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Income Tax (Transitional Provisions) Act 1997

Authoritative Version
Act No. 40 of 1997 as amended, taking into account amendments up to Treasury Laws Amendment (2021 Measures No. 4) Act 2021
An Act setting out application and transitional provisions for the Income Tax Assessment Act 1997
Administered by: Treasury
Registered 06 Aug 2021
Start Date 01 Jul 2021

Commonwealth Coat of Arms of Australia

Income Tax (Transitional Provisions) Act 1997

No. 40, 1997

Compilation No. 92

Compilation date:                              1 July 2021

Includes amendments up to:            Act No. 72, 2021

Registered:                                         6 August 2021

About this compilation

This compilation

This is a compilation of the Income Tax (Transitional Provisions) Act 1997 that shows the text of the law as amended and in force on 1 July 2021 (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If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.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 1—Introduction and core provisions                                1

Part 1‑1—Preliminary                                                                                                         1

Division 1—Preliminary                                                                                              1

1‑1......................... Short title............................................................................ 1

1‑5......................... Commencement.................................................................. 1

1‑7......................... Administration of this Act.................................................. 1

1‑10....................... Definitions and rules for interpreting this Act..................... 1

Part 1‑3—Core Provisions                                                                                                3

Division 4—How to work out the income tax payable on your taxable income               3

4‑1......................... Application of the Income Tax Assessment Act 1997......... 3

4‑11....................... Temporary budget repair levy............................................. 3

Division 5—How to work out when to pay your income tax                  6

Subdivision 5‑A—How to work out when to pay your income tax                 6

5‑5......................... Application of Division 5 of the Income Tax Assessment Act 1997         6

5‑7......................... References in tax sharing agreements to former section 204 6

5‑10....................... General interest charge liabilities under former subsection 204(3)           7

5‑15....................... Application of section 5‑15 of the Income Tax Assessment Act 1997      7

Division 6—Assessable income and exempt income                                     8

6‑2......................... Effect of this Division......................................................... 8

6‑3......................... Assessable income for income years before 1997‑98......... 8

6‑20....................... Exempt income for income years before 1997‑98............... 8

Division 8—Deductions                                                                                                9

8‑2......................... Effect of this Division......................................................... 9

8‑3......................... Deductions for income years before 1997‑98..................... 9

8‑10....................... No double deductions for income year before 1997‑98 and income year after 1996‑97          9

Chapter 2—Liability rules of general application                    10

Part 2‑1—Assessable income                                                                                         10

Division 15—Some items of assessable income                                             10

15‑1....................... General application provision........................................... 10

15‑10..................... Application of section 15‑10 of the Income Tax Assessment Act 1997 to bounties and subsidies           11

15‑15..................... Application of section 15‑15 of the Income Tax Assessment Act 1997 to profit‑making undertaking or plan.......................................................................................... 11

15‑20..................... Application of section 15‑20 of the Income Tax Assessment Act 1997 to royalties  11

15‑30..................... Application of section 15‑30 of the Income Tax Assessment Act 1997 to insurance or indemnity payments.......................................................................................... 11

15‑35..................... Application of section 15‑35 of the Income Tax Assessment Act 1997 to interest on overpayments and early payments of tax................................................................. 12

Division 20—Items included to reverse the effect of past deductions 13

Subdivision 20‑A—Insurance, indemnity or recoupment for deductible expenses        13

20‑1....................... Application of Subdivision 20‑A of the Income Tax Assessment Act 1997             13

Subdivision 20‑B—Disposal of a car for which lease payments have been deducted   13

20‑100................... Application of Subdivision 20‑B of the Income Tax Assessment Act 1997             14

20‑105................... The cost of a car acquired in the 1996‑97 income year or an earlier income year     14

20‑110................... The termination value of a car disposed of in the 1996‑97 income year or an earlier income year           14

20‑115................... Reducing the assessable amount for the disposal of a car in the 1997‑98 income year or later if there has been an earlier disposal of it...................................................... 15

Part 2‑5—Rules about deductibility of particular kinds of amounts   17

Division 25—Some amounts you can deduct                                                  17

25‑1....................... Application of Division 25 of the Income Tax Assessment Act 1997       17

25‑40..................... Application of section 25‑40 of the Income Tax Assessment Act 1997    17

25‑45..................... Application of section 25‑45 of the Income Tax Assessment Act 1997    17

25‑50..................... Application of section 25‑90 of the Income Tax Assessment Act 1997    18

25‑65..................... Local government election expenses................................. 18

Division 26—Some amounts you cannot deduct, or cannot deduct in full            19

26‑1....................... Application of Division 26 of the Income Tax Assessment Act 1997       19

26‑30..................... Application of section 26‑30 of the Income Tax Assessment Act 1997    19

Division 30—Gifts or contributions                                                                    20

30‑1....................... Application of Division 30 of the Income Tax Assessment Act 1997       20

30‑5....................... Keeping in force old declarations and instruments............ 20

30‑25..................... Keeping in force the old gifts registers.............................. 21

30‑102................... Fund, authorities and institutions taken to be endorsed..... 22

Division 32—Entertainment expenses                                                               24

32‑1....................... Application of Division 32 of the Income Tax Assessment Act 1997       24

Division 34—Non‑compulsory uniforms                                                          25

34‑1....................... Application of Division 34 of the Income Tax Assessment Act 1997       25

34‑5....................... Things done under former section 51AL of the Income Tax Assessment Act 1936 25

Division 35—Deferral of losses from non‑commercial business activities           27

35‑10..................... Deductions for certain new business investment.............. 27

35‑20..................... Application of Commissioner’s decisions........................ 27

Division 36—Tax losses of earlier income years                                         28

36‑100................... Tax losses for the 1997‑98 and later income years........... 28

36‑105................... Tax losses for 1989‑90 to 1996‑97 income years............. 28

36‑110................... Tax losses for 1957‑58 to 1988‑89 income years............. 28

Part 2‑10—Capital allowances: rules about deductibility of capital expenditure               30

Division 40—Capital allowances                                                                          30

Subdivision 40‑B—Core provisions                                                                    30

40‑10..................... Plant.................................................................................. 31

40‑12..................... Plant acquired after 30 June 2001..................................... 33

40‑13..................... Accelerated depreciation for split or merged plant............ 33

40‑15..................... Recalculating effective life................................................ 34

40‑20..................... IRUs................................................................................. 34

40‑25..................... Software........................................................................... 35

40‑30..................... Spectrum licences............................................................. 35

40‑33..................... Datacasting transmitter licences........................................ 36

40‑35..................... Mining unrecouped expenditure....................................... 36

40‑37..................... Post‑30 June 2001 mining expenditure............................. 40

40‑38..................... Mining cash bidding payments......................................... 42

40‑40..................... Transport expenditure....................................................... 44

40‑43..................... Post‑30 June 2001 transport expenditure.......................... 47

40‑44..................... No additional decline in certain cases................................ 48

40‑45..................... Intellectual property.......................................................... 49

40‑47..................... IRUs................................................................................. 49

40‑50..................... Forestry roads and timber mill buildings.......................... 50

40‑55..................... Environmental impact assessment..................................... 51

40‑60..................... Pooling under Subdivision 42‑L of the former Act.......... 51

40‑65..................... Substituted accounting periods......................................... 52

40‑67..................... Methods for working out decline in value........................ 56

40‑70..................... References to amounts deducted and reductions in deductions                56

40‑72..................... New diminishing value method not to apply in some cases 57

40‑75..................... Mining expenditure incurred after 1 July 2001 on an asset 58

40‑77..................... Mining, quarrying or prospecting rights or information held before 1 July 2001    59

40‑80..................... Other expenditure incurred after 1 July 2001 on a depreciating asset       63

40‑100................... Commissioner’s determination of effective life................. 63

40‑105................... Calculations of effective life.............................................. 63

Subdivision 40‑BA—Backing business investment                                          64

40‑120................... Backing business investment—accelerated decline in value for businesses with turnover less than $500 million.......................................................................................... 64

40‑125................... Backing business investment—when an asset of yours qualifies             65

40‑130................... Method for working out accelerated decline in value........ 68

40‑135................... Division 40 of the Income Tax Assessment Act 1997 applies to later years             70

40‑137................... Choice to not apply this Subdivision to an asset............... 71

Subdivision 40‑BB—Temporary full expensing of depreciating assets     71

40‑140................... Definitions........................................................................ 71

40‑145................... Interaction with other provisions...................................... 72

40‑150................... When an asset of yours qualifies for full expensing......... 72

40‑155................... Businesses with turnover under $5 billion........................ 73

40‑157................... Corporate tax entities with income under $5 billion.......... 73

40‑160................... Full expensing of first and second element of cost for post‑2020 budget assets      74

40‑165................... Exclusions—entities covered by section 40‑155 or 40‑157 76

40‑167................... Exclusions—entities covered by section 40‑157............... 78

40‑170................... Full expensing of eligible second element of cost............. 79

40‑175................... When is an amount included in the eligible second element 81

40‑180................... Division 40 of the Income Tax Assessment Act 1997 applies to later years             82

40‑185................... Balancing adjustment for assets not used or located in Australia             82

40‑190................... Choice to not apply this Subdivision to an asset for an income year        83

Subdivision 40‑C—Cost                                                                                          84

40‑230................... Car limit............................................................................ 84

Subdivision 40‑D—Balancing adjustments                                                        84

40‑285................... Balancing adjustments...................................................... 85

40‑287................... Disposal of pre‑1 July 2001 mining depreciating asset to associate         87

40‑288................... Disposal of pre‑1 July 2001 mining non‑depreciating asset to associate  88

40‑289................... Surrendered firearms........................................................ 88

40‑290................... Reduction of deductions under former Act etc.................. 89

40‑292................... Balancing adjustment—assets used for both general tax purposes and R&D activities            89

40‑293................... Balancing adjustment—partnership assets used for both general tax purposes and R&D activities         93

40‑295................... Later year relief................................................................. 96

40‑340................... Roll‑overs......................................................................... 97

40‑345................... Balancing adjustments for depreciating assets that retain CGT indexation               101

40‑365................... Involuntary disposals...................................................... 103

Subdivision 40‑E—Low‑value and software development pools               103

40‑420................... Low‑value pools under Division 42 continue................. 103

40‑430................... Allocating assets to low‑value pools............................... 104

40‑450................... Software development pools........................................... 104

Subdivision 40‑F—Primary production depreciating assets                      104

40‑515................... Water facilities, grapevines and horticultural plants........ 104

40‑520................... Special rule for water facilities you no longer hold......... 105

40‑525................... Amounts deducted for water facilities............................. 105

Subdivision 40‑G—Capital expenditure of primary producers and other landholders               106

40‑645................... Electricity supply and telephone lines............................. 106

40‑650................... Special rule for land that you no longer hold.................. 106

40‑670................... Farm consultants............................................................. 107

Subdivision 40‑I—Capital expenditure that is deductible over time         107

40‑825................... Genuine prospectors....................................................... 107

40‑832................... New method not to apply in some cases......................... 107

Subdivision 40‑J—Ships depreciated under section 57AM of the Income Tax Assessment Act 1936       108

40‑840................... Ships depreciated under section 57AM of the Income Tax Assessment Act 1936    108

Division 43—Deductions for capital works                                                  110

43‑100................... Application of Division 43 to quasi‑ownership rights over land              110

43‑105................... Application of subsections 43‑50(1) and (2) to hotel buildings and apartment buildings         110

43‑110................... Application of subsection 43‑75(3)................................ 110

Division 45—Disposal of leases and leased plant                                       111

45‑1....................... Application of Division 45 of the Income Tax Assessment Act 1997       111

45‑3....................... Application of Division 45 to disposals between February 1999 and September 1999           111

45‑40..................... Application of Division to plant formerly owned by exempt entities       112

Part 2‑15—Non‑assessable income                                                                          115

Division 50—Exempt entities                                                                                115

50‑1....................... Application of Division 50 of the Income Tax Assessment Act 1997       115

50‑50..................... Charities established prior to 1 July 1997....................... 115

Division 51—Exempt amounts                                                                             116

51‑1....................... Application of Division 51 of the Income Tax Assessment Act 1997       116

Division 52—Certain pensions, benefits and allowances are exempt from income tax 117

52‑1....................... Application of Division 52 of the Income Tax Assessment Act 1997       117

Division 53—Various exempt payments                                                         118

53‑1....................... Application of Division 53 of the Income Tax Assessment Act 1997       118

Division 54—Exemption for certain payments made under structured settlements and structured orders                                                                                                                    119

54‑1....................... Application of Division 54 of the Income Tax Assessment Act 1997       119

Division 55—Payments that are not exempt from income tax           120

55‑1....................... Application of Division 55 of the Income Tax Assessment Act 1997       120

Division 59—Particular amounts of non‑assessable non‑exempt income             121

Subdivision 59‑N—Native title benefits                                                            121

59‑50..................... Indigenous holding entities............................................. 121

Part 2‑20—Tax offsets                                                                                                    122

Division 61—Generally applicable tax offsets                                            122

Subdivision 61‑L—Tax offset for Medicare levy surcharge (lump sum payments in arrears) 122

61‑575................... Application of Subdivision 61‑L of the Income Tax Assessment Act 1997              122

Part 2‑25—Trading stock                                                                                              123

Division 70—Trading stock                                                                                   123

70‑1....................... Application of Division 70 of the Income Tax Assessment Act 1997       123

70‑10..................... Accounting for your disposal of items that stop being trading stock because of the change of definition........................................................................................ 124

70‑20..................... Application of section 70‑20 of the Income Tax Assessment Act 1997 to trading stock bought on or after 1 July 1997..................................................................... 126

70‑55..................... Cost of live stock acquired by natural increase............... 126

70‑70..................... Valuing interests in FIFs on hand at the start of 1991‑92 127

70‑90..................... Application of sections 70‑90 and 70‑95 of the Income Tax Assessment Act 1997 to disposals of trading stock outside the ordinary course of business.......................... 127

70‑100................... Application of section 70‑100 of the Income Tax Assessment Act 1997 to disposals of trading stock outside ordinary course of business............................................ 128

70‑105................... Application of section 70‑105 of the Income Tax Assessment Act 1997 to deaths on or after 1 July 1997........................................................................................ 128

70‑115................... Application of section 70‑115 of the Income Tax Assessment Act 1997 to insurance and indemnity payments in 1997‑98 and later income years.................................. 129

Part 2‑40—Rules affecting employees and other taxpayers receiving PAYG withholding payments   130

Division 82Pre‑10 May 2006 entitlements to life benefit termination payments          130

Subdivision 82‑AApplication of Division                                                     130

82‑10..................... Pre‑10 May 2006 entitlements—transitional termination payments        130

Subdivision 82‑BTransitional termination payments: general              132

82‑10A.................. Recipient has reached preservation age........................... 132

82‑10B.................. Lower cap amount.......................................................... 133

82‑10C.................. Recipient under preservation age.................................... 135

82‑10D.................. Upper cap amount........................................................... 136

Subdivision 82‑CPre‑payment statements                                                   137

82‑10E................... Transitional termination payments—pre‑payment statements.. 137

Subdivision 82‑DDirected termination payments made to superannuation and other entities               137

82‑10F................... Directed termination payments....................................... 137

82‑10G.................. Directed termination payments not assessable income and not exempt income        138

Subdivision 82‑EPre‑10 May 2006 entitlements and employment termination payments made after 1 July 2012                                                                                                       139

82‑10H.................. Transitional termination payments may reduce ETP cap amount for payments under section 82‑10 after 1 July 2012................................................................................ 139

Division 83A—Employee share schemes                                                        140

Subdivision 83A‑A—Application of Division 83A of the Income Tax Assessment Act 1997      140

83A‑5.................... Application of Division 83A of the Income Tax Assessment Act 1997    140

Subdivision 83A‑B—Application of former provisions of the Income Tax Assessment Act 1936            143

83A‑10.................. Savings—continued operation of former provisions...... 143

83A‑15.................. Indeterminate rights........................................................ 144

Chapter 3—Specialist liability rules                                                       145

Part 3‑1—Capital gains and losses: general topics                                         145

Division 102—Application of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997         145

102‑1..................... Application of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997              145

102‑5..................... Working out capital gains and capital losses................... 145

102‑15................... Applying net capital losses............................................. 146

102‑20................... Net capital gains, capital gains and capital losses for income years before 1998‑99 147

102‑25................... Transitional capital gains tax provisions for certain Cocos (Keeling) Islands and Norfolk Island assets 147

Division 104—CGT events                                                                                    150

Subdivision 104‑C—End of a CGT asset                                                          150

104‑25................... Cancellation, surrender and similar endings.................... 150

Subdivision 104‑D—Bringing into existence a CGT asset                           150

104‑40................... Granting an option.......................................................... 150

Subdivision 104‑E—Trusts                                                                                  151

104‑70................... Capital payment before 18 December 1986 for trust interest 151

Subdivision 104‑G—Shares                                                                                 152

104‑135................. Capital payment for shares.............................................. 152

Subdivision 104‑I—Australian residency ends                                               152

104‑165................. Choices made under subsection 104‑165(2) of the Income Tax Assessment Act 1997            152

104‑166................. Subsection 104‑165(1) still applies if you continue to be a short term Australian resident      153

Subdivision 104‑J—CGT events relating to roll‑overs                                153

104‑175................. Company ceasing to be member of wholly‑owned group after roll‑over 153

104‑185................. Change of status of replacement asset for a roll‑over under Division 17A of former Part IIIA of the 1936 Act or Division 123 of the 1997 Act..................................... 154

Subdivision 104‑K—Other CGT events                                                            154

104‑205................. Partial realisation of intellectual property........................ 154

104‑235................. CGT event K7: asset used for old law R&D activities.... 155

Division 108—CGT assets                                                                                     157

Subdivision 108‑A—What a CGT asset is                                                        157

108‑5..................... CGT assets..................................................................... 157

Subdivision 108‑B—Collectables                                                                       157

108‑15................... Sets of collectables.......................................................... 157

Subdivision 108‑D—Separate CGT assets                                                       158

108‑75................... Capital improvements to CGT assets for which a roll‑over may be available           158

108‑85................... Improvement threshold................................................... 159

Division 109—Acquisition of CGT assets                                                      160

Subdivision 109‑A—Operative rules                                                                 160

109‑5..................... General acquisition rules................................................. 160

Division 110—Cost base and reduced cost base                                        161

Subdivision 110‑A—Cost base                                                                            161

110‑25................... Cost base of CGT asset of life insurance company or registered organisation         161

110‑35................... Incidental costs............................................................... 161

Division 112—Modifications to cost base and reduced cost base     162

Subdivision 112‑A—General rules                                                                    162

112‑20................... Market value substitution rule......................................... 162

Subdivision 112‑B—Special rules                                                                      162

112‑100................. Effect of terminated gold mining exemptions.................. 162

Division 114—Indexation of cost base                                                            164

114‑5..................... When indexation relevant................................................ 164

Division 118—Exemptions                                                                                     165

Subdivision 118‑A—General exemptions                                                        165

118‑10................... Interests in collectables................................................... 165

118‑24A................ Pilot plant........................................................................ 165

Subdivision 118‑B—Main residence                                                                 166

118‑110................. Foreign residents............................................................ 166

118‑195................. Exemption—dwelling acquired from deceased estate..... 167

Subdivision 118‑C—Goodwill                                                                             167

118‑260................. Business exemption threshold........................................ 167

Division 121—Record keeping                                                                            168

121‑15................... Retaining records under Division 121............................ 168

121‑25................... Records for mergers between qualifying superannuation funds               168

Part 3‑3—Capital gains and losses: special topics                                          169

Division 124—Replacement‑asset roll‑overs                                               169

Subdivision 124‑C—Statutory licences                                                             169

124‑140................. New statutory licence—ASGE licence etc...................... 169

124‑141................. ASGE licence etc.—cost base of ineligible part.............. 170

124‑142................. ASGE licence etc.—cost base of aquifer access licence etc. 171

Subdivision 124‑I—Change of incorporation                                                 172

124‑510................. Application of Subdivision 124‑I of the Income Tax Assessment Act 1997             172

Division 125—Demerger relief                                                                            173

Subdivision 125‑B—Consequences for owners of interests                         173

125‑75................... Employee share schemes................................................ 173

Division 126—Roll‑overs                                                                                        174

Subdivision 126‑A—Merger of qualifying superannuation funds            174

126‑100................. Merger of qualifying superannuation funds.................... 174

Subdivision 126‑B—Transfer of life insurance business                             175

126‑150................. Roll‑over on transfer of life insurance business.............. 175

126‑160................. Effects of roll‑over.......................................................... 176

126‑165................. References to Subdivision 126‑B of the Income Tax Assessment Act 1997             177

Division 128—Effect of death                                                                              178

128‑15................... Effect on the legal personal representative or beneficiary 178

Division 130—Investments                                                                                    179

Subdivision 130‑A—Bonus shares and units                                                   179

130‑20................... Issue of bonus shares or units........................................ 179

Subdivision 130‑B—Rights                                                                                  180

130‑40................... Exercise of rights............................................................ 180

Subdivision 130‑C—Convertible notes                                                             180

130‑60................... Shares or units acquired by converting a convertible note 181

Division 134—Options                                                                                             182

134‑1..................... Exercise of options......................................................... 182

Division 136—Foreign residents                                                                         183

Subdivision 136‑A—Making a capital gain or loss                                       183

136‑25................... When an asset is taxable Australian property.................. 183

Division 137—Granny flat arrangements                                                     184

Subdivision 137‑A—Granny flat arrangements                                            184

Operative provisions                                                                                             184

137‑10................... Applicable CGT events................................................... 184

Division 140—Share value shifting                                                                   185

Subdivision 140‑A—When is there share value shifting?                            185

140‑7..................... Pre‑1994 share value shifts irrelevant............................. 185

140‑15................... Off‑market buy backs..................................................... 185

Division 149—When an asset stops being a pre‑CGT asset                186

149‑5..................... Assets that stopped being pre‑CGT assets under old law 186

Division 152—Small business relief                                                                   187

152‑5..................... Small business roll‑over chosen but no capital gain returned 187

152‑10................... Small business roll‑over not chosen and time remains to acquire a replacement asset              188

152‑15................... Amendment of assessments............................................ 188

Part 3‑5—Corporate taxpayers and corporate distributions                  190

Division 165—Income tax consequences of changing ownership or control of a company        190

Subdivision 165‑CA—Applying net capital losses of earlier income years 190

165‑95................... Application of Subdivision 165‑CA of the Income Tax Assessment Act 1997        190

Subdivision 165‑CB—Working out the net capital gain and the net capital loss for the income year of the change                                                                                                       191

