;

before the end of that period, its effective life ends at the earlier time. However, when making your decision, disregard reasons attributable to the technical risk in conducting *R&D activities if it is reasonably likely that the asset will be used for such activities.

             (3)  You work out the period mentioned in subsection (1A) or (2) beginning at 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;

                     (c)  *mining, quarrying or prospecting information.

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 or *mining, quarrying or prospecting information.

          (3B)  You may choose to recalculate the *effective life of a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, from a later income year if the effective life you have been using is no longer accurate:

                     (a)  because of changed circumstances relating to an existing or proposed mine, petroleum field or quarry to which that right or information relates; or

                     (b)  because that right or information now relates to an existing or proposed mine, petroleum field or quarry; or

                     (c)  because that right or information no longer relates to an existing or proposed mine, petroleum field or quarry.

             (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 or *mining, quarrying or prospecting information:

                              (i)  subsections 40‑95(10) and (11) (if the right or information relates to an existing or proposed mine, petroleum field or quarry); or

                             (ii)  subsection 40‑95(12) (if the right or information no longer relates to an existing or proposed mine, petroleum field or quarry).

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.

40‑130  Choices

             (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.

Subdivision 40‑CCost

Guide to Subdivision 40‑C

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

40‑222      Cost reduced by water infrastructure improvement expenditure

40‑225      Adjustment: acquiring a car at a discount

40‑230      Adjustment: car limit

40‑235      Adjustment: National Disability Insurance Scheme costs

Operative provisions

40‑175  Cost

                   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 40‑362(3)(c);

•       paragraph 40‑365(5)(a);

•       section 40‑1110;

•       section 775‑70;

•       section 775‑75.

40‑180  First element of cost

             (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, 4 or 14 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 1:       The first element of the cost may be modified by a later provision in this Subdivision.

Note 2:       Section 230‑505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

             (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 *Finance Minister 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

14

A *balancing adjustment event happens to a *depreciating asset you *hold because of subsection 40‑295(1B)

What would, apart from subsection 40‑285(3), be the asset’s *adjustable value on the day the *balancing adjustment event occurs

             (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.

Note:          The first element of cost may be reduced under section 40‑1130 to account for exploration benefits received under farm‑in farm‑out arrangements.

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 1:       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 ends under subsection 242‑90(3).

Note 2:       Section 230‑505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

             (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.

40‑190  Second element of cost

             (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

40‑195  Apportionment of cost

                   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.

40‑200  Exclusion from cost

                   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

                   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, Division 41 or Division 328.

Note:          This section does not apply to notional deductions under section 355‑305 or 355‑520 (about R&D) because those provisions are about deducting the asset’s decline in value, not its cost.

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.

40‑222  Cost reduced by water infrastructure improvement expenditure

                   The *cost of a *depreciating asset is reduced by any portion of it that consists of expenditure that you cannot deduct because of section 26‑100.

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).

40‑230  Adjustment: car limit

             (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).

40‑235  Adjustment: National Disability Insurance Scheme costs

                   The *cost of a *depreciating asset does not include an amount to the extent that section 26‑97 prevents the amount from being deducted (even if some other provision also prevents it being deducted).

Note:          Section 26‑97 denies deductions for National Disability Insurance Scheme expenditure.

Subdivision 40‑DBalancing adjustments

Guide to Subdivision 40‑D

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—assets used for both general tax purposes and R&D activities

40‑293      Adjustments—partnership assets used for both general tax purposes and R&D activities

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

40‑362      Roll‑over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012

40‑363      Roll‑over relief for interest realignment arrangements

40‑364      Interest realignment adjustments

40‑365      Involuntary disposals

40‑370      Balancing adjustments where there has been use of different car expense methods

Operative provisions

40‑285  Balancing adjustments

             (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, 4 or 14 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 even though you still hold the asset in question.

             (5)  Despite subsection (1), an amount included in your assessable income under that subsection is included for the second income year after the income year in which the *balancing adjustment event occurs if:

                     (a)  the *depreciating asset is a vessel; and

                     (b)  you have a certificate for the vessel under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 that:

                              (i)  applies to the day that the balancing adjustment event occurs; and

                             (ii)  is not a *shipping exempt income certificate.

Note:          An amount will not be included in your assessable income in relation to the balancing adjustment event if you choose roll‑over relief under section 40‑362.

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.

40‑292  Adjustments—assets used for both general tax purposes and R&D activities

             (1)  This section applies if:

                     (a)  a *balancing adjustment event happens in an income year (the event year) for an asset you *held and for which:

                              (i)  you can deduct, for an income year, an amount under section 40‑25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936; or

                             (ii)  you could have deducted, for an income year, an amount as described in subparagraph (i) if you had used the asset; and

                     (b)  you are entitled under section 355‑100 to *tax offsets for one or more income years for deductions (the R&D deductions) under section 355‑305 for the asset.