165‑105................. Application of Subdivision 165‑CB of the Income Tax Assessment Act 1997         191

Subdivision 165‑CC—Change of ownership or control of company that has an unrealised net loss        191

165‑115E............... Choice to use global method to work out unrealised net loss 191

Subdivision 165‑CD—Reductions after alterations in ownership or control of loss company   192

165‑115U.............. Choice to use global method to work out adjusted unrealised loss           192

165‑115ZC............ When certain notices to be given..................................... 192

165‑115ZD............ Adjustment (or further adjustment) for interest realised at a loss after global method has been used       194

Subdivision 165‑C—Deducting bad debts                                                        196

165‑135................. Application of Subdivision 165‑C of the Income Tax Assessment Act 1997           196

Division 166—Income tax consequences of changing ownership or control of a listed public company                                                                                                                    197

Subdivision 166‑C—Deducting bad debts                                                        197

166‑40................... Application of Subdivision 166‑C of the Income Tax Assessment Act 1997           197

Division 167—Companies whose shares carry unequal rights to dividends, capital distributions or voting power                                                                                                      198

167‑1..................... Application of provisions............................................... 198

Division 170—Treatment of company groups for income tax purposes               200

Subdivision 170‑A—Transfer of tax losses within certain wholly‑owned groups of companies                200

170‑45................... Special rules affecting utilisation of losses in a bundle do not affect the amount of a tax loss that can be transferred....................................................................... 200

170‑55................... Ordering rule for losses previously transferred under Subdivision 707‑A of the Income Tax Assessment Act 1997................................................................................ 201

Subdivision 170‑B—Transfer of net capital losses within certain wholly‑owned groups of companies  201

170‑101................. Application of Subdivision 170‑B of the Income Tax Assessment Act 1997           201

170‑145................. Special rules affecting utilisation of losses in a bundle do not affect the amount of a net capital loss that can be transferred....................................................................... 201

170‑155................. Ordering rule for losses previously transferred under Subdivision 707‑A of the Income Tax Assessment Act 1997................................................................................ 202

Subdivision 170‑C—Provisions applying to both transfers of tax losses and transfers of net capital losses within wholly‑owned groups of companies                                     202

170‑220................. Direct and indirect interests in the loss company............ 202

170‑225................. Direct and indirect interests in the gain company............ 202

Subdivision 170‑D—Transfer of life insurance business                             203

170‑300................. Transfer of life insurance business................................. 203

Division 175—Use of a company’s losses, deductions or bad debts to avoid income tax             204

Subdivision 175‑CA—Tax benefits from unused net capital losses of earlier income years      204

175‑40................... Application of Subdivision 175‑CA of the Income Tax Assessment Act 1997        204

Subdivision 175‑CB—Tax benefits from unused capital losses of the current year     204

175‑55................... Application of Subdivision 175‑CB of the Income Tax Assessment Act 1997         204

Subdivision 175‑C—Tax benefits from unused bad debt deductions        205

175‑78................... Application of Subdivision 175‑C of the Income Tax Assessment Act 1997           205

Division 197—Tainted share capital accounts                                            206

Subdivision 197‑A—Definitions                                                                         206

197‑1..................... Definitions...................................................................... 206

Subdivision 197‑B—General application provision                                     206

197‑5..................... Application of new Division 197.................................... 207

Subdivision 197‑C—Special provisions about companies whose share capital accounts were tainted when old Division 7B was closed off                                                      207

197‑10................... Subdivision applies to companies whose share capital accounts were tainted when old Division 7B was closed off................................................................................... 207

197‑15................... Account taken to have ceased to be tainted when old Division 7B was closed off   207

197‑20................... After introduction day, account taken to have become tainted under new Division 197 to extent of previous tainting............................................................................ 208

197‑25................... Special provisions if company chooses to untaint after introduction day 208

Part 3‑6—The imputation system                                                                             212

Division 201—Object and application of Part 3‑6                                    212

201‑1..................... Estimated debits.............................................................. 212

Division 203—Benchmark rule                                                                           213

203‑1..................... Franking periods straddling 1 July 2002........................ 213

Division 205—Franking accounts                                                                      214

205‑1..................... Order of events provision............................................... 214

205‑5..................... Washing estimated debits out of the franking account before conversion                215

205‑10................... Converting the franking account balance to a tax paid basis—companies whose 2001‑02 franking year ends on 30 June 2002............................................................. 215

205‑15................... Converting the franking account balance to a tax paid basis—companies whose 2001‑02 franking year ends before 30 June 2002....................................................... 216

205‑20................... A late balancing company may elect to have its FDT liability determined on 30 June              218

205‑25................... Franking deficit tax......................................................... 219

205‑30................... Deferring franking deficit............................................... 219

205‑35................... No franking deficit tax if franking account in deficit at the close of the 2001‑02 income year of a late balancing entity............................................................................... 220

205‑70................... Tax offset arising from franking deficit tax liabilities...... 221

205‑71................... Modification of franking deficit tax offset rules.............. 225

205‑75................... Working out the tax offset for the first income year........ 226

205‑80................... Application of Subdivision C of Division 5 of former Part IIIAA of the Income Tax Assessment Act 1936........................................................................................ 227

Division 208—Exempting entities and former exempting entities    228

208‑111................. Converting former exempting company’s exempting account balance on 30 June 2002          228

Division 210—Venture capital franking                                                         232

210‑1..................... Order of events provision............................................... 232

210‑5..................... Washing estimated venture capital debits out of the old sub‑account before conversion          233

210‑10................... Converting the venture capital sub‑account balance to a tax paid basis—PDFs whose 2001‑02 franking year ends on 30 June 2002..................................................... 233

210‑15................... Converting the venture capital sub‑account balance to a tax paid basis—PDFs whose 2001‑02 franking year ends before 30 June 2002............................................... 234

Division 214—Administering the imputation system                               235

214‑1..................... Application..................................................................... 235

214‑5..................... Entity must give a franking return................................... 236

214‑10................... Notice to a specific corporate tax entity........................... 236

214‑15................... Effect of a refund on franking returns............................. 236

214‑20................... Franking returns for the income year.............................. 238

214‑25................... Commissioner may make a franking assessment............ 238

214‑30................... Commissioner taken to have made a franking assessment on first return 238

214‑35................... Amendments within 3 years of the original assessment.. 239

214‑40................... Amended assessments are treated as franking assessments 239

214‑45................... Further return as a result of a refund affecting a franking deficit tax liability           240

214‑50................... Later amendments—on request....................................... 240

214‑55................... Later amendments—failure to make proper disclosure... 240

214‑60................... Later amendments—fraud or evasion............................. 241

214‑65................... Further amendment of an amended particular................. 241

214‑70................... Other later amendments.................................................. 242

214‑75................... Amendment on review etc.............................................. 242

214‑80................... Notice of amendments.................................................... 242

214‑85................... Validity of assessment.................................................... 242

214‑90................... Objections....................................................................... 242

214‑100................. Due date for payment of franking tax............................. 243

214‑105................. General interest charge.................................................... 244

214‑110................. Refunds of amounts overpaid......................................... 244

214‑120................. Record keeping............................................................... 244

214‑125................. Power of Commissioner to obtain information............... 245

214‑135................. Interpretation................................................................... 245

Division 219—Imputation for life insurance companies                        246

219‑40................... Reversing and replacing (on tax paid basis) certain franking credits that arose before 1 July 2002         246

219‑45................... Reversing (on tax paid basis) certain franking debits that arose before 1 July 2002                247

Division 220—Imputation for NZ resident companies and related companies  249

220‑1..................... Application to things happening on or after 1 April 2003 249

220‑5..................... Residency requirement for income year including 1 April 2003              249

220‑10................... NZ franking company cannot frank before 1 October 2003 249

220‑35................... Extended time to make NZ franking choice.................... 250

220‑501................. Franking and exempting accounts of new former exempting entities       250

Part 3‑10—Financial transactions                                                                            254

Division 235—Particular financial transactions                                        254

Subdivision 235‑I—Instalment trusts                                                                254

235‑810................. Application of Subdivision 235‑I of the Income Tax Assessment Act 1997             254

Division 242—Leases of luxury cars                                                                255

242‑10................... Application..................................................................... 255

242‑20................... Balancing adjustments.................................................... 255

Division 245—Forgiveness of commercial debts                                       256

Subdivision 245‑A—Application of Division 245 of the Income Tax Assessment Act 1997        256

245‑5..................... Application and saving................................................... 256

245‑10................... Pre‑28 June 1996 arrangements etc................................ 256

Division 247—Capital protected borrowings                                              258

Subdivision 247‑A—Interim apportionment methodology                         258

247‑5..................... Interim apportionment methodology............................... 258

247‑10................... Products listed on the Australian Stock Exchange that have explicit put options     258

247‑15................... Other capital protected products...................................... 260

247‑20................... The indicator method...................................................... 260

247‑25................... The percentage method................................................... 261

Subdivision 247‑B—Other transitional provisions                                       261

247‑75................... Post‑July 2007 capital protected borrowings.................. 262

247‑80................... Capital protected borrowings in existence on 1 July 2013 263

247‑85................... Extensions and other changes......................................... 264

Division 253—Financial claims scheme for account‑holders with insolvent ADIs           266

Subdivision 253‑A—Tax treatment of entitlements under financial claims scheme     266

253‑5..................... Application of section 253‑5 of the Income Tax Assessment Act 1997    266

253‑10................... Application of sections 253‑10 and 253‑15 of the Income Tax Assessment Act 1997             266

Part 3‑25—Particular kinds of trusts                                                                     267

Division 275—Australian managed investment trusts                            267

Subdivision 275‑A—Choice for capital treatment of MIT gains and losses 267

275‑10................... Consequences of making choice—Commissioner cannot make certain amendments to previous assessments........................................................................................ 267

Subdivision 275‑L—Modification for non‑arm’s length income               269

275‑605................. Trustee taxed on amount of non‑arm’s length income of managed investment trust—not applicable for pre‑introduction scheme where amount derived before start of 2018‑19 income year              269

Division 276—Attribution managed investment trusts                           271

Subdivision 276‑A—Application                                                                        271

276‑5..................... Application of Division 276........................................... 271

Subdivision 276‑B—Starting income year                                                      271

276‑25................... Starting income year....................................................... 271

Subdivision 276‑T—Becoming an AMIT: unders and overs                      272

276‑700................. Application of Subdivision to MIT that becomes AMIT 272

276‑705................. Accounting for unders and overs for base years before becoming an AMIT           272

Subdivision 276‑U—Becoming an AMIT: CGT treatment of payment by trustee of AMIT       273

276‑750................. Payment by trustee on or after 1 July 2011—certain CGT provisions etc. apply for the purposes of working out non‑assessable part for first income year of AMIT.. 273

276‑755................. Payment by trustee before 1 July 2011—limit on amendment of assessment          274

Part 3‑30—Superannuation                                                                                         276

Division 290Contributions                                                                                276

290‑10................... Directed termination payments not deductible etc........... 276

290‑15................... Early balancers—deduction limits from end of 2006‑2007 income year to 1 July 2007          276

Division 291—Excess concessional contributions                                     278

Subdivision 291‑A—Application of Division 291 of the Income Tax Assessment Act 1997        278

291‑10................... Application of Division 291 of the Income Tax Assessment Act 1997     278

Subdivision 291‑C—Modifications for defined benefit interests               278

291‑170................. Transitional rules for notional taxed contributions.......... 278

Division 292Excess non‑concessional contributions tax                   282

292‑80................... Application of excess non‑concessional contributions tax from 10 May 2006 to 1 July 2007 282

292‑80A................ Transitional release authority.......................................... 285

292‑80B................ Giving a transitional release authority to a superannuation provider        286

292‑80C................ Superannuation provider given transitional release authority must pay amount       286

292‑85................... Non‑concessional contributions cap for a financial year. 287

292‑90................... Non‑concessional contributions for a financial year....... 288

Division 293—Sustaining the superannuation contribution concession 289

Subdivision 293‑A—Application of Division 293 tax rules                         289

293‑10................... Application of Division 293 of the Income Tax Assessment Act 1997     289

Division 294—Transfer balance cap                                                                290

Subdivision 294‑A—Application of Division 294 of the Income Tax Assessment Act 1997        290

294‑10................... Application of Division 294 of the Income Tax Assessment Act 1997     290

294‑30................... Minor excess transfer balances disregarded if remedied in first 6 months               290

294‑55................... Repayment of limited recourse borrowing arrangements 291

294‑80................... Structured settlement contributions made before 1 July 2017—debit increased to match credits             292

Subdivision 294‑B—CGT relief                                                                         292

294‑100................. Object............................................................................. 292

294‑105................. Interpretation................................................................... 293

294‑110................. Segregated current pension assets................................... 293

294‑115................. Superannuation funds using the proportionate method—deemed sale and purchase of CGT asset          294

294‑120................. Superannuation funds using the proportionate method—disregard initial capital gain but recognise deferred notional gain................................................................... 295

294‑125................. Pooled superannuation trust using proportionate or alternative exemption method—deemed sale and purchase of CGT asset................................................................... 297

294‑130................. Pooled superannuation trusts using proportionate or alternative exemption method—disregard initial capital gain but recognise deferred notional gain........................ 298

Division 295—Taxation of superannuation entities                                 300

Subdivision 295‑B—Modifications of the Income Tax Assessment Act 1997 for 30 June 1988 assets    300

295‑75................... Application of Subdivision............................................. 300

295‑80................... Meaning of 30 June 1988 asset...................................... 300

295‑85................... Cost base of 30 June 1988 asset..................................... 301

295‑90................... Market value of stock exchange listed assets.................. 301

295‑95................... Adjustment of cost base as at 30 June 1988—return of capital                302

295‑100................. Exercise of rights............................................................ 302

Subdivision 295‑C—Notices relating to contributions                                  303

295‑190................. Deductions for personal contributions............................ 303

Subdivision 295‑F—Exempt income                                                                 304

295‑390................. Fixed interest complying ADFs—exemption of income attributable to certain 25 May 1988 deposits    304

Subdivision 295‑G—Deductions                                                                         307

295‑465................. Complying funds—deductions for insurance premiums. 307

Subdivision 295‑I—No‑TFN contributions income                                       307

295‑610................. No‑TFN contributions income........................................ 307

Division 301—Superannuation member benefits paid from complying plans etc.           309

301‑5..................... Extended application to certain foreign superannuation funds  309

301‑85................... Extended meaning of disability superannuation benefit for superannuation income stream     309

Division 302—Superannuation death benefits paid from complying plans etc. 310

302‑5..................... Extended application to certain foreign superannuation funds  310

302‑195................. Extended meaning of death benefits dependant for superannuation income stream 310

302‑195A.............. Meaning of death benefits dependant for 2008‑2009 income year           311

Division 303—Superannuation benefits paid in special circumstances  312

303‑10................... Superannuation lump sum member benefit paid to member having a terminal medical condition            312

303‑15................... Superannuation lump sum member benefit paid to member on compassionate ground relating to the coronavirus..................................................................... 312

Division 304—Superannuation benefits in breach of legislative requirements etc.         314

304‑15................... Excess payments from release authorities....................... 314

Division 305—Superannuation benefits paid from non‑complying superannuation plans           315

Subdivision 305‑B—Superannuation benefits from foreign superannuation funds     315

305‑80................... Lump sums paid into complying superannuation plans post‑FIF abolition              315

Division 306—Roll‑overs etc.                                                                               317

306‑10................... Roll‑over superannuation benefit—directed termination payment            317

Division 307—Key concepts relating to superannuation benefits    318

307‑125................. Treatment of tax free component of existing pension payments etc.         318

307‑127................. Extension—income stream replacing an earlier one because of an involuntary roll‑over         321

307‑230................. Total superannuation balance—modification for transfer balance just before 1 July 2017       322

307‑231................. Total superannuation balance—limited recourse borrowing arrangements               323

307‑290................. Taxed and untaxed elements of death benefit superannuation lump sums                323

307‑345................. Low rate component—Effect of rebate under the Income Tax Assessment Act 1936               324

Part 3‑32—Co‑operatives and mutual entities                                                  325

Division 316—Demutualisation of friendly society health or life insurers           325

Subdivision 316‑A—Application                                                                        325

316‑1..................... Application of Division 316 of the Income Tax Assessment Act 1997     325

Part 3‑35—Insurance business                                                                                   326

Division 320—Life insurance companies                                                       326

Operative provisions                                                                                             326

Subdivision 320‑A—Preliminary                                                                       326

320‑5..................... Life insurance companies that are friendly societies........ 326

Subdivision 320‑C—Deductions and capital losses                                        327

320‑85................... Deduction for increase in value of liabilities under risk components of life insurance policies                327

Subdivision 320‑D—Taxable income and tax loss of life insurance companies            327

320‑100................. Savings—tax losses of previous income years............... 328

Subdivision 320‑F—Virtual PST                                                                        328

320‑170................. Transfer of part of an asset to a virtual PST.................... 328

320‑175................. Transfers of assets to virtual PST................................... 329

320‑180................. Deferred annuities purchased before 1 July 2007........... 330

Subdivision 320‑H—Segregation of assets for the purpose of discharging exempt life insurance policies            330

320‑225................. Transfer of part of an asset to segregated exempt assets. 330

320‑230................. Transfers of assets to segregated exempt assets.............. 331

Division 322—Assistance for policyholders with insolvent general insurers      333

Subdivision 322‑B—Tax treatment of entitlements under financial claims scheme     333

322‑25................... Application of section 322‑25 of the Income Tax Assessment Act 1997  333

322‑30................... Application of section 322‑30 of the Income Tax Assessment Act 1997  333

Part 3‑45—Rules for particular industries and occupations                   334

Division 328—Small business entities                                                               334

328‑1..................... Definitions...................................................................... 334

328‑110................. Working out whether you are a small business entity for the 2007‑08 or 2008‑09 income year—turnover for earlier income years........................................................ 335

328‑111................. Access to certain small business concessions for former STS taxpayers that are winding up a business........................................................................................ 336

328‑112................. Working out whether you are a small business entity for certain small business concessions—entities connected with you......................................................... 336

328‑115................. When you stop using the STS accounting method.......... 337

328‑120................. Continuing to use the STS accounting method............... 338

328‑125................. Meaning of STS accounting method............................... 339

328‑175................. Choices made in relation to depreciating assets used in primary production business              339

328‑180................. Increased access to accelerated depreciation from 12 May 2015 to 31 December 2020           340

328‑181................. Full expensing—2020 budget time to 30 June 2022....... 344

328‑182................. Backing business investment.......................................... 345

328‑185................. Depreciating assets allocated to STS pools..................... 345

328‑195................. Opening pool balances for 2007‑08 income year............ 345

328‑200................. General small business pool for the 2012‑13 income year 346

328‑440................. Taxpayers who left the STS on or after 1 July 2005....... 347

Division 355—Research and Development                                                   348

Subdivision 355‑D—Registration for activities before 2011‑12 income year                348

355‑200................. Registration for activities before 2011‑12 income year... 348

Subdivision 355‑E—Balancing adjustments for decline in value deductions for assets used in R&D activities    349

355‑320................. Balancing adjustment—assets only used for R&D activities 349

355‑325................. Balancing adjustment—R&D partnership assets only used for R&D activities       353

355‑340................. Balancing adjustment—tax exempt entities that become taxable               357

Subdivision 355‑F—Integrity rules                                                                   358

355‑415................. Expenditure reduced to reflect group mark‑ups.............. 358

Subdivision 355‑K—Modified application of the old R&D law                 358

355‑550................. Prepayments of R&D expenditure extending into the 2011‑12 income year            358

Subdivision 355‑M—Undeducted core technology expenditure                 359

355‑600................. Scope.............................................................................. 360

355‑605................. Core technology that is a depreciating asset.................... 360

355‑610................. Core technology that is not a depreciating asset.............. 361

Division 375—Australian films                                                                            362

Subdivision 375‑G—Film losses                                                                         362

375‑100................. Film component of tax loss for 1997‑98 or later income year  362

375‑105................. Film component of tax loss for 1989‑90 to 1996‑97 income years          362

375‑110................. Film loss for 1989‑90 or later income year..................... 362

Division 392—Long‑term averaging of primary producers’ tax liability            363

392‑1..................... Application of Division 392 of the Income Tax Assessment Act 1997     363

392‑25................... Transitional provision—election under section 158A of the Income Tax Assessment Act 1936              363

Division 393—Farm management deposits                                                   365

Subdivision 393‑A—Tax consequences of farm management deposits   365

393‑1..................... Application of Division 393 of the Income Tax Assessment Act 1997     365

393‑5..................... Unrecouped FMD deduction.......................................... 365

393‑10................... Unrecouped FMD deduction for deposits made as a result of section 25B of the Loan (Income Equalization Deposits) Act 1976......................................................... 366

393‑27................... Trustee may choose that a beneficiary is a chosen beneficiary of the trust               366

393‑30................... Unclaimed moneys......................................................... 367

Subdivision 393‑B—Meaning of farm management deposit and owner 367

393‑40................... The day the deposit was made for deposits made as a result of section 25B of the Loan (Income Equalization Deposits) Act 1976......................................................... 367

Division 410—Copyright collecting societies                                               369

410‑1..................... Application of section 51‑43 of the Income Tax Assessment Act 1997    369

Division 415—Designated infrastructure projects                                   370

Subdivision 415‑B—Application of Subdivision 415‑B of the Income Tax Assessment Act 1997             370

415‑10................... Application of Subdivision 415‑B of the Income Tax Assessment Act 1997           370

Part 3‑50—Climate change                                                                                          371

Division 420—Registered emissions units                                                      371

Subdivision 420‑A—General application provision                                     371

420‑1..................... Application of Division 420 of the Income Tax Assessment Act 1997     371

Part 3‑80—Roll‑overs applying to assets generally                                        372

Division 615—Roll‑overs for business restructures                                 372

Subdivision 615‑A—Modifications for roll‑overs between the 2011 and 2012 Budget times     372

615‑5..................... Roll‑overs between the 2011 and 2012 Budget times..... 372

615‑10................... Modifications—when additional consequences can apply 372

615‑15................... Modifications—trading stock......................................... 373

615‑20................... Modifications—revenue assets....................................... 373

Division 620—Assets of wound‑up corporation passing to corporation with not significantly different ownership                                                                                              374

Subdivision 620‑A—Corporations covered by Subdivision 124‑I             374

620‑10................... Application of Subdivision 620‑A of the Income Tax Assessment Act 1997           374

Part 3‑90—Consolidated groups                                                                               375

Division 700—Application of Part 3‑90 of Income Tax Assessment Act 1997  375

700‑1..................... Application of Part 3‑90 of Income Tax Assessment Act 1997                375

Division 701—Modified application of provisions of Income Tax Assessment Act 1997 for certain consolidated groups formed in 2002‑3 and 2003‑4 financial years               376

Subdivision 701‑A—Preliminary                                                                       376

701‑1..................... Transitional group and transitional entity........................ 376

701‑5..................... Chosen transitional entity................................................ 377

701‑7..................... Working out the cost base or reduced cost base of a pre‑CGT asset after certain roll‑overs    378

701‑10................... Interpretation................................................................... 379

Subdivision 701‑B—Modified application of provisions                             379

701‑15................... Tax cost and trading stock value not set for assets of chosen transitional entities    379

701‑20................... Working out allocable cost amount on formation for subsidiary members other than chosen transitional entities........................................................................................ 380

701‑25................... No operation of value shifting and loss transfer provisions to membership interests in chosen transitional entities............................................................................. 383

701‑32................... No adjustment of amount of liabilities required in working out allocable cost amount             383

701‑35................... Act, transaction or event giving rise to CGT event for pre‑formation roll‑over after 16 May 2002 to be disregarded if cost base etc. would be different.............. 384

701‑40................... When entity leaves transitional group, head company may choose, for purposes of transitional group’s allocable cost amount, to increase terminating values of over‑depreciated assets     385

701‑45................... When entity leaves transitional group, head company may choose, for purposes of transitional group’s allocable cost amount, to use formation time market values, instead of terminating values, for certain pre‑CGT assets.............................................................................. 386

701‑50................... Increased allocable cost amount for leaving entity if it takes privatised asset brought into group by chosen transitional entity............................................................. 387

Division 701A—Modified application of provisions of Income Tax Assessment Act 1997 for entities with continuing majority ownership from 27 June 2002 until joining a consolidated group     391

701A‑1.................. Continuing majority‑owned entity, designated group etc. 391

701A‑5.................. Modified application of Part 3‑90 of Income Tax Assessment Act 1997 to trading stock of continuing majority‑owned entity..................................................... 392

701A‑7.................. Modified application of Part 3‑90 of Income Tax Assessment Act 1997 to registered emissions units of continuing majority‑owned entity................................... 393

701A‑10................ Modified application of Part 3‑90 of Income Tax Assessment Act 1997 to certain internally generated assets of continuing majority‑owned entity................................... 394

Division 701B—Modified application of provisions of Income Tax Assessment Act 1997 relating to CGT event L1                                                                                                 400

701B‑1.................. Modified application of CGT Consolidation provisions to allow immediate availability of capital loss for CGT event L1.......................................................................... 400

Division 701CModified application etc. of provisions of Income Tax Assessment Act 1997: transitional foreign‑held membership structures                                       402

Subdivision 701C‑AOverview                                                                         402

701C‑1.................. Overview........................................................................ 402

Subdivision 701C‑BMembership rules allowing foreign holding         403

701C‑10................ Additional membership rules where entities are interposed between the head company and a subsidiary member—case where an interposed entity is a foreign resident and the subsidiary member is a company........................................................................................ 403

701C‑15................ Additional membership rules where entities are interposed between the head company and a subsidiary member—case where an interposed entity is a foreign resident and the subsidiary member is a trust or partnership...................................................................... 405

701C‑20................ Transitional foreign‑held subsidiaries and transitional foreign‑held indirect subsidiaries         406

Subdivision 701C‑C—Modifications of tax cost setting rules                     407

Application and object                                                                                          408

701C‑25................ Application and object of this Subdivision..................... 408

Basic modification                                                                                                 408

701C‑30................ Transitional foreign‑held subsidiary to be treated as part of head company             408

Other modifications                                                                                               409

701C‑35................ Trading stock value not set for assets of transitional foreign‑held subsidiaries        409

701C‑40................ Cost setting rules for exit cases—modification of core rules 409

701C‑50................ Cost setting rules for exit cases—reference to modification of core rule  410

Division 701DTransitional foreign loss makers                                    411

Subdivision 701D‑AObject of this Division                                                 411

701D‑1.................. Object of this Division.................................................... 411

Subdivision 701D‑BRules allowing transitional foreign loss makers to remain outside consolidated group    411

701D‑10................ Transitional foreign loss maker not member of group if certain conditions satisfied                412

701D‑15................ Choice to apply transitional rules to entity...................... 414

Division 702—Modified application of this Act to assets that an entity brings into a consolidated group                                                                                                                    415

702‑1..................... Modified application of section 40‑77 of this Act to assets that an entity brings into a consolidated group........................................................................................ 415

702‑4..................... Extended operation of subsection 40‑285(3).................. 416

702‑5..................... Modified application of subsection 40‑285(6) of this Act after entity brings assets into consolidated group........................................................................................ 417

Division 703—Consolidated groups and their members                        419

703‑30................... Debt interests that are not membership interests............. 419

703‑35................... Employee share schemes................................................ 419

Division 705—Tax cost setting amount for assets where entities become members of consolidated groups                                                                                                                    420

Subdivision 705‑E—Expenditure relating to exploration, mining or quarrying          420

705‑300................. Application and object of this Subdivision..................... 420

705‑305................. Rules affecting depreciating assets.................................. 421

705‑310................. Adjustable value of head company’s notional assets...... 423

Division 707—Losses for head companies when entities become members etc.                425

Subdivision 707‑A—Transfer of losses to head company                           425

707‑145................. Certain choices to cancel the transfer of a loss may be revoked               425

Subdivision 707‑C—Amount of transferred losses that can be utilised    426

707‑325................. Increasing the available fraction for a bundle of losses by increasing the real loss‑maker’s modified market value............................................................................... 426

707‑326................. Events involving only value donor and real loss‑maker not covered by rule against inflation of modified market value.................................................................... 430

707‑327................. Choosing available fraction to apply to value donor’s loss 431

707‑328................. Income year and conditions for possible transfer under Division 170 of the Income Tax Assessment Act 1997........................................................................................ 433

707‑328A.............. Some events involving only group members not covered by rule against inflation of modified market value........................................................................................ 435

707‑329................. Modified market value at a time before 8 December 2004 437

707‑350................. Alternative loss utilisation regime to Subdivision 707‑C of the Income Tax Assessment Act 1997         438

707‑355................. Ignore certain losses in working out when a choice can be made under this Subdivision        440

Subdivision 707‑D—Special rules about losses                                               441

707‑405................. Special rules about losses referable to part of income year 441

Division 709—Other rules applying when entities become subsidiary members etc.     442

Subdivision 709‑D—Deducting bad debts                                                        442

709‑200................. Application of Subdivision 709‑D of the Income Tax Assessment Act 1997           442

Division 712—Certain rules for where entities cease to be subsidiary members of consolidated groups                                                                                                                    443

Subdivision 712‑E—Expenditure relating to exploration, mining or quarrying          443

712‑305................. Reducing adjustable value of head company’s notional asset.. 443

Division 713—Rules for particular kinds of entities                                444

Subdivision 713‑L—Transitional relief for certain transactions relating to life insurance companies  444

713‑500................. Object of Subdivision..................................................... 444

713‑505................. When this Subdivision applies (first case)...................... 444

713‑510................. When this Subdivision applies (second case)................. 445

713‑515................. Entities must choose the relief......................................... 446

713‑520................. Conditions...................................................................... 446

713‑525................. Time of transfer.............................................................. 447

713‑530................. What the relief is............................................................. 448

713‑535................. Subsequent consequences............................................... 448

713‑540................. Requirement to notify happening of new event............... 450

713‑545................. Discount capital gain in certain cases.............................. 450

Subdivision 713‑M—General insurance companies                                     451

713‑700................. Application..................................................................... 451

Division 715—Interactions between the consolidation rules and other areas of the income tax law    452

Subdivision 715‑F—Interactions with Division 230 (financial arrangements)              452

715‑380................. Exit history rule not to affect certain matters related to Division 230 financial arrangements   452

Subdivision 715‑J—Entry history rule and choices                                      453

715‑658................. Application..................................................................... 453

715‑659................. Extension of time for making choice if joining time was before commencement     453

Subdivision 715‑K—Exit history rule and choices                                        453

715‑698................. Application..................................................................... 454

715‑699................. Extension of time for making choice if leaving time was before commencement     454

Division 716—Miscellaneous special rules                                                    455

Subdivision 716‑G—Software development pools                                         455

716‑340................. Expenditure incurred before 1 July 2001 and allocated to a software pool               455

Division 719—MEC rules                                                                                       456

Subdivision 719‑A—Modified application of Part 3‑90 to MEC groups 456

719‑2..................... Modified application of Part 3‑90 to MEC groups......... 456

Subdivision 719‑B—MEC groups and their members                                  457

719‑5..................... Debt interests that are not membership interests............. 457

719‑10................... Effect of Division 701C.................................................. 457

719‑15................... Modified effect of subsection 701D‑10(2)..................... 457

719‑30................... Employee share schemes................................................ 458

Subdivision 719‑C—Cost setting                                                                        458

719‑160................. Transitional cost setting rules on joining have effect with modifications  458

719‑161................. Modified effect of section 701‑1..................................... 459

719‑163................. Modified effect of section 701‑35................................... 460

719‑165................. Modified effect of paragraph 701‑45(1)(b)..................... 460

Subdivision 719‑F—Losses                                                                                  461

719‑305................. Available fraction for bundle of losses not affected by concessional rules               461

719‑310................. Certain choices may be revoked...................................... 461

Subdivision 719‑I—Bad debts                                                                             461

719‑450................. Application of Subdivision 719‑I of the Income Tax Assessment Act 1997             461

Division 721—Liability for payment of tax where head company fails to pay on time                462

Subdivision 721‑A—Application of Division                                                  462

721‑25................... References in tax sharing agreements to former table item 25  462

Part 3‑95—Value shifting                                                                                              463

Division 723—Direct value shifting by creating right over non‑depreciating asset       463

723‑1..................... Application of Division 723........................................... 463

Division 725—Direct value shifting affecting interests in companies and trusts              464

725‑1..................... Application of Division 725........................................... 464

Division 727—Indirect value shifting affecting interests in companies and trusts, and arising from non‑arm’s length dealings                                                            465

727‑1..................... Application of Division 727........................................... 465

727‑230................. Transitional exclusion for certain indirect value shifts relating mainly to services    466

727‑470................. Affected interests do not include equity or loan interests owned by entity that is eligible to be an STS taxpayer........................................................................................ 467

Chapter 4—International aspects of income tax                      468

Part 4‑5—General                                                                                                              468

Division 815—Cross‑border transfer pricing                                             468

Subdivision 815‑A—Cross‑border transfer pricing                                      468

815‑1..................... Application of Subdivision 815‑A of the Income Tax Assessment Act 1997           468

815‑5..................... Cross‑border transfer pricing guidance........................... 468

815‑10................... Scheme penalty applies in pre‑commencement period as if only the old law applied               469

815‑15................... Application of Subdivisions 815‑B, 815‑C and 815‑D of the Income Tax Assessment Act 1997            469

Division 820—Application of the thin capitalisation rules                    471

820‑10................... Application of Division 820 of the Income Tax Assessment Act 1997     471

820‑12................... Application of Division 974 of the Income Tax Assessment Act 1997 for the purposes of Division 820 of that Act.................................................................................. 471

820‑45................... Transitional provision—accounting standards and prudential standards  472

Division 830—Application of the foreign hybrid rules                           474

830‑1..................... Standard application........................................................ 474

830‑15................... Modified version of income tax law to apply for certain past income years             475

830‑20................... Modifications of income tax law..................................... 477

Division 832—Hybrid mismatch rules                                                             479

Subdivision 832‑A—Application of Division 832 of the Income Tax Assessment Act 1997        479

832‑10................... Application of Division 832 of the Income Tax Assessment Act 1997 (other than imported hybrid mismatch rule)................................................................................ 479

832‑15................... Application of imported hybrid mismatch rule................ 479

Division 840—Withholding taxes                                                                       481

Subdivision 840‑M—Managed investment trust amounts                           481

840‑805................. Managed investment trust amounts................................. 481

840‑810................. Payment of tax under section 840‑805............................ 482

Subdivision 840‑S—Seasonal Labour Mobility Program withholding tax 482

840‑905................. Application of Subdivision 840‑S of the Income Tax Assessment Act 1997            483

Division 842—Exempt Australian source income and gains of foreign residents            484

Subdivision 842‑I—Investment manager regime                                          484

842‑207................. Application of replacement version of Subdivision 842‑I 484

842‑208................. Modified meaning of IMR foreign fund for the purposes of earlier income years   485

842‑209................. Residence of corporate limited partnerships.................... 485

842‑210................. Treatment of IMR foreign fund that is a corporate tax entity 486

842‑215................. Treatment of foreign resident beneficiary that is not a trust or partnership               487

842‑220................. Treatment of foreign resident partner that is not a trust or partnership     491

842‑225................. Treatment of trustee of an IMR foreign fund.................. 493

842‑230................. Pre‑2012 IMR deduction................................................ 496

842‑235................. Pre‑2012 IMR capital loss.............................................. 496

842‑240................. Pre‑2012 non‑IMR net income, pre‑2012 non‑IMR Division 6E net income and pre‑2012 non‑IMR net capital gain................................................................................. 496

842‑245................. Pre‑2012 non‑IMR partnership net income and pre‑2012 non‑IMR partnership loss            498

Division 880—Sovereign entities and activities                                          500

880‑1..................... Application of Division 880 of the Income Tax Assessment Act 1997     500

880‑5..................... Certain income of sovereign entity in respect of a scheme is non‑assessable non‑exempt income if covered by a private ruling................................................................ 500

880‑10................... Certain amounts of sovereign entity in respect of a scheme are not deductible if covered by a private ruling........................................................................................ 501

880‑15................... Sovereign entity’s capital gain from membership interest etc.—gain disregarded    501

880‑20................... Sovereign entity’s capital loss from membership interest etc.—loss disregarded     502

880‑25................... Asset of sovereign entity—deemed sale and purchase.... 502

Chapter 5—Administration                                                                            504

Part 5‑35—Miscellaneous                                                                                              504

Division 909—Regulations                                                                                     504

909‑1..................... Regulations..................................................................... 504

Chapter 6—The Dictionary                                                                            505

Part 6‑1—Concepts and topics                                                                                   505

Division 960—General                                                                                             505

Subdivision 960‑B—Utilisation of tax attributes                                           505

960‑20................... Utilisation—corporate loss carry back............................ 505

Subdivision 960‑E—Entities                                                                                505

960‑100................. Effect of this Subdivision............................................... 506

960‑105................. Entities, and members of entities, benefiting from the application of this Subdivision             506

960‑110................. No taxation consequences to result from changes to managed investment scheme  507

960‑115................. Certain entities treated as agents...................................... 508

Subdivision 960‑M—Indexation                                                                         508

960‑262................. Application of Subdivision 960‑M of the Income Tax Assessment Act 1997          508

960‑275................. Indexation factor............................................................. 508

Endnotes                                                                                                                                  510

Endnote 1—About the endnotes                                                                          510

Endnote 2—Abbreviation key                                                                              512

Endnote 3—Legislation history                                                                           513

Endnote 4—Amendment history                                                                         531


An Act setting out application and transitional provisions for the Income Tax Assessment Act 1997

Chapter 1Introduction and core provisions

Part 1‑1Preliminary

Division 1Preliminary

Table of sections

1‑1            Short title

1‑5            Commencement

1‑7            Administration of this Act

1‑10          Definitions and rules for interpreting this Act

1‑1  Short title

                   This Act may be cited as the Income Tax (Transitional Provisions) Act 1997.

1‑5  Commencement

                   This Act commences on 1 July 1997.

1‑7  Administration of this Act

                   The Commissioner has the general administration of this Act.

Note:          An effect of this provision is that people who acquire information under this Act are subject to the confidentiality obligations and exceptions in Division 355 in Schedule 1 to the Taxation Administration Act 1953.

1‑10  Definitions and rules for interpreting this Act

             (1)  In this Act, an expression has the same meaning as in the Income Tax Assessment Act 1997.

             (2)  Division 950 of the Income Tax Assessment Act 1997 (which contains rules for interpreting that Act) applies to this Act as if the provisions of this Act were provisions of that Act.

Part 1‑3Core Provisions

Division 4How to work out the income tax payable on your taxable income

Table of sections

4‑1            Application of the Income Tax Assessment Act 1997

4‑11          Temporary budget repair levy

4‑1  Application of the Income Tax Assessment Act 1997

                   The Income Tax Assessment Act 1997, as originally enacted, applies to assessments for the 1997‑98 income year and later income years.

Note:          For the application of amendments of that Act (including new provisions inserted in it), see the Acts making the amendments.

4‑11  Temporary budget repair levy

Temporary budget repair levy

             (1)  You must pay extra income tax (temporary budget repair levy) for a financial year if:

                     (a)  you are an individual; and

                     (b)  your taxable income for the corresponding income year exceeds $180,000; and

                     (c)  the financial year is a temporary budget repair levy year.

Note:          This section will also affect the income tax payable by some trustees who are taxed as if certain trust income were income of individuals. See sections 98 and 99 of the Income Tax Assessment Act 1936.

Amount of temporary budget repair levy

             (2)  Your temporary budget repair levy is worked out by reference to your taxable income for the corresponding income year using the rate or rates that apply to you.

Interaction with other provisions

             (3)  For the purpose of working out your income tax for the financial year:

                     (a)  section 4‑10 of the Income Tax Assessment Act 1997 has effect as if it made you liable to pay the extra tax mentioned in subsection (1) of this section; and

                     (b)  subsection 4‑10(3) of that Act has effect as if step 4 of the method statement in that subsection were omitted and the following were substituted:

Step 3A. Subtract your tax offsets from your basic income tax liability.

For the list of tax offsets, see section 13‑1.

Step 3B. Add the extra income tax you must pay as mentioned in subsection 4‑11(1) of the Income Tax (Transitional Provisions) Act 1997.

Step 4.   If an amount of your tax offset for foreign income tax under Division 770 remains after applying section 63‑10, subtract the remaining amount from the result of step 3B. The result is how much income tax you owe for the financial year.

             (4)  To avoid doubt, temporary budget repair levy is not included in your basic income tax liability.

Note:          As a result, you cannot apply any tax offsets against temporary budget repair levy under Part 2‑20 of the Income Tax Assessment Act 1997 (apart from the foreign income tax offset applied under step 4 of the method statement in subsection (3)).

Meaning of temporary budget repair levy year

             (5)  Each of the following is a temporary budget repair levy year:

                     (a)  the 2014‑15 financial year;

                     (b)  the 2015‑16 financial year;

                     (c)  the 2016‑17 financial year.

Division 5How to work out when to pay your income tax

Table of Subdivisions

5‑A       How to work out when to pay your income tax

Subdivision 5‑AHow to work out when to pay your income tax

Table of sections

5‑5            Application of Division 5 of the Income Tax Assessment Act 1997

5‑7            References in tax sharing agreements to former section 204

5‑10          General interest charge liabilities under former subsection 204(3)

5‑15          Application of section 5‑15 of the Income Tax Assessment Act 1997

5‑5  Application of Division 5 of the Income Tax Assessment Act 1997

                   Subject to section 5‑15 of this Act, Division 5 of the Income Tax Assessment Act 1997, as originally enacted, applies in relation to income tax or shortfall interest charge you must pay for:

                     (a)  the 2010‑11 financial year; or

                     (b)  a later financial year.

5‑7  References in tax sharing agreements to former section 204

             (1)  A reference in an agreement to section 204 of the Income Tax Assessment Act 1936 is taken, from the commencement of this section, to be a reference to section 5‑5 of the Income Tax Assessment Act 1997, if:

                     (a)  paragraph 721‑25(1)(a) of the Income Tax Assessment Act 1997 applies to the agreement; and

                     (b)  the agreement was in force just before the commencement of this section.

             (2)  This section applies in relation to tax to which Division 5 of the Income Tax Assessment Act 1997 applies.

5‑10  General interest charge liabilities under former subsection 204(3)

             (1)  This section applies if, just before the commencement of this section, you were liable, under subsection 204(3) (the old provision) of the Income Tax Assessment Act 1936, to pay the general interest charge on an unpaid amount (the liability) of any tax or shortfall interest charge.

             (2)  On that commencement, the old provision ceases to apply to the liability.

             (3)  From that commencement, section 5‑15 (the new provision) of the Income Tax Assessment Act 1997, as originally enacted, applies to the liability as if:

                     (a)  the liability remained unpaid at that time; and

                     (b)  so much of the charge under the old provision as remained unpaid at that time had been imposed under the new provision and remained unpaid at that time.

5‑15  Application of section 5‑15 of the Income Tax Assessment Act 1997

             (1)  Section 5‑15 of the Income Tax Assessment Act 1997 (General interest charge payable on unpaid income tax or shortfall interest charge), as originally enacted, applies to an amount of income tax or shortfall interest charge you must pay for a financial year, if the income tax or shortfall interest charge is due to be paid on or after the commencement of that section.

             (2)  For the purposes of subsection (1), it does not matter whether the financial year ended before, on or after the commencement of that section.

Division 6Assessable income and exempt income

Table of sections

6‑2            Effect of this Division

6‑3            Assessable income for income years before 1997‑98

6‑20          Exempt income for income years before 1997‑98

6‑2  Effect of this Division

                   This Division has effect for the purposes of the Income Tax Assessment Act 1997 and of this Act.

6‑3  Assessable income for income years before 1997‑98

                   For the 1996‑97 income year or an earlier income year, assessable income means all the amounts that under the Income Tax Assessment Act 1936 are included in the assessable income.

6‑20  Exempt income for income years before 1997‑98

                   For the 1996‑97 income year or an earlier income year, exempt income means income which is exempt from tax and includes income which is not assessable income.

Division 8Deductions

Table of sections

8‑2            Effect of this Division

8‑3            Deductions for income years before 1997‑98

8‑10          No double deductions for income year before 1997‑98 and income year after 1996‑97

8‑2  Effect of this Division

                   This Division has effect for the purposes of the Income Tax Assessment Act 1997 and of this Act.

8‑3  Deductions for income years before 1997‑98

                   For the 1996‑97 income year or an earlier income year, deduction means a deduction allowable under the Income Tax Assessment Act 1936.

8‑10  No double deductions for income year before 1997‑98 and income year after 1996‑97

                   If:

                     (a)  a provision of the Income Tax Assessment Act 1936 allows you a deduction in respect of an amount for the 1996‑97 income year or an earlier income year; and

                     (b)  a different provision of that Act, or a provision of the Income Tax Assessment Act 1997, allows you a deduction in respect of the same amount for the 1997‑98 income year or a later income year;

you can deduct only under the provision that is most appropriate.