Note:          This section applies in a modified way if you have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40‑292 of the Income Tax (Transitional Provisions) Act 1997).

Section 40‑290 to be applied as if use for conducting R&D activities were use for a taxable purpose

             (2)  In applying section 40‑290 (including references in that section to the reduction of deductions under section 40‑25) in relation to the asset, assume that using the asset for a *taxable purpose includes using it for the purpose of conducting the *R&D activities to which the R&D deductions relate.

Increase in amounts deductible under section 40‑285

             (3)  If you are entitled under section 355‑100 to a *tax offset for the event year in respect of deductions under Division 355 totalling at least $20,000, any amount (the section 40‑285 amount) you can deduct for the asset under section 40‑285 (after applying subsection (2) of this section) for the event year is increased by:

                     (a)  if your *aggregated turnover for the event year is less than $20 million—1/2 of the amount worked out under subsection (5) of this section; and

                     (b)  otherwise—1/3 of the amount worked out under subsection (5) of this section.

Increase in amounts assessable under section 40‑285

             (4)  Any amount (the section 40‑285 amount) that is included in your assessable income for the asset under section 40‑285 (after applying subsection (2) of this section) for the event year is increased by 1/3 of the amount worked out under subsection (5) of this section.

Component of any increase in amounts deductible or assessable

             (5)  The amount is worked out as follows:

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 total decline in value.

total decline in value means the *cost of the asset less its *adjustable value.

40‑293  Adjustments—partnership assets used for both general tax purposes and R&D activities

             (1)  This section applies to an *R&D partnership if:

                     (a)  a *balancing adjustment event happens in an income year (the event year) for a *depreciating asset *held by the R&D partnership and for which:

                              (i)  the R&D partnership can deduct, for an income year, an amount under section 40‑25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936; or

                             (ii)  the R&D partnership could have deducted, for an income year, an amount as described in subparagraph (i) if it had used the asset; and

                     (b)  one or more partners of the R&D partnership are entitled under section 355‑100 to *tax offsets for one or more income years for deductions (the R&D deductions) under section 355‑520 for the asset.

Note:          This section applies in a modified way if the partners have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40‑293 of the Income Tax (Transitional Provisions) Act 1997).

Section 40‑290 to be applied as if use for conducting R&D activities were use for a taxable purpose

             (2)  In applying section 40‑290 (including references in that section to the reduction of deductions under section 40‑25) in relation to the asset, assume that using the asset for a *taxable purpose includes using it for the purpose of conducting the *R&D activities to which the R&D deductions relate.

Increase in amounts deductible or assessable under section 40‑285

             (3)  Any amount (the section 40‑285 amount):

                     (a)  that the *R&D partnership can deduct for the asset under section 40‑285 (after applying subsection (2) of this section) for the event year; or

                     (b)  that is included in the R&D partnership’s assessable income for the asset under section 40‑285 (after applying subsection (2) of this section) for the event year;

is increased by 1/3 of the following amount:

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 the *R&D partnership’s assessable income—so much of the section 40‑285 amount as does not exceed the total decline in value.

total decline in value means the *cost of the asset less its *adjustable value.

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.

          (1A)  A balancing adjustment event occurs for a *depreciating asset you *hold that is a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, if:

                     (a)  the only reason that subsection 40‑80(1) does not apply to the right or information is that the right or information does not meet the requirements of paragraph 40‑80(1)(d) or (e); and

                     (b)  you have neither budgeted nor planned for further expenditure that:

                              (i)  will relate to the tenement to which the right or information relates; and

                             (ii)  will exceed the minimum expenditure required to maintain the tenement; and

                     (c)  you choose to apply this subsection to the right or information.

          (1B)  A balancing adjustment event occurs for a *depreciating asset you *hold that is a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, if:

                     (a)  since the last time you commenced to hold the right or information, a *balancing adjustment event occurred, because of subsection (1A), to the right or information; and

                     (b)  paragraph (1A)(b) no longer applies.

             (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.

Note:          Section 230‑505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

             (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 *Finance Minister has determined an amount for you under section 52A of the Airports (Transitional) Act 1996

The amount so determined

13

The *balancing adjustment event occurs under subsection 40‑295(1A)

Zero

14

The *balancing adjustment event occurs under subsection 40‑295(1B)

What would, apart from subsection 40‑285(3), be the asset’s *adjustable value on the day the *balancing adjustment event occurs

             (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 1:       Termination value may be adjusted under Subdivision 27‑B so that any GST consequences are accounted for.

Note 2:       Termination value may be reduced under section 40‑1105 to account for exploration benefits received under farm‑in farm‑out arrangements.

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 1:       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 ends under subsection 242‑90(3).

Note 2:       Section 230‑505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

             (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.

40‑325  Adjustment: car limit

                   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.

40‑340  Roll‑over relief

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.

2A

Transfer of a *CGT asset of a trust to a company under a trust restructure

The transferor and transferee are able to choose a roll‑over under Subdivision 124‑N for the *CGT event.

3

Marriage or relationship 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.

5

*Disposal of asset between certain trusts

The trustees of the trusts choose to obtain a roll‑over under Subdivision 126‑G in relation to the disposal.

6

Disposal of asset as part of merger of superannuation funds

The transferor chooses a roll‑over under Subdivision 310‑D in relation to the disposal.

7

Disposal of asset as part of transfer to a MySuper product

The transferor chooses a roll‑over under Subdivision 311‑B in relation to the disposal.

8

Transfer of asset under a small business restructure roll‑over

A roll‑over under Subdivision 328‑G would be available in relation to the asset if the asset were not a *depreciating asset.

Note 1:       Section 40‑345 sets out what the relief is.

Note 2:       This Act also applies as if there were roll‑over relief under this subsection in the circumstances set out in section 620‑30 (which is about a body incorporated under one law ceasing to exist and disposing of its assets to a company incorporated under another law that has not significantly different ownership).

             (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 some kinds of CGT roll‑over); and

                     (c)  subsection 124‑870(5) (which excludes certain assets from roll‑over relief under Subdivision 124‑N).

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 you die before the end of the time allowed for jointly choosing roll‑over relief, the trustee of your 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.

40‑362  Roll‑over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012

Circumstances giving rise to roll‑over relief

             (1)  There is roll‑over relief if:

                     (a)  there is a *balancing adjustment event under section 40‑295 because you cease to *hold a *depreciating asset that is a vessel (the original vessel); and

                     (b)  on the day that the balancing adjustment event occurs, you have a certificate for the vessel under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 that:

                              (i)  applies to that day; and

                             (ii)  is not a *shipping exempt income certificate; and

                     (c)  there is no roll‑over relief under section 40‑340 relating to the original vessel; and

                     (d)  on the day occurring 2 years after the day you cease to hold the original vessel, you are the holder of another depreciating asset that is a vessel (the other vessel):

                              (i)  for which you choose to apply roll‑over relief in relation to the original vessel; and

                             (ii)  for which you have a certificate under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 (other than a shipping exempt income certificate) that applies to the day of that choice; and

                     (e)  you became the holder of the other vessel during the period starting 1 year before the day you cease to hold the original vessel and ending 2 years after that day.

Choosing to apply roll‑over relief

             (2)  The choice must:

                     (a)  be in writing; and

                     (b)  be made within 6 months after the end of the second income year after the income year in which the *balancing adjustment event occurs, or within a longer period allowed by the Commissioner.

The effect of roll‑over relief

             (3)  If there is roll‑over relief under this section:

                     (a)  subsection 40‑285(1) does not apply to the *balancing adjustment event in relation to the original vessel; and

                     (b)  an amount is included in your assessable income if the original vessel’s *termination value exceeds the sum of:

                              (i)  the original vessel’s *adjustable value just before the balancing adjustment event occurred; and

                             (ii)  the *cost of the other vessel (disregarding paragraph (3)(c)); and

                     (c)  for the purpose of applying this Act to the other vessel, its cost is reduced (but not below zero) by the difference between:

                              (i)  the original vessel’s termination value; and

                             (ii)  the original vessel’s adjustable value just before the balancing adjustment event occurred.

             (4)  The amount included in your assessable income under paragraph (3)(b) is the amount of the excess mentioned in that paragraph. It is included in the second income year after the income year in which the *balancing adjustment event occurs.

40‑363  Roll‑over relief for interest realignment arrangements

Circumstances giving rise to roll‑over relief

             (1)  There is roll‑over relief if:

                     (a)  there is a *balancing adjustment event under section 40‑295 because, in an income year, you dispose of a *depreciating asset to another entity; and

                     (b)  the asset is a *mining, quarrying or prospecting right; and

                     (c)  the disposal occurs under an *interest realignment arrangement; and

                     (d)  you choose to apply roll‑over relief in relation to the asset.

Choosing to apply roll‑over relief

             (2)  The choice must:

                     (a)  be in writing; and

                     (b)  be made at or before the time you lodge your *income tax return for the income year in which the *balancing adjustment event occurs, or within a longer period allowed by the Commissioner.