Chapter 2Liability rules of general application

Part 2‑1Assessable income

Division 15Some items of assessable income

Table of sections

15‑1          General application provision

15‑10        Application of section 15‑10 of the Income Tax Assessment Act 1997 to bounties and subsidies

15‑15        Application of section 15‑15 of the Income Tax Assessment Act 1997 to profit‑making plans

15‑20        Application of section 15‑20 of the Income Tax Assessment Act 1997 to royalties

15‑30        Application of section 15‑30 of the Income Tax Assessment Act 1997 to insurance or indemnity payments

15‑35        Application of section 15‑35 of the Income Tax Assessment Act 1997 to interest on overpayments and early payments of tax

15‑1  General application provision

             (1)  Division 15 of the Income Tax Assessment Act 1997 applies to assessments for the 1997‑98 income year and later income years.

             (2)  However, the sections of that Act listed in the table apply in accordance with the corresponding sections of this Act.

 

Application provisions for specific sections


Item

This section of the Income Tax Assessment Act 1997 ...

Applies as described in this section of this Act ...

1

15‑10

15‑10

2

15‑15

15‑15

3

15‑20

15‑20

4

15‑30

15‑30

5

15‑35

15‑35

15‑10  Application of section 15‑10 of the Income Tax Assessment Act 1997 to bounties and subsidies

                   Section 15‑10 (Bounties and subsidies) of the Income Tax Assessment Act 1997 applies to a bounty or subsidy received in the 1997‑98 income year or a later income year.

15‑15  Application of section 15‑15 of the Income Tax Assessment Act 1997 to profit‑making undertaking or plan

                   Section 15‑15 (Profit‑making undertaking or plan) of the Income Tax Assessment Act 1997 applies to a profit arising in the 1997‑98 income year or a later income year, even if the undertaking or plan was entered into, or began to be carried on or carried out, before the 1997‑98 income year.

15‑20  Application of section 15‑20 of the Income Tax Assessment Act 1997 to royalties

                   Section 15‑20 (Royalties) of the Income Tax Assessment Act 1997 applies to an amount received as or by way of royalty in the 1997‑98 income year or a later income year.

15‑30  Application of section 15‑30 of the Income Tax Assessment Act 1997 to insurance or indemnity payments

                   Section 15‑30 (Insurance or indemnity for loss of assessable income) of the Income Tax Assessment Act 1997 applies to an amount received in the 1997‑98 income year or a later income year as insurance or indemnity for the loss at any time of an amount that would have been assessable income under the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997.

15‑35  Application of section 15‑35 of the Income Tax Assessment Act 1997 to interest on overpayments and early payments of tax

                   Section 15‑35 (Interest on overpayments and early payments of tax) of the Income Tax Assessment Act 1997 applies to interest that is paid or applied in the 1997‑98 income year or a later income year, even if some or all of the interest became payable earlier.

Division 20Items included to reverse the effect of past deductions

Table of Subdivisions

20‑A     Insurance, indemnity or recoupment for deductible expenses

20‑B      Disposal of a car for which lease payments have been deducted

Subdivision 20‑AInsurance, indemnity or recoupment for deductible expenses

Table of sections

20‑1          Application of Subdivision 20‑A of the Income Tax Assessment Act 1997

20‑1  Application of Subdivision 20‑A of the Income Tax Assessment Act 1997

                   Subdivision 20‑A of the Income Tax Assessment Act 1997 applies to an assessable recoupment received in the 1997‑98 income year or a later income year of a loss or outgoing whenever incurred.

Subdivision 20‑BDisposal of a car for which lease payments have been deducted

Table of sections

20‑100      Application of Subdivision 20‑B of the Income Tax Assessment Act 1997

20‑105      The cost of a car acquired in the 1996‑97 income year or an earlier income year

20‑110      The termination value of a car disposed of in the 1996‑97 income year or an earlier income year

20‑115      Reducing the assessable amount for the disposal of a car in the 1997‑98 income year or later if there has been an earlier disposal of it

20‑100  Application of Subdivision 20‑B of the Income Tax Assessment Act 1997

                   Subdivision 20‑B of the Income Tax Assessment Act 1997 applies to assessments for the 1997‑98 income year and later income years.

20‑105  The cost of a car acquired in the 1996‑97 income year or an earlier income year

             (1)  If:

                     (a)  in the 1997‑98 income year or a later income year you dispose of a car that was leased to you or your associate; and

                     (b)  the lessor acquired the car in the 1996‑97 income year or an earlier income year;

the cost of the car to the lessor for the purposes of section 20‑120 of the Income Tax Assessment Act 1997 is worked out under the depreciation provisions of the Income Tax Assessment Act 1936.

Note 1:       Section 20‑120 of the Income Tax Assessment Act 1997 is about a limit on the amount to be included in your assessable income because of your disposal of the car.

Note 2:       The depreciation provisions were in Subdivision A of Division 3 of Part III of the Income Tax Assessment Act 1936.

             (2)  In working out the cost of the car to the lessor, disregard any election the lessor made under former subsection 59(2A) or (2D) of the Income Tax Assessment Act 1936 to reduce the cost of the car.

20‑110  The termination value of a car disposed of in the 1996‑97 income year or an earlier income year

                   If:

                     (a)  in the 1997‑98 income year or a later income year you dispose of a car that was leased to you or your associate; and

                     (b)  the lessor disposed of the car in the 1996‑97 income year or an earlier income year;

the car’s termination value (in respect of the disposal by the lessor) for the purposes of section 20‑120 of the Income Tax Assessment Act 1997 is the consideration receivable by the lessor for the disposal (worked out under former section 59 of the Income Tax Assessment Act 1936).

Note:          Section 20‑120 of the Income Tax Assessment Act 1997 is about a limit on the amount to be included in your assessable income because of your disposal of the car.

20‑115  Reducing the assessable amount for the disposal of a car in the 1997‑98 income year or later if there has been an earlier disposal of it

                   If:

                     (a)  section 20‑110 or 20‑125 of the Income Tax Assessment Act 1997 includes an amount in your assessable income for the 1997‑98 income year or a later income year because of your disposal of a car; and

                     (b)  in the 1996‑97 income year or an earlier income year (but after the lease period began) there was an earlier disposal of the car, or an interest in it, by you or another entity in a situation described in the following table;

each limit on the amount to be included in your assessable income is reduced as follows:

 

Reducing each limit on the amount to be included

Item

In this situation:

reduce each limit by:

1

Former section 26AAB of the Income Tax Assessment Act 1936 included an amount in your assessable income in respect of such an earlier disposal by you

that amount

2

Former section 26AAB of the Income Tax Assessment Act 1936 included an amount in another entity's assessable income in respect of such an earlier disposal by the other entity

that amount

3

Former section 26AAB of the Income Tax Assessment Act 1936 would have included an amount in your assessable income in respect of such an earlier disposal by you but for the operation of former subsection 26AAB(12) of that Act

that amount

4

Former section 26AAB of the Income Tax Assessment Act 1936 would have included an amount in another entity’s assessable income in respect of such an earlier disposal by the other entity but for the operation of former subsection 26AAB(12) of that Act

that amount

5

Former subsection 26AAB(9) of the Income Tax Assessment Act 1936 reduced the amount to be included in your assessable income in respect of such an earlier disposal by you

the amount of the reduction

6

Former subsection 26AAB(9) of the Income Tax Assessment Act 1936 reduced the amount to be included in another entity’s assessable income in respect of such an earlier disposal by the other entity

the amount of the reduction

Part 2‑5Rules about deductibility of particular kinds of amounts

Division 25Some amounts you can deduct

Table of sections

25‑1          Application of Division 25 of the Income Tax Assessment Act 1997

25‑40        Application of section 25‑40 of the Income Tax Assessment Act 1997

25‑45        Application of section 25‑45 of the Income Tax Assessment Act 1997

25‑50        Application of section 25‑90 of the Income Tax Assessment Act 1997

25‑65        Local government election expenses

25‑1  Application of Division 25 of the Income Tax Assessment Act 1997

                   Division 25 (Some amounts you can deduct) of the Income Tax Assessment Act 1997 applies to assessments for the 1997‑98 income year and later income years, except as provided by this Division.

25‑40  Application of section 25‑40 of the Income Tax Assessment Act 1997

                   Section 25‑40 (Loss from profit‑making undertaking or plan) of the Income Tax Assessment Act 1997 applies to a loss arising in the 1997‑98 income year or a later income year, even if the undertaking or plan was entered into, or began to be carried on or carried out, before the 1997‑98 income year.

25‑45  Application of section 25‑45 of the Income Tax Assessment Act 1997

                   Section 25‑45 (which is about deductions for losses by theft etc.) of the Income Tax Assessment Act 1997 applies to a loss discovered in the 1997‑98 income year or a later income year.

25‑50  Application of section 25‑90 of the Income Tax Assessment Act 1997

                   Section 25‑90 (which is about deductions relating to foreign exempt income) of the Income Tax Assessment Act 1997 applies to an amount incurred in an income year that begins on or after 1 July 2001.

25‑65  Local government election expenses

                   Section 25‑65 of the Income Tax Assessment Act 1997 applies to the 2006‑07 income year and later income years, in relation to expenditure whenever incurred. In relation to expenditure incurred in the 2005‑06 income year or an earlier income year, it applies as if:

                     (a)  it had applied to all income years before the 2006‑07 income year; and

                     (b)  an allowable deduction for the expenditure under section 74A of the Income Tax Assessment Act 1936 had been a deduction for the expenditure under section 25‑65 of the Income Tax Assessment Act 1997.

Note:          This section also has the result that, to the extent that a recoupment of the expenditure has been included in your assessable income by former subsections 74A(4) and (5) of the Income Tax Assessment Act 1936, the expenditure will be disregarded in applying the $1,000 per election deduction limit: see subsection 25‑65(2) of the Income Tax Assessment Act 1997.

Division 26Some amounts you cannot deduct, or cannot deduct in full

Table of sections

26‑1          Application of Division 26 of the Income Tax Assessment Act 1997

26‑30        Application of section 26‑30 of the Income Tax Assessment Act 1997

26‑1  Application of Division 26 of the Income Tax Assessment Act 1997

                   Division 26 of the Income Tax Assessment Act 1997 (which prevents or limits deductions) applies to assessments for the 1997‑98 income year and later income years, except as provided by this Division.

26‑30  Application of section 26‑30 of the Income Tax Assessment Act 1997

                   Section 26‑30 (which denies a deduction for relative’s travel expenses) of the Income Tax Assessment Act 1997 applies to travel on or after 1 July 1997.

Division 30Gifts or contributions

Table of sections

30‑1          Application of Division 30 of the Income Tax Assessment Act 1997

30‑5          Keeping in force old declarations and instruments

30‑25        Keeping in force the old gifts registers

30‑102      Fund, authorities and institutions taken to be endorsed

30‑1  Application of Division 30 of the Income Tax Assessment Act 1997

                   Division 30 of the Income Tax Assessment Act 1997 applies to assessments for the 1997‑98 income year and later income years.

30‑5  Keeping in force old declarations and instruments

             (1)  This section applies to a declaration or other instrument (described in column 2 of an item in the table in this section) that is in force at the end of 30 June 1997 for the purposes of the provision of the Income Tax Assessment Act 1936 referred to in that column of the item.

             (2)  On and after 1 July 1997 the declaration or other instrument also has effect as if it were an approval or declaration (described in column 3 of the same item) made for the purposes of the provision of the Income Tax Assessment Act 1997 referred to in that column of the item.

                   Anything done on or after 1 July 1997 in relation to an approval or declaration described in column 3 of an item in the table also has effect as if it had been done in relation to the declaration or other instrument described in column 2 of that item.

 

On and after 1 July 1997

Item

This approval, declaration or other instrument:

also has effect as if it were:

1

An instrument certifying an institution to be a technical and further education institution for the purposes of item 2.1.7 of table 2 in subsection 78(4)

A declaration that the institution is a technical and further education institution for the purposes of item 2.1.7 of the table in subsection 30‑25(1)

2

An instrument certifying that purposes of an institution covered by item 2.1.7 of table 2 in subsection 78(4), or of the college covered by item 2.2.14 of that table, relate exclusively to tertiary education

A declaration (for the purposes of section 30‑30) that those purposes of the institution, or of the college, relate solely to tertiary education

3

An instrument approving an organisation, or a branch or section of an organisation, to be a marriage guidance organisation for the purposes of item 8.1.1 of table 8 in subsection 78(4)

A declaration that the organisation, or branch or section of the organisation, is a marriage guidance organisation for the purposes of item 8.1.1 of the table in subsection 30‑70(1)

4

A declaration that a public fund is an eligible fund for the purposes of item 9.1.1 of table 9 in subsection 78(4)

A declaration that the public fund is a relief fund for the purposes of item 9.1.1 of the table in subsection 30‑80(1)

5

An instrument approving a person as a valuer under subsection 78(18)

An approval of the person as a valuer under section 30‑210

6

An instrument approving an organisation as an approved organisation for the purposes of subsection 78(21)

A declaration that the organisation is an approved organisation for the purposes of section 30‑85

7

An instrument certifying a country to be a developing country for the purposes of subsection 78(21)

A declaration that the country is a developing country for the purposes of section 30‑85

30‑25  Keeping in force the old gifts registers

             (1)  On and after 1 July 1997, the register described in column 2 of an item in the table in this section (as the register existed at the end of 30 June 1997) also has effect as if it were the register described in column 3 of that item.

                   Column 2 refers to provisions of the Income Tax Assessment Act 1936. Column 3 refers to provisions of the Income Tax Assessment Act 1997.

             (2)  Anything done on or after 1 July 1997 in relation to the register described in column 3 of an item in the table also has effect as if it had been done in relation to the register described in column 2 of that item.

 

On and after 1 July 1997

Item

This register:

also has effect as if it were:

1

The register of cultural organisations kept under section 78AA

The register of cultural organisations kept under Subdivision 30‑F

2

The register of environmental organisations kept under section 78AB

The register of environmental organisations kept under Subdivision 30‑E

30‑102  Fund, authorities and institutions taken to be endorsed

             (1)  The authorities and institutions listed in this table are taken to have been endorsed by the Commissioner of Taxation for the purposes of item 12A.1.1 of the table in section 30‑102 of the Income Tax Assessment Act 1997 under paragraph 30‑120(a) of that Act.

 

Item

Fund, authority or institution

Established under legislation of the following State or Territory

1

State Emergency Service

New South Wales

2

Country Fire Authority

Victoria

3

Victoria State Emergency Service

Victoria

4

Queensland Fire and Rescue Service

Queensland

5

State Emergency Service

Queensland

6

Fire and Emergency Services Authority of Western Australia

Western Australia

7

State Emergency Service South Australia

South Australia

8

Tasmania Fire Service

Tasmania

9

State Emergency Service

Tasmania

10

ACT Rural Fire Service

Australian Capital Territory

11

ACT State Emergency Service

Australian Capital Territory

             (2)  The fund listed in this table is taken to have been endorsed by the Commissioner of Taxation for the purposes of item 12A.1.2 of section 30‑102 of the Income Tax Assessment Act 1997 under paragraph 30‑120(b) of that Act.

 

Item

Fund, authority or institution

Established under legislation of the following State or Territory

1

CFA & Brigades Donations Fund

Victoria

             (3)  The funds, authorities and institutions referred to in subsections (1) and (2) are taken to have been endorsed on the day on which Schedule 7 to the Tax Laws Amendment (2010 Measures No. 4) Act 2010 commences.

Division 32Entertainment expenses

Table of sections

32‑1          Application of Division 32 of the Income Tax Assessment Act 1997

32‑1  Application of Division 32 of the Income Tax Assessment Act 1997

                   Division 32 of the Income Tax Assessment Act 1997 applies to assessments for the 1997‑98 income year and later income years.

Division 34Non‑compulsory uniforms

Table of sections

34‑1          Application of Division 34 of the Income Tax Assessment Act 1997

34‑5          Things done under former section 51AL of the Income Tax Assessment Act 1936

34‑1  Application of Division 34 of the Income Tax Assessment Act 1997

                   Division 34 (Non‑compulsory uniforms) of the Income Tax Assessment Act 1997 applies to assessments for the 1997‑98 income year and later income years.

34‑5  Things done under former section 51AL of the Income Tax Assessment Act 1936

             (1)  From 1 July 1997, anything done under or in connection with a provision of former section 51AL of the Income Tax Assessment Act 1936 has effect as if it had been done under or in connection with the corresponding provision of Division 34 of the Income Tax Assessment Act 1997.

             (2)  From 1 July 1997, a thing described in column 2 of an item in the table (as that thing existed at the end of 30 June 1997) has effect as if it were the thing described in column 3 of that item.

                   Column 2 refers to provisions of the Income Tax Assessment Act 1936. Column 3 refers to provisions of the Income Tax Assessment Act 1997.

 

As from 1 July 1997

Item

This:

has effect as if it were this:

1

The Register of Approved Occupational Clothing that former subsection 51AL(5) requires the Industry Secretary to keep

The Register of Approved Occupational Clothing that section 34‑45 requires the Industry Secretary to keep

2

Approved occupational clothing guidelines in force under former subsection 51AL(7)

Approved occupational clothing guidelines made under section 34‑55

3

A delegation by the Industry Secretary under former subsection 51AL(23)

A delegation by the Industry Secretary under section 34‑65

             (3)  Subsection (2) does not limit the generality of subsection (1).

Division 35Deferral of losses from non‑commercial business activities

Table of sections

35‑10        Deductions for certain new business investment

35‑20        Application of Commissioner’s decisions

35‑10  Deductions for certain new business investment

                   The rule in subsection 35‑10(2) of the Income Tax Assessment Act 1997 does not apply for an income year to a business activity if:

                     (a)  apart from that rule, you could otherwise deduct amounts under Division 41 of that Act for that income year; and

                     (b)  the total of those amounts is more than or equal to the excess worked out under that subsection for the business activity for the income year.

35‑20  Application of Commissioner’s decisions

                   A decision of the Commissioner made under section 35‑55 of the Income Tax Assessment Act 1997:

                     (a)  before the commencement of Schedule 2 to the Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009; and

                     (b)  for one or more income years;

continues to have effect, after that commencement, for those income years despite the amendments made by that Schedule.

Division 36Tax losses of earlier income years

Table of sections

36‑100      Tax losses for the 1997‑98 and later income years

36‑105      Tax losses for 1989‑90 to 1996‑97 income years

36‑110      Tax losses for 1957‑58 to 1988‑89 income years

36‑100  Tax losses for the 1997‑98 and later income years

                   To work out your tax loss (if any) for the 1997‑98 income year or a later income year, apply the provisions of the Income Tax Assessment Act 1997 about tax losses.

Start at Division 36 of that Act.

36‑105  Tax losses for 1989‑90 to 1996‑97 income years

             (1)  If you incurred a loss for the purposes of section 79E (General domestic losses of 1989‑90 to 1996‑97 years of income) of the Income Tax Assessment Act 1936 in any of the 1989‑90 to 1996‑97 income years, the loss is your tax loss for that income year, which is called a loss year.

             (2)  You can deduct the tax loss in the 1997‑98 or a later income year only to the extent that it has not already been deducted.

36‑110  Tax losses for 1957‑58 to 1988‑89 income years

             (1)  If you incurred a loss for the purposes of section 80AA (Primary production losses of pre‑1990 years of income) of the Income Tax Assessment Act 1936 in any of the 1957‑58 to 1988‑89 income years, the loss is your tax loss for that income year, which is called a loss year. The loss is also called a primary production loss.

             (2)  You can deduct the tax loss in the 1997‑98 or a later income year only to the extent that it has not already been deducted.

             (3)  You deduct your primary production losses (in the order in which you incurred them) before any other tax losses of the same or any other loss year, except film losses.

             (4)  A company cannot transfer any amount of a primary production loss for the 1983‑84 or an earlier income year under Subdivision 170‑A (Transfer of tax losses within wholly‑owned groups of companies) of the Income Tax Assessment Act 1997.

             (5)  For the purposes of determining how much (if any) of a primary production loss you can deduct in the 1997‑98 or a later income year, subsections 80AA(9), (10) and (11) of the Income Tax Assessment Act 1936 apply in the same way as they apply for the purposes they refer to.


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

Division 40Capital allowances

Table of Subdivisions

40‑B      Core provisions

40‑BA   Backing business investment

40‑BB   Temporary full expensing of depreciating assets

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‑I       Capital expenditure that is deductible over time

40‑J       Ships depreciated under section 57AM of the Income Tax Assessment Act 1936

Subdivision 40‑BCore provisions

Table of sections

40‑10        Plant

40‑12        Plant acquired after 30 June 2001

40‑13        Accelerated depreciation for split or merged plant

40‑15        Recalculating effective life

40‑20        IRUs

40‑25        Software

40‑30        Spectrum licences

40‑33        Datacasting transmitter licences

40‑35        Mining unrecouped expenditure


40‑37        Post‑30 June 2001 mining expenditure

40‑38        Mining cash bidding payments

40‑40        Transport expenditure

40‑43        Post‑30 June 2001 transport expenditure

40‑44        No additional decline in certain cases

40‑45        Intellectual property

40‑47        IRUs

40‑50        Forestry roads and timber mill buildings

40‑55        Environmental impact assessment

40‑60        Pooling under Subdivision 42‑L of the former Act

40‑65        Substituted accounting periods

40‑67        Methods for working out decline in value

40‑70        References to amounts deducted and reductions in deductions

40‑72        New diminishing value method not to apply in some cases

40‑75        Mining expenditure incurred after 1 July 2001 on an asset

40‑77        Mining, quarrying or prospecting rights or information held before 1 July 2001

40‑80        Other expenditure incurred after 1 July 2001 on a depreciating asset

40‑100      Commissioner’s determination of effective life

40‑105      Calculations of effective life

40‑10  Plant

             (1)  This section applies to you if:

                     (a)  you have deducted or can deduct amounts for plant under Division 42 of the Income Tax Assessment Act 1997 (the former Act) as in force just before it was amended by the New Business Tax System (Capital Allowances) Act 2001 and the New Business Tax System (Capital Allowances—Transitional and Consequential) Act 2001, or you could have deducted amounts under that Division for the plant if you had used it, or had it installed ready for use, for the purpose of producing assessable income before that day; and

                     (b)  either:

                              (i)  you hold the plant at 1 July 2001; or

                             (ii)  subparagraph (i) does not apply and you were the owner or quasi‑owner of the plant at the end of 30 June 2001.