The effect of roll‑over relief

             (3)  If there is roll‑over relief under this section:

                     (a)  section 40‑285 does not apply to the *balancing adjustment event in relation to the asset; and

                     (b)  an amount is included in your assessable income if such an amount (the non‑realignment amount) would have been included under subsection 40‑285(1) if:

                              (i)  paragraph (a) of this subsection did not apply; and

                             (ii)  the *adjustable value of the *mining, quarrying or prospecting rights that you disposed of under the arrangement were taken to be the market value of the mining, quarrying or prospecting rights that you received under the arrangement; and

                     (c)  in working out the *cost of a mining, quarrying or prospecting right that you receive under the arrangement, if:

                              (i)  some or all of the cost consists of a *non‑cash benefit that you provide; and

                             (ii)  that benefit is a mining, quarrying or prospecting right that you disposed of under the arrangement;

                            the market value of the benefit is taken to be the adjustable value of the benefit.

             (4)  The amount included in your assessable income under paragraph (3)(b) is the non‑realignment amount, and it is included for the income year in which the balancing adjustment event occurred.

Meaning of interest realignment arrangement etc.

             (5)  An interest realignment arrangement is an *arrangement:

                     (a)  that is entered into between entities:

                              (i)  that are undertaking jointly, or propose to undertake jointly, a project for carrying out *mining and quarrying operations; and

                             (ii)  that each *holds one or more *mining, quarrying or prospecting rights relating to the project; and

                     (b)  under which those entities exchange (or agree to exchange), with the effect set out in subsection (6), parts of those rights; and

                     (c)  that does not provide for any transfer, of a mining, quarrying or prospecting right, that does not give rise to the effect referred to in subsection (6).

Note:          The parts referred to in paragraph (b) are themselves mining, quarrying or prospecting rights (see paragraph (c) of the definition of mining, quarrying or prospecting right in subsection 995‑1(1)), and are therefore not referred to elsewhere in this Act as parts of such rights.

             (6)  The effect referred to in paragraphs (5)(b) and (c) must be that, for each of those entities, the following are equal:

                     (a)  the entity’s percentage interest in the project;

                     (b)  the reserves and resources represented by the *mining, quarrying or prospecting rights that the entity *holds relating to the project, expressed as a percentage of the reserves and resources represented by all mining, quarrying or prospecting rights that any of the entities hold relating to the project.

             (7)  For the purposes of subsection (6):

                     (a)  the reserves represented by a *mining, quarrying or prospecting right are taken to be the reserves, reasonably estimated using an appropriate accepted industry practice, that are expected to be extracted from the mine, *petroleum field or quarry to which the right relates; and

                     (b)  the resources represented by a mining, quarrying or prospecting right are taken to be the resources, reasonably estimated using an appropriate accepted industry practice, that are expected to be situated in the area to which the right relates (other than those resources that are reserves referred to in paragraph (a)).

40‑364  Interest realignment adjustments

Effect of receiving interest realignment adjustment on assessable income

             (1)  If you receive an *interest realignment adjustment in an income year, include in your assessable income for the year an amount (the adjustment amount) equal to:

                     (a)  the amount of the adjustment; or

                     (b)  if the adjustment is not an amount—the *market value of the adjustment.

Effect of providing interest realignment adjustment on cost, or cost base and reduced cost base

             (2)  If an *interest realignment adjustment is provided by you or on your behalf:

                     (a)  include the adjustment amount in the second element of the *cost of a *mining, quarrying or prospecting right that you acquired under the *interest realignment arrangement to which the adjustment amount relates; or

                     (b)  if this Division does not apply to that right—include the adjustment amount in the *cost base and *reduced cost base of that right.

However, if you acquired more than one such right under the arrangement, apportion the adjustment amount between the costs, or cost bases and reduced cost bases, of those rights on a reasonable basis.

Note:          Subsections 40‑77(1D) and (1E) of the Income Tax (Transitional Provisions) Act 1997 set out when this Division does not apply to the right.

Tax effects of the right to an interest realignment adjustment

             (3)  In calculating the *termination value of a *mining, quarrying or prospecting right that you provide under an *interest realignment arrangement, assume to be zero the *market value of any contractual right conferred by the arrangement to an *interest realignment adjustment to be received by you.

             (4)  In calculating the *cost of a *mining, quarrying or prospecting right that you receive under an *interest realignment arrangement, assume to be zero the *market value of any contractual right conferred by the arrangement to an *interest realignment adjustment to be provided by you.

             (5)  The creation of a right to an *interest realignment adjustment does not cause *CGT event D1 or CGT event D3 to happen.

             (6)  Your receipt of an *interest realignment adjustment does not cause *CGT event C2 to happen in relation to the right to receive the adjustment.

Meaning of interest realignment adjustment

             (7)  An interest realignment adjustment is an amount, or an asset (other than a