             (2)  Division 40 of the Income Tax Assessment Act 1997 as amended by the New Business Tax System (Capital Allowances) Act 2001 and the New Business Tax System (Capital Allowances—Transitional and Consequential) Act 2001 (the new Act) applies to the plant on this basis:

                     (a)  the amount that was your undeducted cost at the end of 30 June 2001 becomes the plant’s opening adjustable value; and

                     (b)  you use the same cost, effective life and method that you were using under Division 42 of the former Act, or that you would have used if you had used the plant for the purpose of producing assessable income at the end of 30 June 2001; and

                     (c)  if you excluded an amount from your assessable income under section 42‑290 of the former Act for a balancing adjustment event that occurred on or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999—the cost of the plant, and its opening adjustable value, are reduced by that amount; and

                     (d)  if subparagraph (1)(b)(ii) applies to you—you are treated as the holder of the plant while you are its holder or while the circumstances under which you would have been the owner or quasi‑owner of the plant under the former Act continue.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

             (3)  If you were using a rate for the plant under subsection 42‑160(1) or 42‑165(1) of the former Act just before 1 July 2001, or would have been using such a rate if you had used it, or had it installed ready for use, for the purpose of producing assessable income before that day, Division 40 of the new Act applies to the plant on this basis:

                     (a)  for the diminishing value method—replace the component in the formula in subsection 40‑70(1) of the new Act that includes the plant’s effective life with the rate you were using; and

                     (b)  for the prime cost method:

                              (i)  replace the component in the formula in subsection 40‑75(1) of the new Act that includes the plant’s effective life with the rate you were using; and

                             (ii)  increase the plant’s cost under Division 42 of the former Act by any amounts included in the second element of the plant’s cost after 30 June 2001.

Note 1:       Recalculating effective life will have no practical effect for an entity to whom subsection (3) applies because the component in the relevant formula that relies on effective life has been replaced.

Note 2:       Small business entities can choose to work out the decline in value of their depreciating assets under Division 328.

40‑12  Plant acquired after 30 June 2001

             (1)  This section applies to you if:

                     (a)  you entered into a contract to acquire an item of plant before 1 July 2001 and you acquired it after 30 June 2001; or

                     (b)  you started to construct an item of plant before 1 July 2001 and you complete its construction after 30 June 2001.

             (2)  Division 40 of the new Act applies to the plant.

             (3)  If you entered into the contract, or started to construct the plant, at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, you replace the component in the formula in subsection 40‑70(1) or 40‑75(1) of the new Act that includes the plant’s effective life with the rate you would have been using if you had acquired it, or completed its construction, before 1 July 2001 and had used it, or had it installed ready for use, for the purpose of producing assessable income before that day.

40‑13  Accelerated depreciation for split or merged plant

             (1)  This section applies to a depreciating asset that is plant if:

                     (a)  you entered into a contract to acquire the plant, you otherwise acquired it or you started to construct it before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; and

                     (b)  you held it at the end of 30 June 2001; and

                     (c)  on or after 1 July 2001:

                              (i)  the plant is split into 2 or more depreciating assets; or

                             (ii)  the plant is merged into another depreciating asset.

             (2)  For a case where the plant is split into 2 or more depreciating assets, the new Act applies as if you had acquired the assets into which it is split before the time mentioned in paragraph (1)(a) while you continue to hold those assets.

             (3)  For a case where the plant is merged into another depreciating asset, section 40‑125 of the new Act does not apply to the asset, or to your interest in the asset, into which it is merged while you continue to hold it.

40‑15  Recalculating effective life

                   You cannot recalculate the effective life of a depreciating asset for which:

                     (a)  you were using, just before 1 July 2001, a rate under subsection 42‑160(1) or 42‑165(1) of the former Act; or

                     (b)  you would have been using such a rate if you had used the asset, or had it installed ready for use, for the purpose of producing assessable income before that day.

40‑20  IRUs

             (1)  This section applies to you if:

                     (a)  you have deducted or can deduct an amount for an IRU under Division 44 of the former Act or you would have been able to deduct an amount for it under that Division if you had used it for the purpose of producing assessable income before 1 July 2001; and

                     (b)  you hold the IRU at 1 July 2001.

             (2)  Division 40 of the new Act applies to the IRU on this basis:

                     (a)  you use the cost, effective life and method you were using under Division 44 of the former Act or that you would have used if you had used the IRU for the purpose of producing assessable income before 1 July 2001; and

                     (b)  the amount that was your undeducted cost of the IRU at the end of 30 June 2001 becomes the IRU’s opening adjustable value.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

40‑25  Software

             (1)  Despite its repeal by this Act, Division 46 of the former Act continues to apply to expenditure on software that you incurred and that was in a software pool under that Division at the end of 30 June 2001.

             (2)  For a unit of software for which you were deducting amounts under Subdivision 46‑B of the former Act or for which you could have deducted amounts under that Subdivision if you had used the software for the purpose of producing assessable income before 1 July 2001, Division 40 of the new Act applies to the unit on this basis:

                     (a)  its cost is the amount of expenditure you incurred on the unit; and

                     (b)  you must use the prime cost method; and

                     (c)  its opening adjustable value at 1 July 2001 is its undeducted cost at the end of 30 June 2001; and

                     (d)  you must use the same effective life you were using under Subdivision 46‑B of the former Act or that you would have used if you had used the software for the purpose of producing assessable income before 1 July 2001.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

40‑30  Spectrum licences

             (1)  This section applies to you if you have deducted or can deduct an amount under Division 380 of the former Act for expenditure incurred in obtaining a spectrum licence on or before 30 June 2001 or you could have deducted an amount under that Division for that expenditure if you had used the licence for the purpose of producing assessable income on or before that day.

             (2)  Division 40 of the new Act applies to the spectrum licence on this basis:

                     (a)  its cost is your expenditure incurred in obtaining the licence; and

                     (b)  its opening adjustable value at 1 July 2001 is the amount of unrecouped expenditure for the licence at the end of 30 June 2001; and

                     (c)  its effective life is the same as it had under the former Act; and

                     (d)  you must use the prime cost method.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

40‑33  Datacasting transmitter licences

             (1)  This section applies to you if you hold a datacasting transmitter licence at 1 July 2001.

             (2)  Division 40 of the new Act applies to the licence on this basis:

                     (a)  its cost is your expenditure incurred in obtaining the licence; and

                     (b)  its opening adjustable value at 1 July 2001 is its cost; and

                     (c)  its effective life is 15 years less any period that has elapsed from the day the licence was issued until 1 July 2001; and

                     (d)  you must use the prime cost method.

40‑35  Mining unrecouped expenditure

             (1)  This section applies to you if you have an amount of unrecouped expenditure under Division 330 of the former Act at the end of 30 June 2001.

Note:          Subsection (6) also applies to a case where you did not have unrecouped expenditure at 30 June 2001: see subsection (8).

             (2)  Division 40 of the new Act applies to the expenditure as if it were a depreciating asset (the notional asset) you hold on this basis:

                     (a)  it has an opening adjustable value at 1 July 2001 equal to the amount of unrecouped expenditure reduced by any deductions allowable under section 330‑80 of the former Act for your income year ending on 30 June 2001; and

                     (b)  it has a cost equal to the total amount of allowable capital expenditure under the former Act; and

                     (c)  in applying the formula in section 40‑75 of the new Act for the income year in which 1 July 2001 occurs—you use the adjustments in subsection 40‑75(3) of the new Act; and

                     (d)  it is taken to have been used for a taxable purpose at the start of 1 July 2001; and

                     (e)  it has a remaining effective life worked out under subsection (3); and

                      (f)  you must use the prime cost method.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

             (3)  The remaining effective life of the notional asset at the start of an income year (present income year) for which you are working out its decline in value is:

                     (a)  for an amount of unrecouped expenditure in respect of expenditure incurred in carrying on eligible mining operations other than in the course of petroleum mining is the lesser of these:

                              (i)  the number equal to the difference between 10 and the number of income years (which may be zero) before the present income year for which an amount in respect of expenditure was deductible;

                             (ii)  the number equal to the number of whole years in the estimated life of the mine, or proposed mine, on the mining property, or, if there is more than one such mine, of the mine that has the longest estimated life, as at the end of the present income year; or

                     (b)  for an amount of unrecouped expenditure in respect of expenditure incurred in carrying on eligible mining operations in the course of petroleum mining is the lesser of these:

                              (i)  the number equal to the difference between 10 and the number of income years (which may be zero) before the present income year for which an amount in respect of expenditure was deductible;

                             (ii)  the number equal to the number of whole years in the estimated life of the petroleum field or proposed petroleum field as at the end of the present income year; or

                     (c)  for an amount of unrecouped expenditure in respect of expenditure incurred in carrying on eligible quarrying operations the lesser of these:

                              (i)  the number equal to the difference between 20 and the number of income years (which may be zero) before the present income year for which an amount in respect of expenditure was deductible; and

                             (ii)  the number equal to the number of whole years in the estimated life of the quarry, or proposed quarry, on the quarrying property, or, if there is more than one such quarry, of the quarry that has the longest estimated life, as at the end of the present income year.

             (4)  Sections 40‑95 and 40‑110 of the new Act do not apply to the unrecouped expenditure.

             (5)  If either:

                     (a)  both of these subparagraphs apply:

                              (i)  any of the unrecouped expenditure referred to in subsection (1) relates to a depreciating asset (the real asset);

                             (ii)  in an income year (the cessation year) you stop holding the real asset, or stop using it for a taxable purpose; or

                     (b)  both of these subparagraphs apply:

                              (i)  any of the unrecouped expenditure referred to in subsection (1) relates to property that is not a depreciating asset (the other property);

                             (ii)  in the cessation year, the other property is disposed of, lost or destroyed, or you stop using it for a taxable purpose;

there is an additional decline in value of the notional asset for the cessation year equal to so much of the notional asset’s adjustable value as relates to the real asset or the other property and has not been taken into account in working out the amount of a balancing adjustment in relation to the real asset.

             (6)  If the other property is disposed of, lost or destroyed, or you stop using it for a taxable purpose, you must include in your assessable income:

                     (a)  if the other property is sold for a price specific to that property—that price, less the expenses of the sale (to the extent the expenses are reasonably attributable to selling that particular property); or

                     (b)  if the other property is sold with additional property without a specific price being allocated to it—the part of the total sale price, less the reasonably attributable expenses of the sale, that is reasonably attributable to selling the other property; or

                     (c)  if the other property is lost or destroyed—the amount or value received or receivable under an insurance policy or otherwise for the loss or destruction; or

                     (d)  if you own the other property and you stop using it for a taxable purpose—its market value at that time; or

                     (e)  if you do not own the property and you stop using it for a taxable purpose—a reasonable amount.

However, the amount included is reduced to the extent (if any) that it is also included under subsection 40‑830(6) of the new Act.

             (7)  If section 40‑115 of the new Act applies, or section 40‑125 of the new Act would, apart from this subsection, apply, to the real asset referred to in subsection (5) of this section, then:

                     (a)  if the real asset is split into 2 or more depreciating assets and you stop holding, or stop using for a taxable purpose, one or more but not all of the assets into which it is split—subsection (5) does not apply to that asset or assets into which it is split that you continue to hold and continue to use for a taxable purpose; or

                     (b)  if the real asset is merged into another depreciating asset—section 40‑125 does not apply to the asset into which it is merged while you continue to hold it.

             (8)  Subsection (6) also applies to a case where:

                     (a)  you did not have an amount of unrecouped expenditure under Division 330 of the former Act at the end of 30 June 2001, but you had an amount of unrecouped expenditure under that Division before 30 June 2001; and

                     (b)  that expenditure relates to property that is not a depreciating asset (the other property); and

                     (c)  after that day, the other property is disposed of, lost or destroyed, or you stop using it for a taxable purpose.

40‑37  Post‑30 June 2001 mining expenditure

             (1)  This section applies to you if:

                     (a)  you incur expenditure after 30 June 2001 under a contract entered into before that day; and

                     (b)  the expenditure would have been allowable capital expenditure, and you could have deducted an amount for it, under Division 330 of the former Act if you had incurred it before 1 July 2001; and

                     (c)  the expenditure does not relate to a depreciating asset.

             (2)  Division 40 of the new Act applies to the expenditure as if it were a depreciating asset (the notional asset) you hold on this basis:

                     (a)  it has a cost at the time you incur the expenditure equal to the amount of the expenditure; and

                     (b)  in applying the formula in section 40‑75 of the new Act for the income year in which you incur the expenditure—you use the adjustments in subsection 40‑75(3) of the new Act; and

                     (c)  it is taken to be used for a taxable purpose when you incur the expenditure; and

                     (d)  it has an effective life worked out under subsection (3); and

                     (e)  you must use the prime cost method.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

             (3)  The effective life of the notional asset at the start of an income year (present income year) for which you are working out its decline in value is:

                     (a)  for an amount of expenditure incurred in carrying on eligible mining operations other than in the course of petroleum mining—the lesser of 10 and the number equal to the number of whole years in the estimated life of the mine, or proposed mine, on the mining property, or, if there is more than one such mine, of the mine that has the longest estimated life, as at the end of the present income year; or

                     (b)  for an amount of expenditure incurred in carrying on eligible mining operations in the course of petroleum mining—the lesser of 10 and the number equal to the number of whole years in the estimated life of the petroleum field or proposed petroleum field as at the end of the present income year; or

                     (c)  for an amount of expenditure incurred in carrying on eligible quarrying operations—the lesser of 20 and the number equal to the number of whole years in the estimated life of the quarry, or proposed quarry, on the quarrying property, or, if there is more than one such quarry, of the quarry that has the longest estimated life, as at the end of the present income year.

             (4)  Sections 40‑95 and 40‑110 of the new Act do not apply to the expenditure.

             (5)  If both of these paragraphs apply:

                     (a)  any of the expenditure referred to in subsection (1) relates to property that is not a depreciating asset (the other property);

                     (b)  in an income year (the cessation year), the other property is disposed of, lost or destroyed, or you stop using it for a taxable purpose;

there is an additional decline in value of the notional asset for the cessation year equal to so much of the notional asset’s adjustable value as relates to the other property.

             (6)  If the other property is disposed of, lost or destroyed, or you stop using it for a taxable purpose, you must include in your assessable income:

                     (a)  if the other property is sold for a price specific to that property—that price, less the expenses of the sale (to the extent the expenses are reasonably attributable to selling that particular property); or

                     (b)  if the other property is sold with additional property without a specific price being allocated to it—the part of the total sale price, less the reasonably attributable expenses of the sale, that is reasonably attributable to selling the other property; or

                     (c)  if the other property is lost or destroyed—the amount or value received or receivable under an insurance policy or otherwise for the loss or destruction; or

                     (d)  if you own the other property and you stop using it for a taxable purpose—its market value at that time; or

                     (e)  if you do not own the property and you stop using it for a taxable purpose—a reasonable amount.

However, the amount included is reduced to the extent (if any) that it is also included under subsection 40‑830(6) of the new Act.

40‑38  Mining cash bidding payments

             (1)  This section applies to expenditure you incur, under a contract entered into before 30 June 2001, if:

                     (a)  the expenditure would have been a mining cash bidding payment under Subdivision 330‑D of the former Act; and

                     (b)  either:

                              (i)  you incurred the expenditure before that day but the grant of the mining authority concerned occurred on a day (the start day) after 30 June 2001; or

                             (ii)  the grant of the mining authority concerned occurred before 30 June 2001 but you incurred the expenditure on a day (also the start day) after 30 June 2001.

             (2)  Division 40 of the new Act applies to the expenditure as if it were a depreciating asset (the notional asset) you hold on this basis:

                     (a)  it has a cost at the start day equal to the amount of the expenditure; and

                     (b)  in applying the formula in section 40‑75 of the new Act for the income year in which the start day occurs—you use the adjustments in subsection 40‑75(3) of the new Act; and

                     (c)  it is taken to be used for a taxable purpose on the start day; and

                     (d)  it has an effective life worked out under subsection (3); and

                     (e)  you must use the prime cost method.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

             (3)  The effective life of the notional asset at the start of an income year (present income year) for which you are working out its decline in value is:

                     (a)  for an amount of expenditure incurred in carrying on eligible mining operations other than in the course of petroleum mining—the lesser of 10 and the number equal to the number of whole years in the estimated life of the mine, or proposed mine, on the mining property, or, if there is more than one such mine, of the mine that has the longest estimated life, as at the end of the present income year; or

                     (b)  for an amount of expenditure incurred in carrying on eligible mining operations in the course of petroleum mining—the lesser of 10 and the number equal to the number of whole years in the estimated life of the petroleum field or proposed petroleum field as at the end of the present income year.

             (4)  Sections 40‑95 and 40‑110 of the new Act do not apply to the expenditure.

             (5)  If both of these paragraphs apply:

                     (a)  any of the expenditure referred to in subsection (1) relates to a depreciating asset (the real asset);

                     (b)  in an income year (the cessation year) you stop holding the real asset, or stop using it for a taxable purpose;

there is an additional decline in value of the notional asset for the cessation year equal to so much of the notional asset’s adjustable value as relates to the real asset and has not been taken into account in working out the amount of a balancing adjustment in relation to the real asset.

             (6)  If section 40‑115 of the new Act applies, or section 40‑125 of the new Act would, apart from this subsection, apply, to the real asset referred to in subsection (5) of this section, then:

                     (a)  if the real asset is split into 2 or more depreciating assets and you stop holding, or stop using for a taxable purpose, one or more but not all of the assets into which it is split—subsection (5) does not apply to that asset or assets into which it is split that you continue to hold and continue to use for a taxable purpose; or

                     (b)  if the real asset is merged into another depreciating asset—section 40‑125 does not apply to the asset into which it is merged while you continue to hold it.

40‑40  Transport expenditure

             (1)  This section applies to you if you have deducted or can deduct an amount for transport capital expenditure in respect of a transport facility under Subdivision 330‑H of the former Act, or you could have deducted an amount for the expenditure under that Subdivision if you had started to use the facility for a qualifying purpose before 1 July 2001.

             (2)  Division 40 of the new Act applies to the expenditure as if it were a depreciating asset (the notional asset) you hold on this basis:

                     (a)  it has an opening adjustable value at 1 July 2001 equal to the total amount of transport capital expenditure under the former Act less the amounts you have deducted or can deduct for that expenditure under the former Act; and

                     (b)  it has a cost equal to the total amount of transport capital expenditure under the former Act; and

                     (c)  in applying the formula in section 40‑75 of the new Act for your income year in which 1 July 2001 occurs—you use the adjustments in subsection 40‑75(3) of the new Act; and

                    (ca)  it is taken to have been used for a taxable purpose at the start of 1 July 2001; and

                     (d)  it has an effective life at the start of 1 July 2001 equal to the years remaining for the expenditure under section 330‑395 of the former Act; and

                     (e)  you must use the prime cost method.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

             (3)  Sections 40‑95 and 40‑110 of the new Act do not apply to the expenditure.

             (4)  If either:

                     (a)  both of these subparagraphs apply:

                              (i)  any of the transport capital expenditure referred to in subsection (1) relates to a depreciating asset (the real asset);

                             (ii)  in an income year (the cessation year) you stop holding the real asset, or stop using it for a taxable purpose; or

                     (b)  both of these subparagraphs apply:

                              (i)  any of the transport capital expenditure referred to in subsection (1) relates to property that is not a depreciating asset (the other property);

                             (ii)  in the cessation year, the other property is disposed of, lost or destroyed, or you stop using it for a taxable purpose;

there is an additional decline in value of the notional asset for the cessation year equal to so much of the notional asset’s adjustable value as relates to the real asset or the other property and has not been taken into account in working out the amount of a balancing adjustment in relation to the real asset.

             (5)  If the other property is disposed of, lost or destroyed, or you stop using it for a taxable purpose, you must include in your assessable income:

                     (a)  if the other property is sold for a price specific to that property—that price, less the expenses of the sale (to the extent the expenses are reasonably attributable to selling that particular property); or

                     (b)  if the other property is sold with additional property without a specific price being allocated to it—the part of the total sale price, less the reasonably attributable expenses of the sale, that is reasonably attributable to selling the other property; or

                     (c)  if the other property is lost or destroyed—the amount or value received or receivable under an insurance policy or otherwise for the loss or destruction; or

                     (d)  if you own the other property and you stop using it for a taxable purpose—its market value at that time; or

                     (e)  if you do not own the property and you stop using it for a taxable purpose—a reasonable amount.

However, the amount included is reduced to the extent (if any) that it is also included under subsection 40‑830(6) of the new Act.

             (6)  If section 40‑115 of the new Act applies, or section 40‑125 of the new Act would, apart from this subsection, apply, to the real asset referred to in subsection (4) of this section, then:

                     (a)  if the real asset is split into 2 or more depreciating assets and you stop holding, or stop using for a taxable purpose, one or more but not all of the assets into which it is split—subsection (4) does not apply to that asset or assets into which it is split that you continue to hold and continue to use for a taxable purpose; or

                     (b)  if the real asset is merged into another depreciating asset—section 40‑125 does not apply to the asset into which it is merged while you continue to hold it.

40‑43  Post‑30 June 2001 transport expenditure

             (1)  This section applies to you if:

                     (a)  you incur expenditure after 30 June 2001 under a contract entered into before that day; and

                     (b)  the expenditure would have been transport capital expenditure in respect of a transport facility, and you could have deducted an amount for it, under Subdivision 330‑H of the former Act if you had incurred it before 1 July 2001 and you had started to use the facility for a qualifying purpose before 1 July 2001; and

                     (c)  the expenditure does not relate to a depreciating asset.

             (2)  Division 40 of the new Act applies to the expenditure as if it were a depreciating asset (the notional asset) you hold on this basis:

                     (a)  it has a cost at the time you incur the expenditure equal to the amount of the expenditure; and

                     (b)  in applying the formula in section 40‑75 of the new Act for your income year in which you incur the expenditure—you use the adjustments in subsection 40‑75(3) of the new Act; and

                     (c)  it is taken to have been used for a taxable purpose when you incur the expenditure; and

                     (d)  it has an effective life when you incur the expenditure equal to the years remaining for the expenditure under section 330‑395 of the former Act; and

                     (e)  you must use the prime cost method.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

             (3)  Sections 40‑95 and 40‑110 of the new Act do not apply to the expenditure.

             (4)  If both of these paragraphs apply:

                     (a)  any of the expenditure referred to in subsection (1) relates to property that is not a depreciating asset (the other property);

                     (b)  in an income year (the cessation year), the other property is disposed of, lost or destroyed, or you stop using it for a taxable purpose;

there is an additional decline in value of the notional asset for the cessation year equal to so much of the notional asset’s adjustable value as relates to the other property.

             (5)  If the other property is disposed of, lost or destroyed, or you stop using it for a taxable purpose, you must include in your assessable income:

                     (a)  if the other property is sold for a price specific to that property—that price, less the expenses of the sale (to the extent the expenses are reasonably attributable to selling that particular property); or

                     (b)  if the other property is sold with additional property without a specific price being allocated to it—the part of the total sale price, less the reasonably attributable expenses of the sale, that is reasonably attributable to selling the other property; or

                     (c)  if the other property is lost or destroyed—the amount or value received or receivable under an insurance policy or otherwise for the loss or destruction; or

                     (d)  if you own the other property and you stop using it for a taxable purpose—its market value at that time; or

                     (e)  if you do not own the property and you stop using it for a taxable purpose—a reasonable amount.

However, the amount included is reduced to the extent (if any) that it is also included under subsection 40‑830(6) of the new Act.

40‑44  No additional decline in certain cases

             (1)  Despite subsections 40‑35(5), 40‑38(5) and 40‑40(4), there is no additional decline in the value of the notional asset referred to in those subsections if:

                     (a)  apart from this section, subsection 40‑35(5), 40‑38(5) or 40‑40(4) would apply because the real asset referred to in that subsection is disposed of; and

                     (b)  roll‑over relief is chosen under subsection 40‑340(3) of the Income Tax Assessment Act 1997 for the disposal.

             (2)  Instead, the cost to the transferee of that real asset is the sum of:

                     (a)  the adjustable value of that real asset; and

                     (b)  the adjustable value of the notional asset referred to in subsection 40‑35(5), 40‑38(5) or 40‑40(4);

just before the disposal.

40‑45  Intellectual property

             (1)  This section applies to you if:

                     (a)  at the end of 30 June 2001, you hold an item of intellectual property referred to in the table in section 373‑35 of the former Act; and

                     (b)  you have deducted or can deduct an amount for expenditure on the asset under Division 373 of the former Act or you could have deducted an amount under that Division for that expenditure if you had used the asset for the purpose of producing assessable income on or before that day.

             (2)  Division 40 of the new Act applies to the item on this basis:

                     (a)  it has an opening adjustable value at 1 July 2001 equal to its unrecouped expenditure under the former Act at the end of 30 June 2001; and

                     (b)  its cost is its original unrecouped expenditure under the former Act; and

                     (c)  its effective life is the same as it had under the former Act; and

                     (d)  you must use the prime cost method.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

40‑47  IRUs

             (1)  Division 40 of the new Act does not apply to an IRU to the extent to which expenditure on the IRU was incurred at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999 (the IRU time).

             (2)  Division 40 of the new Act does not apply to an IRU over an international telecommunications submarine cable system if the system had been used for telecommunications purposes at or before the IRU time.

40‑50  Forestry roads and timber mill buildings

             (1)  This section applies to you if:

                     (a)  you have deducted or can deduct an amount under Subdivision 387‑G of the former Act for an amount (the qualifying amount) of expenditure on a forestry road or timber mill building or could have deducted an amount under that Subdivision if you had used the road or building for the purpose of producing assessable income; and

                     (b)  you hold the road or building at the end of 30 June 2001.

             (2)  Division 40 of the new Act applies to the asset on this basis:

                     (a)  it has an opening adjustable value at 1 July 2001 equal to the qualifying amount less any amounts you have deducted or can deduct for it under the former Act; and

                     (b)  in applying the formula in section 40‑75 of the new Act for your income year in which 1 July 2001 occurs—you use the adjustments in subsection 40‑75(3) of the new Act; and

                     (c)  its cost is the qualifying amount; and

                     (d)  it has an effective life equal to the remaining life you last estimated for it under the former Act; and

                     (e)  you can recalculate its effective life if you conclude that your estimate is no longer accurate (except that the effective life cannot exceed 25 years); and

                      (f)  you must use the prime cost method.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

40‑55  Environmental impact assessment

             (1)  This section applies to you if you have deducted or can deduct an amount under Subdivision 400‑A of the former Act for an amount (the qualifying amount) of expenditure on or before 30 June 2001 on evaluating the impact on the environment of a project under Subdivision 400‑A of the former Act.

             (2)  Division 40 of the new Act applies to the qualifying amount as if it were a depreciating asset on this basis:

                     (a)  it has an opening adjustable value at 1 July 2001 equal to the qualifying amount less any amounts you have deducted or can deduct for it under the former Act or the Income Tax Assessment Act 1936; and

                     (b)  it has a cost equal to the qualifying amount; and

                     (c)  it has an effective life equal to the number of years for which you could deduct for the qualifying amount worked out under subsection 400‑15(3) of the former Act; and

                     (d)  you must use the prime cost method.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

40‑60  Pooling under Subdivision 42‑L of the former Act

             (1)  Units of plant that you had allocated to a pool under Subdivision 42‑L of the former Act and that were allocated to the pool by 30 June 2001 are treated as a single depreciating asset for the purposes of Division 40 of the new Act.

             (2)  Division 40 of the new Act applies to the single depreciating asset on this basis:

                     (a)  its cost and opening adjustable value at 1 July 2001 is the closing balance of the pool for your income year in which 30 June 2001 occurred; and

                     (b)  you must use the diminishing value method; and

                     (c)  in applying the formula in section 40‑70 of the new Act for your income year in which 1 July 2001 occurs—it has a base value equal to that opening adjustable value; and

                     (d)  you replace the component in the formula in subsection 40‑70(1) of the new Act that includes an asset’s effective life with the pool percentage you were using for the pool; and

                     (e)  if an item of plant is removed from the pool because a balancing adjustment event occurs for the item or because of subsection (3) of this section, section 40‑115 of the new Act applies so that you are treated as having split the single depreciating asset into the removed asset and the remaining assets in the pool; and

                      (f)  if an amount is included in the second element of the cost of a depreciating asset in the pool, Division 40 of the new Act applies as if that amount had been included in the second element of the cost of the single asset.

Note:          There are special rules for entities that have substituted accounting periods: see section 40‑65.

             (3)  An item of plant in the pool is automatically removed from the pool if you stop using it wholly for taxable purposes (except because a balancing adjustment event occurs for the item).

Note 1:       You work out the decline in value of an item removed under this subsection under Subdivision 40‑B of the new Act, using the cost for it worked out under section 40‑205 of the new Act.

Note 2:       There are special rules for entities that have substituted accounting periods: see section 40‑65.

40‑65  Substituted accounting periods

             (1)  This section sets out special rules for the application of Division 40 of the new Act to an entity that:

                     (a)  has a substituted accounting period; and

                     (b)  because of a provision of this Subdivision, uses Division 40 of the new Act to work out the decline in value of an asset, or of something that is treated as an asset.

             (2)  The entity works out its deductions for its income year that includes 1 July 2001 (the calculation year) in this way:

                     (a)  the entity works out its deductions for that asset under the former Act as from the start of its calculation year up to the end of 30 June 2001 as if that period were an income year; and

                     (b)  the entity works out the decline in value of the asset under Division 40 of the new Act from 1 July 2001 until the end of its calculation year as if that period were an income year in accordance with the following provisions of this section.

             (3)  The asset’s opening adjustable value for the purposes of Division 40 of the new Act is:

                     (a)  for a unit of plant (including IRUs and expenditure on software that is not pooled)—its undeducted cost at the end of 30 June 2001; or

                     (b)  for expenditure on eligible mining or quarrying operations, an item of intellectual property or a spectrum licence—the amount of unrecouped expenditure for the expenditure, item or licence under the former Act at the end of 30 June 2001 reduced, in the case of eligible mining or quarrying operations, by an amount you have deducted or can deduct for the calculation year under the former Act and not yet taken into account in calculating unrecouped expenditure; or

                     (c)  for transport capital expenditure—the entity’s amount of transport capital expenditure under the former Act at the end of 30 June 2001 less any amounts the entity has deducted or can deduct for it under the former Act up to that time; or

                     (d)  for expenditure on a forestry road, a timber mill building, a horticultural plant or a grapevine—the amount of that expenditure less any amounts the entity has deducted or can deduct for it under the former Act up to 30 June 2001; or

                     (e)  for expenditure on evaluating the impact on the environment of a project—the amount of that expenditure less any amounts the entity has deducted or can deduct for it under the former Act up to 30 June 2001; or

                      (f)  for assets that were pooled under Subdivision 42‑M or 42‑L of the former Act—the closing balance of the pool at the end of 30 June 2001.

             (4)  The asset’s base value for applying the formula in section 40‑70 of the new Act for the diminishing value method is that opening adjustable value.

             (5)  The decline in value for the assets referred to in this subsection is worked out using the prime cost method without the adjustments in subsection 40‑75(3) of the new Act, and the opening adjustable value specified in subsection (3) of this section, in this way:

                     (a)  for an item of plant for which you were using the prime cost method—using the rules in section 40‑10 of this Act; and

                     (b)  for an IRU for which you were using the prime cost method—using the rules in section 40‑20 of this Act; and

                     (c)  for a unit of software for which the entity was deducting amounts under Subdivision 46‑B of the former Act—using the rules in subsection 40‑25(2) of this Act; and

                     (d)  for a spectrum licence—using the rules in section 40‑30 of this Act; and

                     (e)  for an item of intellectual property—using the rules in section 40‑45 of this Act; and

                      (f)  for an amount of expenditure on evaluating the impact on the environment of a project—using the rules in section 40‑55 of this Act.

             (6)  The decline in value for the assets referred to in this subsection is worked out using the prime cost method using the adjustments in subsection 40‑75(3) of the new Act, and the opening adjustable value specified in subsection (3) of this section, in this way:

                     (a)  for an amount of unrecouped expenditure under Division 330 of the former Act—using the rules in section 40‑35 of this Act; and

                     (b)  for an amount of transport capital expenditure under Division 330 of the former Act—using the rules in section 40‑40 of this Act; and

                     (c)  for a forestry road or timber mill building—using the rules in section 40‑50 of this Act.

             (7)  The entity must work out the decline in value of each of the assets for later income years under Division 40 of the new Act.

             (8)  The entity must, in working out its deductions under this section for the calculation year for:

                     (a)  allowable capital expenditure for which the entity had deducted or can deduct an amount under Subdivision 330‑C of the former Act; or

                     (b)  transport capital expenditure for which the entity had deducted or can deduct an amount under Subdivision 330‑H of the former Act; or

                     (c)  a water facility for which the entity had deducted or can deduct an amount under Subdivision 387‑B of the former Act; or

                     (d)  expenditure on connecting power to land or upgrading the connection for which the entity had deducted or can deduct an amount under Subdivision 387‑E of the former Act; or

                     (e)  expenditure on a telephone line on or extending to land for which the entity had deducted or can deduct an amount under Subdivision 387‑E of the former Act;

reduce its deductions for each of the periods referred to in paragraphs (2)(a) and (b) by multiplying the deduction for that period by the number of days in that period and dividing the result by 365.

             (9)  The entity cannot deduct anything for an asset referred to in this section under the former Act for any part of its calculation year after 30 June 2001.

           (10)  You are entitled to a further deduction for a depreciating asset for which you are using the diminishing value method if the sum of the deductions worked out under paragraphs (2)(a) and (b) (the sum amount) is less than the deduction to which you would have been entitled for the asset if the former Act had continued to apply to the whole of the calculation year (the former Act amount).

           (11)  You increase the amount worked out under paragraph (2)(b) by the difference between the former Act amount and the sum amount.

40‑67  Methods for working out decline in value

             (1)  Subsections 40‑65(6) and (7) of the Income Tax Assessment Act 1997 apply with the changes set out in this section if either or both of the following events have happened:

                     (a)  you have deducted one or more amounts under former section 73BA of the Income Tax Assessment Act 1936 for an asset;

                     (b)  you could have deducted one or more amounts under that former section for the asset if you had not chosen tax offsets under former section 73I of that Act.

             (2)  Assume:

                     (a)  paragraph 40‑65(6)(a) of the Income Tax Assessment Act 1997 included both events set out in subsection (1) of this section; and

                     (b)  subsections 40‑65(6) and (7) of that Act deal with all 4 kinds of events in a corresponding way to the way that they deal with 2 kinds of events.

40‑70  References to amounts deducted and reductions in deductions

             (1)  A reference in the new Act to an amount that you have deducted or can deduct for a depreciating asset under Division 40 of the new Act includes a reference to an amount that you have deducted or can deduct for a capital allowance relating to the asset under the former Act or the Income Tax Assessment Act 1936.

             (2)  An amount you have deducted or can deduct for a water facility under Subdivision 387‑B of the former Act or former section 75B of the Income Tax Assessment Act 1936 is taken to have been deducted under Subdivision 40‑F of the new Act.

             (3)  A reference in the new Act to a reduction in your deduction for a depreciating asset includes a reference to amounts by which your deductions for the asset were reduced under the former Act or the Income Tax Assessment Act 1936.

40‑72  New diminishing value method not to apply in some cases

             (1)  If:

                     (a)  you are taken to start holding a depreciating asset on or after 10 May 2006 because of section 40‑115 (about splitting a depreciating asset) or 40‑125 (about merging depreciating assets) of the Income Tax Assessment Act 1997; and

                     (b)  it is reasonable to conclude that you split the asset or merged the assets for the main purpose of ensuring that the decline in value of the asset or assets (after the splitting or merging) would be worked out under section 40‑72 of that Act;

that Act applies to you as if you had started to hold the split or merged asset or assets before 10 May 2006.

             (2)  The Income Tax Assessment Act 1997 applies to you as if you had started to hold a depreciating asset before 10 May 2006 if:

                     (a)  you had actually started to hold it before that day; and

                     (b)  on or after 10 May 2006, you stop holding the depreciating asset; and

                     (c)  it is reasonable to conclude that you did this for the main purpose of ensuring that the decline in value of the asset would be worked out under section 40‑72 of that Act.

             (3)  The Income Tax Assessment Act 1997 applies to you as if you had started to hold a depreciating asset (the substituted asset) before 10 May 2006 if:

                     (a)  you started to hold the substituted asset on or after that day under an arrangement; and

                     (b)  the substituted asset is identical to or has a purpose similar to another depreciating asset that another entity acquired from you on or after that day under that arrangement; and

                     (c)  you did not deal with the other entity at arm’s length; and

                     (d)  it is reasonable to conclude that you entered into the arrangement for the main purpose of ensuring that the decline in value of the substituted asset would be worked out under section 40‑72 of that Act.

40‑75  Mining expenditure incurred after 1 July 2001 on an asset

             (1)  This section applies to you if:

                     (a)  you hold a depreciating asset (except a mining, quarrying or prospecting right that you started to hold before 1 July 2001) that you:

                              (i)  started to hold under a contract entered into before 1 July 2001; or

                             (ii)  constructed where the construction started before that day; or

                            (iii)  started to hold in some other way before that day; and

                     (b)  your expenditure on the asset, whenever incurred, would have been allowable capital expenditure, transport capital expenditure or expenditure on exploration or prospecting within the meaning of Division 330 of the former Act if it had been incurred before 1 July 2001.

             (2)  If you incur expenditure on the asset after 30 June 2001 that forms part of the cost of the asset, you can deduct the expenditure for the income year in which you incur it if it would have been expenditure on exploration or prospecting within the meaning of Division 330 of the former Act.

             (3)  Otherwise, Subdivision 40‑B of the new Act applies to the asset on the basis that it has a cost, and an adjustable value, of zero at the start of 1 July 2001, and an effective life on that day or at its start time, whichever is the later, worked out under subsection (4) of this section.

             (4)  The effective life of the depreciating asset is the shorter of its effective life worked out under Division 40 and:

                     (a)  if the expenditure on the asset was incurred in relation to eligible mining operations other than in the course of petroleum mining—the shorter of:

                              (i)  10 years; and

                             (ii)  the number of whole years in the estimated life of the mine or proposed mine to which the expenditure relates or, if there is more than one such mine, of the mine that has the longest estimated life; or

                     (b)  if the expenditure on the asset was incurred in relation to eligible mining operations in the course of petroleum mining—the shorter of:

                              (i)  10 years; and

                             (ii)  the number of whole years in the estimated life of the petroleum field or proposed petroleum field to which the expenditure relates; or

                     (c)  if the expenditure on the asset was incurred in relation to eligible quarrying operations—the shorter of:

                              (i)  20 years; or

                             (ii)  the number of whole years in the estimated life of the quarry or proposed quarry to which the expenditure relates or, if there is more than one such quarry, of the quarry that has the longest estimated life.

40‑77  Mining, quarrying or prospecting rights or information held before 1 July 2001

             (1)  Division 40 of the new Act does not apply to a mining, quarrying or prospecting right that you started to hold before 1 July 2001.

Note:          If you incur expenditure relating to assets of that kind, you cannot deduct it under Division 40. However, the expenditure may be taken into account in calculating a capital gain or capital loss under Part 3‑1 or 3‑3 of the Income Tax Assessment Act 1997.

          (1A)  Division 40 of the new Act does not apply to a renewal or extension of a mining, quarrying or prospecting right that you started to hold before 1 July 2001.

          (1B)  Subsection (1) applies to a mining, quarrying or prospecting right (the new right) that you start to hold on or after 1 July 2001 as if you had started to hold the new right before that day if:

                     (a)  you started to hold another mining, quarrying or prospecting right before that day; and

                     (b)  the other right ends on or after that day; and

                     (c)  the new right and the other right relate to the same area, or any difference in area is not significant.

          (1C)  Division 40 of the new Act does not apply to a mining, quarrying or prospecting right if:

                     (a)  a company (the original holder) started to hold the right before 1 July 2001; and

                     (b)  the right is transferred after that day to another company where:

                              (i)  the other company is a member of the same wholly‑owned group as the original holder and was a member of that group just before that day; and

                             (ii)  the right was held in the period between that day and the time of the transfer by a company or companies that were members of that group on that day and at the time of the transfer.

          (1D)  Division 40 of the new Act does not apply to an interest in a mining, quarrying or prospecting right that you started to hold on or after 1 July 2001 if:

                     (a)  you acquired the interest under an interest realignment arrangement; and

                     (b)  the interest was acquired in exchange for one or more other interests in other mining, quarrying or prospecting rights all of which you had started to hold before 1 July 2001.

          (1E)  If:

                     (a)  you acquired, under an interest realignment arrangement, an interest (a new interest) in a mining, quarrying or prospecting right; and

                     (b)  the interest was acquired in exchange for one or more other interests (old interests) in other mining, quarrying or prospecting rights; and

                     (c)  you started to hold some of the old interests before 1 July 2001;

Division 40 of the new Act applies to the new interest only to the extent that the new interest was acquired in exchange for the old interests that you started to hold on or after 1 July 2001.

             (2)  If, after 30 June 2001:

                     (a)  you dispose of a mining, quarrying or prospecting right that you started to hold before 1 July 2001 to an associate of yours (except a company that is a member of the same wholly‑owned group); or

                     (b)  you enter into an arrangement in relation to such a right under which you maintain, in essence, the economic ownership of the right but not its legal ownership;

the cost of the right to the purchaser is limited, for the purposes of Division 40 of the new Act, to a maximum of the costs that would have been deductible for the right under Division 330 of the former Act.

             (3)  An amount that would be included in your assessable income under section 15‑40 or subsection 40‑285(1) of the new Act in respect of mining, quarrying or prospecting information you started to hold before 1 July 2001 is reduced (but not below zero) by so much of the capital cost of acquiring the information that you incurred before that day and that:

                     (a)  you have not deducted and cannot deduct (either immediately or over time) under the former Act; and

                     (b)  did not form part of allowable capital expenditure under the former Act; and

                     (c)  did not entitle you to a deduction under section 330‑235 of the former Act;

but only to the extent that you have not already applied the amount under this section.

             (4)  Your assessable income includes an amount if:

                     (a)  after 1 July 2001, you stop holding a mining, quarrying or prospecting right that you started to hold before that day; and

                     (b)  you have deducted or can deduct an amount for it under Subdivision 330‑C in relation to Subdivision 330‑D or 330‑E of the former Act.

The amount included is the amount you have deducted or can deduct.

             (5)  Your assessable income also includes an amount if:

                     (a)  after 1 July 2001, you stop holding a mining, quarrying or prospecting right that you started to hold before that day; and

                     (b)  because of section 40‑35 or 40‑38 of this Act, you have deducted or can deduct an amount for a notional asset that relates to expenditure on the right under Division 40 of the new Act.

The amount included is the amount you have deducted or can deduct.

             (6)  Division 110 of the new Act applies as if an amount included in assessable income under subsection (4) or (5) of this section were the reversal of a deduction under a provision of the new Act outside Parts 3‑1 and 3‑3 and Division 243.

             (7)  An amount that would be included in your assessable income under subsection 40‑285(1) of the new Act in respect of a mining, quarrying or prospecting right is reduced by an amount worked out under subsection (8) if:

                     (a)  you acquired the right from an associate (except a company that is a member of the same wholly‑owned group) on or after 1 July 2001; and

                     (b)  the associate started to hold the right before that day.

             (8)  The amount is reduced (but not below zero) by the difference between the capital cost that you incurred after that day and the amount to which the cost of the right is limited under subsection (2) of this section.

40‑80  Other expenditure incurred after 1 July 2001 on a depreciating asset

             (1)  This section applies to you if:

                     (a)  you incur expenditure after 30 June 2001 that forms part of the cost of a depreciating asset; and

                     (b)  the depreciating asset is one that you:

                              (i)  started to hold under a contract entered into before 1 July 2001; or

                             (ii)  constructed where the construction started before that day; or

                            (iii)  started to hold in some other way before that day; and

                     (c)  if you had incurred the expenditure before 1 July 2001, and had satisfied any relevant requirement for deductibility, you would have been able to deduct an amount for it under Division 44, 373 or 380, or Subdivision 46‑B or 387‑G, of the former Act.

             (2)  Subdivision 40‑B of the new Act applies to the asset on the basis that it has a cost, and an adjustable value, of zero at the start of 1 July 2001.

40‑100  Commissioner’s determination of effective life

                   A determination by the Commissioner of the effective life of an asset that was made under section 42‑110 of the former Act and that was in force at the end of 30 June 2001 has effect as if it had been made under section 40‑100 of the new Act.

40‑105  Calculations of effective life

             (1)  This section applies to the following (the instrument):

                     (a)  a determination under section 40‑100 of the Income Tax Assessment Act 1997 of the effective life of an asset;

                     (b)  a calculation under section 40‑105 of that Act of the effective life of an asset;

if the instrument was in force immediately before the commencement of Schedule 1 to the Tax Laws Amendment (Research and Development) Act 2011.

             (2)  The instrument has effect, after that commencement, as if it had been made under that section as amended by the Tax Laws Amendment (Research and Development) Act 2011.

Subdivision 40‑BABacking business investment

Table of sections

40‑120      Backing business investment—accelerated decline in value for businesses with turnover less than $500 million

40‑125      Backing business investment—when an asset of yours qualifies

40‑130      Method for working out accelerated decline in value

40‑135      Division 40 of the Income Tax Assessment Act 1997 applies to later years

40‑137      Choice to not apply this Subdivision to an asset

40‑120  Backing business investment—accelerated decline in value for businesses with turnover less than $500 million

             (1)  For the purposes of Division 40 of the Income Tax Assessment Act 1997, the decline in value of a depreciating asset for an income year is the amount worked out under section 40‑130 if:

                     (a)  the income year is the year in which you start to use the asset, or have it installed ready for use, for a taxable purpose; and

                     (b)  subsection (2) (about businesses with turnover less than $500 million) applies to you for the year and for the income year in which you started to hold the asset (if that was an earlier year); and

                     (c)  you are covered by section 40‑125 for the asset; and

                     (d)  you have not made a choice under section 40‑137 in relation to the income year.

Note 1:       An effect of paragraph (1)(a) is that this Subdivision only applies to one income year per asset. See also subsection 40‑135(1).

Note 2:       This subsection does not apply if Subdivision 40‑BB of this Act applies: see section 40‑145 of this Act.

Businesses with turnover less than $500 million

             (2)  This subsection applies to you for an income year if you:

                     (a)  are a small business entity; or

                     (b)  would be a small business entity if:

                              (i)  each reference in Subdivision 328‑C of the Income Tax Assessment Act 1997 (about what is a small business entity) to $10 million were instead a reference to $500 million; and

                             (ii)  the reference in paragraph 328‑110(5)(b) of that Act to a small business entity were instead a reference to an entity covered by this subsection.

Exception—assets for which the decline in value is worked out under section 40‑82 or Subdivision 40‑E or 40‑F of the Income Tax Assessment Act 1997

             (3)  However, this section does not apply to a depreciating asset for an income year if you work out the decline in value of the asset for the income year under any of the following:

                     (a)  section 40‑82 of the Income Tax Assessment Act 1997;

                     (b)  Subdivision 40‑E or 40‑F of that Act.

40‑125  Backing business investment—when an asset of yours qualifies

             (1)  For the purposes of paragraph 40‑120(1)(c) and section 328‑182, you are covered by this section for a depreciating asset if, in the period beginning on 12 March 2020 and ending on 30 June 2021, you:

                     (a)  start to hold the asset; and

                     (b)  start to use it, or have it installed ready for use, for a taxable purpose.

Note:          Section 328‑182 provides similar accelerated depreciation for small business entities that choose to use Subdivision 328‑D of the Income Tax Assessment Act 1997.

Exception—commitments already entered into

             (2)  Despite subsection (1), you are not covered by this section for the asset if, before 12 March 2020, you:

                     (a)  entered into a contract under which you would hold the asset; or

                     (b)  started to construct the asset; or

                     (c)  started to hold the asset in some other way.

             (3)  Despite subsection (1), you are not covered by this section for an asset (the post‑12 March 2020 asset) if:

                     (a)  on a day before 12 March 2020, you:

                              (i)  enter into a contract under which you hold an asset on that day, or will hold the asset on a later day; or

                             (ii)  start to construct an asset; or

                            (iii)  start to hold an asset in some other way; and

                     (b)  on a day on or after 12 March 2020 (the conduct day), you engage in conduct that results in you:

                              (i)  entering into a contract under which you hold the post‑12 March 2020 asset on the conduct day, or will hold that asset on an even later day; or

                             (ii)  starting to construct the post‑12 March 2020 asset; or

                            (iii)  starting to hold the post‑12 March 2020 asset in some other way; and

                     (c)  the post‑12 March 2020 asset is the asset mentioned in paragraph (a), or an identical or substantially similar asset; and

                     (d)  you engage in that conduct for the purpose, or for purposes that include the purpose, of becoming covered by this section for the post‑12 March 2020 asset.

             (4)  For the purposes of subsections (2) and (3), treat yourself as having started to construct an asset at a time if you first incur expenditure in respect of the construction of the asset at that time.

             (5)  To avoid doubt, for the purposes of this section, you do not enter into a contract under which you hold an asset merely because you acquire an option to enter into such a contract.

             (6)  For the purposes of subsections (2), (3), (4) and (5), if a partner in a partnership does any of the following things, treat the partnership (instead of the partner) as having done the thing:

                     (a)  entering into a contract under which the partnership would hold the asset;

                     (b)  starting to construct the asset;

                     (c)  acquiring an option to enter into such a contract.

Exception—second hand assets

             (7)  Despite subsection (1), you are not covered by this section for the asset if:

                     (a)  another entity held the asset when it was first used, or first installed ready for use, other than:

                              (i)  as trading stock; or

                             (ii)  merely for the purposes of reasonable testing or trialling; or

                     (b)  you started holding the asset under section 40‑115 of the Income Tax Assessment Act 1997 (about splitting a depreciating asset) or section 40‑125 of that Act (about merging depreciating assets); or

                     (c)  you were already covered by this section for the asset as a member of a consolidated group or a MEC group of which you are no longer a member.

          (7A)  The exception in subsection (7) also applies in relation to an asset if:

                     (a)  the asset is a licence (including a sub‑licence) relating to an intangible asset; and

                     (b)  the exception in that subsection applies in relation to the intangible asset.

             (8)  However, paragraph (7)(a) does not apply in relation to an intangible asset unless the asset was used for the purpose of producing ordinary income before you first used it, or had it installed ready for use, for any purpose. In applying this subsection, disregard ordinary income that arises as a result of the disposal of the asset to you.

Exception—assets to which Division 40 does not apply

             (9)  Despite subsection (1), you are not covered by this section for the asset if Division 40 of the Income Tax Assessment Act 1997 does not apply to the asset because of section 40‑45 of that Act.

Exception—assets not located in Australia

           (10)  Despite subsection (1), you are not covered by this section for the asset if, at the time you first use the asset, or have it installed ready for use, for a taxable purpose:

                     (a)  it is not reasonable to conclude that you will use the asset principally in Australia for the principal purpose of carrying on a business; or

                     (b)  it is reasonable to conclude that the asset will never be located in Australia.

40‑130  Method for working out accelerated decline in value

             (1)  For the purposes of section 40‑120, the decline in value for the income year in which paragraph 40‑120(1)(a) is satisfied (the current year) is:

                     (a)  if the asset’s start time occurs in the current year—the amount worked out under subsection (2); or

                     (b)  if the asset’s start time occurred in an earlier year—the amount worked out under subsection (4).

Note 1:       The asset’s start time is when you first use it, or have it installed ready for use, for any purpose (including a non‑taxable purpose): see subsection 40‑60(2) of the Income Tax Assessment Act 1997.

Note 2:       A case covered by paragraph (b) is where you start to hold the asset in the period 12 March 2020 to 30 June 2020 and use it for only non‑taxable purposes in that period, then first use it for a taxable purpose in the period 1 July 2020 to 30 June 2021.

Current year is the year the asset starts to decline in value

             (2)  If this subsection applies, the amount for the current year is the sum of the following amounts:

                     (a)  50% of the asset’s cost as at the end of the current year, disregarding any amount included in the second element of the asset’s cost after 30 June 2021;

                     (b)  the amount that would be the asset’s decline in value for the current year under Division 40 of the Income Tax Assessment Act 1997, assuming its cost were reduced by the amount worked out under paragraph (a).

Note:          Paragraph (a) effectively only requires you to disregard an amount included in the second element of cost if you have a substituted accounting period that ends after 30 June 2021.

             (3)  However, the amount worked out under subsection (2) for an income year cannot be more than the amount that is the asset’s cost for the year.

Asset had declined in value before the start of the current year

             (4)  If this subsection applies, the amount for the current year is the sum of the following amounts:

                     (a)  50% of the sum of the asset’s opening adjustable value for the current year and any amount included in the second element of its cost for that year, disregarding any amount included in that second element after 30 June 2021;

                     (b)  the amount that would be the asset’s decline in value for the current year under Division 40 of the Income Tax Assessment Act 1997 assuming:

                              (i)  for the diminishing value method—its base value were reduced by the amount worked out under paragraph (a); or

                             (ii)  for the prime cost method—the component “Asset’s *cost” in the formula in subsection 40‑75(1) of that Act (as adjusted under that section) were reduced by the amount worked out under paragraph (a).

Note:          Paragraph (a) effectively only requires you to disregard an amount included in the second element of cost if you have a substituted accounting period that ends after 30 June 2021.

             (5)  However, the amount worked out under subsection (4) for an income year cannot be more than:

                     (a)  for the diminishing value method—the asset’s base value for the year; or

                     (b)  for the prime cost method—the sum of its opening adjustable value for the income year and any amount included in the second element of its cost for that year.

40‑135  Division 40 of the Income Tax Assessment Act 1997 applies to later years

             (1)  The decline in value of a depreciating asset is not worked out under this Subdivision for an income year if this Subdivision already applied in working out the decline in value of the asset for an income year.

             (2)  For an income year later than the year in which the decline in value is worked out under this Subdivision, the decline in value is worked out under the other provisions of Division 40 of the Income Tax Assessment Act 1997.

Adjustment required for prime cost method

             (3)  If you use the prime cost method for the asset, you must adjust the formula in subsection 40‑75(1) of the Income Tax Assessment Act 1997 for the later year in the manner set out in subsection 40‑75(3) of that Act. The later year is the change year referred to in that subsection.

Balancing adjustment provisions

             (4)  Subdivision 40‑D of the Income Tax Assessment Act 1997 has effect as if the decline in value worked out under this Subdivision had been worked out under Subdivision 40‑B of that Act.

40‑137  Choice to not apply this Subdivision to an asset

             (1)  You may choose that the decline in value of a particular depreciating asset for an income year, and subsequent income years, is not to be worked out under this Subdivision.

             (2)  The choice must be in the approved form.

             (3)  The choice cannot be revoked.

             (4)  You must give the choice to the Commissioner by the day you lodge your income tax return for the first income year to which the choice relates.

Note:          The Commissioner may defer the time for giving the choice: see section 388‑55 in Schedule 1 to the Taxation Administration Act 1953.

Subdivision 40‑BBTemporary full expensing of depreciating assets

Table of sections

40‑140      Definitions

40‑145      Interaction with other provisions

40‑150      When an asset of yours qualifies for full expensing

40‑155      Businesses with turnover under $5 billion

40‑157      Corporate tax entities with income under $5 billion

40‑160      Full expensing of first and second element of cost for post‑2020 budget assets

40‑165      Exclusions—entities covered by section 40‑155 or 40‑157

40‑167      Exclusions—entities covered by section 40‑157

40‑170      Full expensing of eligible second element of cost

40‑175      When is an amount included in the eligible second element

40‑180      Division 40 of the Income Tax Assessment Act 1997 applies to later years

40‑185      Balancing adjustment for assets not used or located in Australia

40‑190      Choice to not apply this Subdivision to an asset for an income year

40‑140  Definitions

                   In this Subdivision:

2020 budget time means 7.30 pm, by legal time in the Australian Capital Territory, on 6 October 2020.

40‑145  Interaction with other provisions

                   If this Subdivision applies to work out the decline in value of a depreciating asset you hold for an income year, no other provision of this Act or the Income Tax Assessment Act 1997 applies to work out that decline in value.

40‑150  When an asset of yours qualifies for full expensing

             (1)  For the purposes of this Subdivision, you are covered by this section for a depreciating asset if, on or before 30 June 2022:

                     (a)  you start to hold the asset; and

                     (b)  you start to use the asset, or have it installed ready for use, for a taxable purpose.

Exception—assets to which Division 40 does not apply

             (2)  Despite subsection (1), you are not covered by this section for the asset if Division 40 of the Income Tax Assessment Act 1997 does not apply to the asset because of section 40‑45 of that Act.

Exception—assets not used or located in Australia

             (3)  Despite subsection (1), you are not covered by this section for the asset if, at the time you first use the asset, or have it installed ready for use, for a taxable purpose:

                     (a)  it is not reasonable to conclude that you will use the asset principally in Australia for the principal purpose of carrying on a business; or

                     (b)  it is reasonable to conclude that the asset will never be located in Australia.

Exception—assets for which the decline in value is worked out under Subdivision 40‑E or 40‑F of the Income Tax Assessment Act 1997

             (4)  Despite subsection (1), you are not covered by this section for the asset if:

                     (a)  the asset is allocated to a low‑value pool, or expenditure on the asset is allocated to a software development pool (see Subdivision 40‑E of the Income Tax Assessment Act 1997); or

                     (b)  you or another taxpayer has deducted or can deduct amounts for the asset under Subdivision 40‑F of the Income Tax Assessment Act 1997 (about primary production depreciating assets).

40‑155  Businesses with turnover under $5 billion

                   This section covers you for an income year if:

                     (a)  you are a small business entity for the income year; or

                     (b)  you would be a small business entity for the income year if:

                              (i)  each reference in Subdivision 328‑C of the Income Tax Assessment Act 1997 (about what is a small business entity) to $10 million were instead a reference to $5 billion; and

                             (ii)  the reference in paragraph 328‑110(5)(b) of that Act to a small business entity were instead a reference to an entity covered by this section.

40‑157  Corporate tax entities with income under $5 billion

             (1)  This section covers you for an income year if:

                     (a)  you are a corporate tax entity at any time in the income year; and

                     (b)  any of the following amounts is less than $5 billion:

                              (i)  the sum of your ordinary income (if any) and statutory income (if any) for the 2018‑19 income year;

                             (ii)  if the 2019‑20 income year ends on or before 6 October 2020—the sum of your ordinary income (if any) and statutory income (if any) for the 2019‑20 income year; and

                     (c)  the sum of the amounts worked out under subsection (3) for the 2016‑17, 2017‑18 and 2018‑19 income years exceeds $100 million.

             (2)  For the purposes of paragraph (1)(b), disregard non‑assessable non‑exempt income.

             (3)  The amount under this subsection for an income year is worked out as follows:

                     (a)  firstly, identify each depreciating asset (other than an intangible asset) that:

                              (i)  you hold at any time in the income year; and

                             (ii)  you started to use, or have installed ready for use, for a taxable purpose in the income year;

                     (b)  next, work out the cost of each of those assets (including any amounts included in the second element of the asset’s cost at a time that is in the income year);

                     (c)  finally, work out the total of those costs.

             (4)  For the purposes of subsection (3), disregard an asset if, at the time you first used the asset, or had it installed ready for use, for a taxable purpose:

                     (a)  it was not reasonable to conclude that you would use the asset principally in Australia for the principal purpose of carrying on a business; or

                     (b)  it was reasonable to conclude that the asset would never be located in Australia.

40‑160  Full expensing of first and second element of cost for post‑2020 budget assets

             (1)  For the purposes of Division 40 of the Income Tax Assessment Act 1997, the decline in value of a depreciating asset you hold for an income year (the current year) is the amount worked out under subsection (3) if:

                     (a)  you start to hold the asset at or after the 2020 budget time; and

                     (b)  you start to use the asset, or have it installed ready for use, for a taxable purpose in the current year; and

                     (c)  you are covered by section 40‑150 for the asset; and

                     (d)  you are covered for the current year by any of the following:

                              (i)  section 40‑155 (about businesses with turnover under $5 billion);

                             (ii)  section 40‑157 (about corporate tax entities with income under $5 billion); and

                     (e)  no balancing adjustment event happens to the asset in the current year; and

                      (f)  you have not made a choice under section 40‑190 in relation to the current year.

Exclusions

             (2)  However, this section does not apply if:

                     (a)  where section 40‑155 covers you for the current year (regardless whether section 40‑157 also covers you for the current year)—an exclusion applies to you and the asset for the current year under section 40‑165 (about exclusions for businesses with turnover of $50 million or more); or

                     (b)  where section 40‑157 covers you for the current year (but section 40‑155 does not):

                              (i)  an exclusion applies to you and the asset for the current year under section 40‑165; or

                             (ii)  an exclusion applies to you and the asset for the current year under section 40‑167 (about exclusions for corporate tax entities with income under $5 billion).

Amount of the decline in value

             (3)  The decline in value for the current year is:

                     (a)  if the asset’s start time occurs in the current year—the asset’s cost as at the end of the current year, disregarding any amount included in the asset’s cost after 30 June 2022; or

                     (b)  if the asset’s start time occurred in an earlier year—the sum of its opening adjustable value for the current year and any amount included in the second element of its cost for the current year, disregarding any amount included in the asset’s cost after 30 June 2022.

Note 1:       The asset’s start time is when you first use it, or have it installed ready for use, for any purpose (including a non‑taxable purpose): see subsection 40‑60(2) of the Income Tax Assessment Act 1997.

Note 2:       A case covered by paragraph (b) is where you start to hold the asset in the period 6 October 2020 to 30 June 2021 and use it for only non‑taxable purposes in that period, then first use it for a taxable purpose in the period 1 July 2021 to 30 June 2022.

40‑165  Exclusions—entities covered by section 40‑155 or 40‑157

             (1)  For the purposes of subsection 40‑160(2), an exclusion applies to you and an asset for an income year if:

                     (a)  where paragraph 40‑160(2)(a) applies—section 40‑155 would not cover you for the income year if the reference in that section to $5 billion were instead a reference to $50 million; and

                     (b)  any of the exclusions in this section applies in relation to the asset.

Exclusion—commitments already entered into

             (2)  This exclusion applies in relation to the asset if, before the 2020 budget time, you:

                     (a)  entered into a contract under which you would hold the asset; or

                     (b)  started to construct the asset; or

                     (c)  started to hold the asset in some other way.

             (3)  This exclusion applies in relation to the asset (the post‑6 October 2020 asset) if:

                     (a)  on a day before 6 October 2020, you:

                              (i)  enter into a contract under which you hold an asset on that day, or will hold the asset on a later day; or

                             (ii)  start to construct an asset; or

                            (iii)  start to hold an asset in some other way; and

                     (b)  on a day on or after 6 October 2020 (the conduct day), you engage in conduct that results in you:

                              (i)  entering into a contract under which you hold the post‑6 October 2020 asset on the conduct day, or will hold that asset on an even later day; or

                             (ii)  starting to construct the post‑6 October 2020 asset; or

                            (iii)  starting to hold the post‑6 October 2020 asset in some other way; and

                     (c)  the post‑6 October 2020 asset is the asset mentioned in paragraph (a), or an identical or substantially similar asset; and

                     (d)  you engage in that conduct for the purpose, or for purposes that include the purpose, of satisfying paragraph 40‑160(1)(a) for the post‑6 October 2020 asset.

             (4)  For the purposes of subsections (2) and (3), treat yourself as having started to construct an asset at a time if you first incur expenditure in respect of the construction of the asset at that time.

             (5)  To avoid doubt, for the purposes of this section, you do not enter into a contract under which you hold an asset merely because you acquire an option to enter into such a contract.

             (6)  For the purposes of subsections (2), (3), (4) and (5), if a partner in a partnership does any of the following things, treat the partnership (instead of the partner) as having done the thing:

                     (a)  entering into a contract under which the partnership would hold an asset;

                     (b)  starting to construct an asset;

                     (c)  acquiring an option to enter into such a contract.

Exclusion—second hand assets

             (7)  This exclusion applies in relation to the asset if:

                     (a)  another entity held the asset when it was first used, or first installed ready for use, other than:

                              (i)  as trading stock; or

                             (ii)  merely for the purposes of reasonable testing or trialling; or

                     (b)  you started holding the asset under section 40‑115 of the Income Tax Assessment Act 1997 (about splitting a depreciating asset) or section 40‑125 of that Act (about merging depreciating assets); or

                     (c)  you already satisfied paragraph 40‑160(1)(a) of this Act for the asset as a member of a consolidated group or a MEC group of which you are no longer a member.

             (8)  The exclusion in subsection (7) also applies in relation to an asset if:

                     (a)  the asset is a licence (including a sub‑licence) relating to an intangible asset; and

                     (b)  the exclusion in that subsection applies in relation to the intangible asset.

             (9)  However, paragraph (7)(a) does not apply in relation to an intangible asset unless the asset was used for the purpose of producing ordinary income before you first used it, or had it installed ready for use, for any purpose. In applying this subsection, disregard ordinary income that arises as a result of the disposal of the asset to you.

40‑167  Exclusions—entities covered by section 40‑157

             (1)  For the purposes of subsections 40‑160(2) and 40‑170(1A), an exclusion applies to you and an asset for an income year if any of the exclusions in this section applies in relation to the asset.

Exclusion—intangible assets

             (2)  This exclusion applies in relation to the asset if the asset is an intangible asset.

Exclusion—assets previously held by associates

             (3)  This exclusion applies in relation to the asset if it had been previously held by an associate of yours.

Exclusion—assets available for use by associates or foreign residents

             (4)  This exclusion applies in relation to the asset if the asset is available for use, at any time in the income year, by any of the following:

                     (a)  an associate of yours;

                     (b)  an entity that is a foreign resident.

40‑170  Full expensing of eligible second element of cost

             (1)  For the purposes of Division 40 of the Income Tax Assessment Act 1997, the decline in value of a depreciating asset you hold for an income year (the current year) is the amount worked out under this section if:

                     (a)  either:

                              (i)  you start to use the asset, or have it installed ready for use, for a taxable purpose in the current year; or

                             (ii)  you started to use the asset, or have it installed ready for use, for a taxable purpose in an earlier income year; and

                     (b)  you are covered by section 40‑150 for the asset; and

                     (c)  you are covered for the current year by any of the following:

                              (i)  section 40‑155 (about businesses with turnover under $5 billion);

                             (ii)  section 40‑157 (about corporate tax entities with income under $5 billion); and

                     (d)  the eligible second element worked out under section 40‑175 for the asset for the year is greater than nil; and

                     (e)  no balancing adjustment event happens to the asset in the current year; and

                      (f)  you have not made a choice under section 40‑190 in relation to the current year.

Exclusions

          (1A)  However, this section does not apply if:

                     (a)  section 40‑157 covers you for the current year (but section 40‑155 does not); and

                     (b)  an exclusion applies to you and the asset for the current year under section 40‑167 (about exclusions for corporate tax entities with income under $5 billion).

Amount of the decline in value

             (2)  The decline in value of the asset for the current year is:

                     (a)  if the asset’s decline in value for the year would, apart from section 40‑145, be worked out under section 40‑82 of the Income Tax Assessment Act 1997—the amount worked out under subsection (3); or

                     (b)  if the asset’s decline in value for the year would, apart from section 40‑145, be worked out under Subdivision 40‑BA of this Act—the amount worked out under subsection (4); or

                     (c)  otherwise—the amount worked out under subsection (5).

Assets affected by section 40‑82 of the Income Tax Assessment Act 1997 (about assets costing less than $150,000, medium sized businesses)

             (3)  If this subsection applies, the amount for the current year is the sum of:

                     (a)  the amount that would be the asset’s decline in value for the year under section 40‑82 of the Income Tax Assessment Act 1997, assuming the reference in subparagraph 40‑82(3A)(b)(ii) of that Act to 31 December 2020 were instead a reference to the 2020 budget time; and

                     (b)  the eligible second element worked out under section 40‑175 of this Act for the asset for the year.

Assets affected by Subdivision 40‑BA (backing business investment)

             (4)  If this subsection applies, the amount for the current year is the sum of:

                     (a)  the amount that would be worked out under paragraph 40‑130(2)(a) or (4)(a) (whichever is applicable) for the year, assuming the references in paragraphs 40‑130(2)(a) and (4)(a) to 30 June 2021 were instead references to the 2020 budget time; and

                     (b)  the eligible second element worked out under section 40‑175 for the asset for the year; and

                     (c)  the amount that would be worked out under paragraph 40‑130(2)(b) or (4)(b) (whichever is applicable) for the year, assuming the references in paragraphs 40‑130(2)(b) and (4)(b) to “the amount worked out under paragraph (a)” were instead references to “the amounts worked out under paragraphs 40‑170(4)(a) and (b)”.

Other assets

             (5)  If this subsection applies, the amount for the current year is the sum of:

                     (a)  the amount that would be the asset’s decline in value for the year under Division 40 of the Income Tax Assessment Act 1997, disregarding any amounts included in the eligible second element worked out under section 40‑175 of this Act for the asset for the year; and

                     (b)  the eligible second element worked out under section 40‑175 for the asset for the year.

40‑175  When is an amount included in the eligible second element

                   The amount worked out under this section (the eligible second element) for a depreciating asset for an income year is the sum of any amounts included in the second element of the asset’s cost at a time that is in both of the following periods:

                     (a)  the income year;

                     (b)  the period beginning at the 2020 budget time and ending on 30 June 2022.

40‑180  Division 40 of the Income Tax Assessment Act 1997 applies to later years

             (1)  For an income year later than a year in which the decline in value is worked out under this Subdivision, the decline in value is worked out under the other provisions of Division 40 of the Income Tax Assessment Act 1997.

Adjustment required for prime cost method

             (2)  If you use the prime cost method for the asset, you must adjust the formula in subsection 40‑75(1) of the Income Tax Assessment Act 1997 for the later year in the manner set out in subsection 40‑75(3) of that Act. The later year is the change year referred to in that subsection.

Balancing adjustment provisions

             (3)  Subdivision 40‑D of the Income Tax Assessment Act 1997 has effect as if the decline in value worked out under this Subdivision had been worked out under Subdivision 40‑B of that Act.

40‑185  Balancing adjustment for assets not used or located in Australia

             (1)  This section applies if the decline in value for a depreciating asset for an income year is worked out under this Subdivision, and at a time (the balancing adjustment time) in a later income year:

                     (a)  either:

                              (i)  it becomes not reasonable to conclude that you will use the asset principally in Australia for the principal purpose of carrying on a business; or

                             (ii)  it becomes reasonable to conclude that the asset will never be located in Australia; and

                     (b)  none of the requirements in paragraphs 40‑295(1)(a), (b) or (c) of the Income Tax Assessment Act 1997 are satisfied in relation to the asset.

Balancing adjustment event and termination value

             (2)  For the purposes of Subdivision 40‑D of the Income Tax Assessment Act 1997 assume that, at the balancing adjustment time, you stop using the asset, 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.

Cost resulting from balancing adjustment event

             (3)  For the purposes of section 40‑180 of the Income Tax Assessment Act 1997 assume that the reference in item 3 of the table in subsection 40‑180(2) of that Act to “because you stop using it for any purpose expecting never to use it again” were instead a reference to “because of section 40‑185 of the Income Tax (Transitional Provisions) Act 1997”.

Subdivision does not apply for income year after balancing adjustment event

             (4)  If a balancing adjustment event happens to a depreciating asset you hold because of this section, this Subdivision cannot apply to work out the decline in value of the asset for a later income year.

40‑190  Choice to not apply this Subdivision to an asset for an income year

             (1)  You may choose that the decline in value of a particular depreciating asset for an income year is not to be worked out under this Subdivision.

             (2)  The choice must be in the approved form.

             (3)  The choice cannot be revoked.

             (4)  You must give the choice to the Commissioner by the day you lodge your income tax return for the income year to which the choice relates.

Note:          The Commissioner may defer the time for giving the choice: see section 388‑55 in Schedule 1 to the Taxation Administration Act 1953.

Subdivision 40‑CCost

Table of sections

40‑230      Car limit

40‑230  Car limit

             (1)  Division 40 of the new Act applies as if references in that Division to the car limit included references to:

                     (a)  the car depreciation limit under Division 42 of the former Act; and

                     (b)  the motor vehicle depreciation limit under former section 57AF of the Income Tax Assessment Act 1936.

             (2)  If you:

                     (a)  have a substituted accounting period; and

                     (b)  start to hold a car in your 2001‑02 income year but before 1 July 2001;

you must use as the car limit the car depreciation limit under section 42‑80 of the former Act for the 2000‑01 financial year.

Subdivision 40‑DBalancing adjustments

Table of sections

40‑285      Balancing adjustments

40‑287      Disposal of pre‑1 July 2001 mining depreciating asset to associate

40‑288      Disposal of pre‑1 July 2001 mining non‑depreciating asset to associate

40‑289      Surrendered firearms

40‑290      Reduction of deductions under former Act etc.

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

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

40‑295      Later year relief

40‑340      Roll‑overs

40‑345      Balancing adjustments for depreciating assets that retain CGT indexation

40‑365      Involuntary disposals

40‑285  Balancing adjustments

             (1)  Paragraphs 40‑285(1)(a) and (2)(a) of the new Act have effect in relation to a depreciating asset that you held at 1 July 2001 as if amounts you have deducted or can deduct for the asset under the former Act or the Income Tax Assessment Act 1936 were part of the asset’s decline in value under Division 40.

             (2)  You are entitled to a further deduction under subsection (3) if:

                     (a)  you are entitled to a deduction under subsection 40‑285(2) of the new Act for a balancing adjustment event happening to a depreciating asset:

                              (i)  to which Division 58 of the former Act applied; or

                             (ii)  to which former section 61A of the Income Tax Assessment Act 1936 applied, or for which the transition time under Division 57 in Schedule 2D to that Act occurred before 1 July 2001; and

                     (b)  you would have been entitled to a further deduction under section 42‑197 of the former Act.

             (3)  The amount of the further deduction is the amount worked out under section 42‑197 of the former Act.

             (4)  Division 40 of the new Act applies to a balancing adjustment event that occurs on or after 1 July 2001 for a depreciating asset you hold if you held the asset on that day.

             (5)  The amount included in your assessable income under subsection 40‑285(1) or section 40‑370 of the new Act for a balancing adjustment event happening to a depreciating asset is reduced if:

                     (a)  the asset is either:

                              (i)  a depreciating asset that is not plant and that you started to hold under a contract entered into before 1 July 2001, you constructed where the construction started before that day or you started to hold in some other way before that day; or

                             (ii)  plant that you acquired at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; and

                     (b)  any capital gain or capital loss would be disregarded (if Part 3‑1 of the new Act applied):

                              (i)  because of section 118‑5 (about cars, motor cycles and valour decorations); or

                             (ii)  because of section 118‑10 (about collectables); or

                            (iii)  because of section 118‑12 (about plant used to produce exempt income); or

                            (iv)  because the asset was a pre‑CGT asset at the time of the balancing adjustment event.

             (6)  The reduction is:

                  

where:

sum of reductions is the sum of the reductions in your deductions for the asset because you did not use it for a particular purpose.

total decline is the decline in value of the depreciating asset since you started to hold it.

             (7)  Section 118‑24 of the new Act applies to CGT event A1 (disposal of a CGT asset) happening to a depreciating asset if the event happens:

                     (a)  if the depreciating asset is plant—at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or

                     (b)  if the depreciating asset is not plant—before 1 July 2001;

where:

                     (c)  the time of the event is when you entered into the contract for the disposal of the asset; and

                     (d)  the change in ownership constituting the disposal occurred after the applicable time mentioned in paragraph (a) or (b).

40‑287  Disposal of pre‑1 July 2001 mining depreciating asset to associate

             (1)  This section applies if:

                     (a)  on or after 1 July 2001, a company (the transferor) disposes of a depreciating asset to another company; and

                     (b)  the companies are members of the same linked group at the time of the disposal; and

                     (c)  apart from this section, the disposal would have resulted in:

                              (i)  an amount (the included amount) being included in the assessable income of the transferor under subsection 40‑285(1) of the Income Tax Assessment Act 1997; and

                             (ii)  the transferor having an additional decline in value (the deductible amount) under subsection 40‑35(5), 40‑38(5) or 40‑40(4) of this Act; and

                     (d)  the included amount is more than the deductible amount.

             (2)  Subsection 40‑35(5), 40‑38(5) or 40‑40(4) of this Act does not apply to the disposal.

             (3)  The amount that is included in the transferor’s assessable income under subsection 40‑285(1) of the Income Tax Assessment Act 1997 is the included amount reduced by the deductible amount.

40‑288  Disposal of pre‑1 July 2001 mining non‑depreciating asset to associate

             (1)  This section applies if:

                     (a)  on or after 1 July 2001, a company (the transferor) disposes of property that is not a depreciating asset to another company; and

                     (b)  the companies are members of the same linked group at the time of the disposal; and

                     (c)  apart from this section, the disposal would have resulted in the transferor having an additional decline in value (the deductible amount) under subsection 40‑35(5), 40‑37(5), 40‑40(4) or 40‑43(4) of this Act; and

                     (d)  the sum of:

                              (i)  the money the transferor receives, or is entitled to receive, in respect of the disposal; and

                             (ii)  the market value of any other property the transferor receives, or is entitled to receive, in respect of the disposal;

                            is more than the deductible amount.

             (2)  There is no additional decline in value of the notional asset referred to in subsection 40‑35(5), 40‑37(5), 40‑40(4) or 40‑43(4) as a result of the disposal.

             (3)  Any amount that would be included in the transferor’s assessable income under subsection 40‑35(6), 40‑37(6), 40‑38(6), 40‑40(5) or 40‑43(5) of this Act, or subsection 40‑830(6) of the Income Tax Assessment Act 1997, as a result of the disposal is reduced by the deductible amount.

40‑289  Surrendered firearms

                   If a balancing adjustment event for a firearm that you hold occurs because you surrender it after the commencement of this section under firearms surrender arrangements, any amount by which its termination value exceeds its adjustable value is not included in your assessable income under subsection 40‑285(1) of the Income Tax Assessment Act 1997.

40‑290  Reduction of deductions under former Act etc.

                   Subsection 40‑290(2) of the new Act has effect in relation to a depreciating asset that you held at 1 July 2001 as if:

                     (a)  any amount by which your deductions for the asset were reduced under the former Act or the Income Tax Assessment Act 1936 because you did not use it for a particular purpose were an amount by which your deductions for the asset were reduced under section 40‑25 of the new Act; and

                     (b)  the total decline element of the formula in that subsection included all amounts you have deducted or can deduct for the asset under the former Act or the Income Tax Assessment Act 1936.

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

R&D entity has old law R&D decline in value deductions

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

                     (a)  a balancing adjustment event happens in an income year (the event year) commencing on or after 1 July 2011 for an asset held by the R&D entity and:

                              (i)  the R&D entity can deduct, for an income year, an amount under section 40‑25 of the Income Tax Assessment Act 1997 (the new Act), as that section applies apart from Division 355 of that Act and former section 73BC of the Income Tax Assessment Act 1936 (the old Act); or

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

                     (b)  either or both of the following subparagraphs apply:

                              (i)  the R&D entity can deduct (the old law deductions) under former section 73BA or 73BH of the old Act an amount for one or more income years for the asset;

                             (ii)  the R&D entity chooses tax offsets under former section 73I of the old Act instead of deductions (also the old law deductions) under those former sections for one or more income years for the asset.

Note:          This section applies even if the R&D entity is entitled under section 355‑100 of the new Act to tax offsets for one or more income years for deductions under section 355‑305 of that Act for the asset.

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

             (2)  In applying section 40‑290 of the new Act (including references in that section to the reduction of deductions under section 40‑25 of that Act) in relation to the asset, assume that using the asset for a taxable purpose includes using it for:

                     (a)  the purpose of the carrying on, by or on behalf of the R&D entity, of the research and development activities (within the meaning of former section 73B of the old Act) to which the old law deductions relate; or

                     (b)  if the R&D entity is entitled under section 355‑100 of the new Act to tax offsets for one or more income years for deductions (the new law deductions) under section 355‑305 of that Act for the asset—the purpose of conducting the R&D activities to which the new law 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 entity can deduct for the asset under section 40‑285 of the new Act (after applying subsection (2) of this section) for the event year; or

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

is taken to be increased under section 40‑292 of the new Act by 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 entity’s assessable income—so much of the section 40‑285 amount as does not exceed the total decline in value.

old law 1.25 rate deductions means the sum of the R&D entity’s notional Division 40 deductions, and notional Division 42 deductions, (if any) for the asset that were multiplied by 1.25 in working out the old law deductions.

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

Application of Division 355

          (3A)  In applying Division 355 of the new Act in relation to the asset for the income year, the R&D entity is taken to have:

                     (a)  if the section 40‑285 amount is an amount included in the R&D entity’s assessable income—a clawback amount under section 355‑447 of the new Act for the income year; or

                     (b)  if the section 40‑285 amount is a deduction—a catch up amount under section 355‑466 of the new Act for the income year;

equal to 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 entity’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.

Normal rules do not apply for the asset and the event

             (4)  Neither of the following sections:

                     (a)  section 40‑292 of the new Act (as amended by the Tax Laws Amendment (Research and Development) Act 2011);

                     (b)  section 40‑292 of the new Act (as that section applies because of Part 2 of Schedule 4 to the Tax Laws Amendment (Research and Development) Act 2011);

to the extent that they would otherwise apply apart from this section to the R&D entity for the event, do so apply to the R&D entity for the event.

Note 1:       The section 40‑292 of the new Act mentioned in paragraph (a) would otherwise apply for the event in a case where the R&D entity had new law deductions.

Note 2:       The section 40‑292 of the new Act mentioned in paragraph (b) would otherwise apply for the event in respect of the old law deductions.

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

Partners have old law R&D decline in value deductions

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

                     (a)  a balancing adjustment event happens in an income year (the event year) commencing on or after 1 July 2011 for an asset held by the R&D partnership and:

                              (i)  the R&D partnership can deduct, for an income year, an amount under section 40‑25 of the Income Tax Assessment Act 1997 (the new Act), as that section applies apart from Division 355 of that Act and former section 73BC of the Income Tax Assessment Act 1936 (the old Act); 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)  either or both of the following subparagraphs apply:

                              (i)  one or more partners of the R&D partnership can deduct (the old law deductions) under former section 73BA or 73BH of the old Act amounts for one or more income years for the asset;

                             (ii)  one or more partners of the R&D partnership choose tax offsets under former section 73I of the old Act instead of deductions (also the old law deductions) under those former sections for one or more income years for the asset.

Note:          This section applies even if the partners are entitled under section 355‑100 of the new Act to tax offsets for one or more income years for deductions under section 355‑520 of that Act for the asset.

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

             (2)  In applying section 40‑290 of the new Act (including references in that section to the reduction of deductions under section 40‑25 of that Act) in relation to the asset, assume that using the asset for a taxable purpose includes using it for:

                     (a)  the purpose of the carrying on, by or on behalf of the R&D partnership, of the research and development activities (within the meaning of former section 73B of the old Act) to which the old law deductions relate; or

                     (b)  if one or more partners of the R&D partnership are entitled under section 355‑100 of the new Act to tax offsets for one or more income years for deductions (the new law deductions) under section 355‑520 of that Act for the asset—the purpose of conducting the R&D activities to which the new law 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 of the new Act (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 of the new Act (after applying subsection (2) of this section) for the event year;

is taken to be increased under section 40‑293 of the new Act by 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.

old law 1.25 rate deductions means the sum of the partners’ notional Division 40 deductions, and notional Division 42 deductions, (if any) for the asset that were multiplied by 1.25 in working out the old law deductions.

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

Application of Division 355

          (3A)  In applying Division 355 of the new Act in relation to the asset for the income year, an R&D entity (the partner) that is a partner in the R&D partnership and is entitled to one or more new law deductions for one or more income years for the asset, is taken to have:

                     (a)  if the section 40‑285 amount is an amount included in the R&D partnership’s assessable income—a clawback amount under section 355‑449 of the new Act for the income year; or

                     (b)  if the section 40‑285 amount is a deduction—a catch up amount under section 355‑468 of the new Act for the income year;

equal to the partner’s proportion 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.

sum of new law deductions means the sum of each partner’s new law deductions mentioned in paragraph (2)(b) of this section.

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

Normal rules do not apply for the asset and the event

             (4)  Section 40‑293 of the new Act, to the extent that it would otherwise apply apart from this section to the R&D partnership or its partners for the event, does not so apply to the R&D partnership and the partners for the event.

Note:          Section 40‑293 of the new Act would otherwise apply for the event in a case where the partners had new law deductions.

40‑295  Later year relief

             (1)  You may exclude an amount that has been included in your assessable income for plant as a result of a balancing adjustment event that occurred in your 1999‑2000 or 2000‑01 income year to the extent that you choose under section 42‑290 of the former Act to treat that amount as an amount you have deducted for the decline in value of replacement plant.

             (2)  You can only make this choice for the replacement plant if:

                     (a)  you acquire it:

                              (i)  within 2 income years after the end of the income year in which the balancing adjustment event occurred; and

                             (ii)  in your 2001‑02 or 2002‑2003 income year; and

                     (b)  at the end of the income year in which you acquired it, you used it, or had it installed ready for use, wholly for the purpose of producing assessable income; and

                     (c)  you can deduct an amount for its decline in value; and

                     (d)  you had not made a choice under section 42‑285 or 42‑293 of the former Act for the balancing adjustment event.

             (3)  The adjustable value of the replacement plant is reduced by the amount covered by the choice as at the first day of the income year in which you acquired it.

40‑340  Roll‑overs

             (1)  This section applies to an entity (the transferee) if:

                     (a)  there is roll‑over relief under section 40‑340 of the new Act as a result of a balancing adjustment event happening to plant; and

                     (b)  the transferor referred to in that section was working out the decline in value of the plant under subsection 40‑10(3) or 40‑12(3) of this Act.

Plant acquired before 21 September 1999

             (2)  The transferee works out the decline in value of the plant under subsection 40‑10(3) or 40‑12(3) of this Act using the same method as the transferor if:

                     (a)  the transferor started to hold the plant under a contract entered into at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or

                     (b)  the transferor constructed it and the construction started at or before that time; or

                     (c)  the transferor acquired it in some other way at or before that time; or

                     (d)  the transferor acquired it from an entity that was working out the decline in value of the plant under subsection 40‑10(3) or 40‑12(3) of this Act and paragraph (a), (b) or (c) of this subsection applied to that entity or to the earliest successive transferor.

Small business taxpayers

             (3)  The transferee also works out the decline in value of the plant under subsection 40‑10(3) or 40‑12(3) of this Act using the same method as the transferor if:

                     (a)  the plant was not acquired as mentioned in subsection (2); and

                     (b)  the transferor, or an earlier successive transferor, was using a rate for the plant under subsection 42‑160(1) or 42‑165(1) of the former Act; and

                     (c)  the conditions set out in this table are satisfied:

 

Conditions for small business taxpayers retaining accelerated rates

Item

Condition

1

The transferee must have been a small business taxpayer for the income year (the start year) that includes the time when the entity first used the plant, or first had it installed ready for use.

2

At that time, at least 50% of the transferee’s intended use of the plant must be in carrying on a business for the purpose of producing assessable income.

3

At that time, neither of these applies:

(a) it could reasonably be expected that, because of the plant’s use, whether in connection with another asset or not, the transferee would not be a small business taxpayer for the income year following the start year or for either of the next 2 income years;

(b) the plant is being or is intended to be let predominantly on a lease of a kind specified in subsection (5).

             (4)  For the purposes of item 2 in the table in subsection (3), an entity is treated as if it is not carrying on a business in relation to the activities of a partnership in which the entity is a partner unless the entity is connected with the partnership.

             (5)  A lease of plant referred to in item 3 of the table in subsection (3) is an agreement (including a renewal of an agreement) under which the holder of the plant grants a right to use the plant to another entity, but not a hire purchase agreement or a short‑term hire agreement.

             (6)  The transferee works out the decline in value of the plant by:

                     (a)  for the diminishing value method—replacing the component in the formula in subsection 40‑70(1) of the new Act that includes the plant’s effective life with the rate the transferor, or the earliest successive transferor, was using; or

                     (b)  for the prime cost method:

                              (i)  replacing the component in the formula in subsection 40‑75(1) of the new Act that includes the plant’s effective life with the rate the transferor, or the earliest successive transferor, was using; and

                             (ii)  increasing the plant’s cost under Division 42 of the former Act by any amounts included in the second element of the plant’s cost after 30 June 2001.

Meaning of small business taxpayer

             (7)  An entity is a small business taxpayer for an income year if:

                     (a)  the entity carries on a business in that year; and

                     (b)  the entity’s average turnover for that year is less than $1,000,000.

Note:          An entity is treated as carrying on a business if it is winding up a business and it was previously a small business taxpayer: see subsection (11).

Meaning of average turnover

             (8)  An entity’s average turnover for an income year (the current year) is:

                  

where:

number of averaging years is:

                     (a)  3; or

                     (b)  if the entity did not carry on a business in each of the current year and the 2 years before the current year, the number of those income years in which the entity carried on a business.

Note:          An entity is treated as carrying on a business if it is winding up a business and it was previously a small business taxpayer: see subsection (11).

sum of relevant group turnovers is the sum of:

                     (a)  the entity’s group turnover for the current year; and

                     (b)  the entity’s group turnover (if any) for the 2 preceding income years.

Meaning of group turnover

             (9)  The group turnover of an entity (the primary entity) for an income year is the sum of:

                     (a)  the value of the business supplies the primary entity made in the income year; and

                     (b)  the value of the business supplies entities connected with the primary entity made in the income year;

reduced by:

                     (c)  that part of the value of the business supplies the primary entity made in the income year that is attributable to supplies it made during the year to entities connected with it when they were connected with it; and

                     (d)  that part of the value of the business supplies entities connected with the primary entity made in the income year that is attributable to supplies the connected entities made during the year to the primary entity when they were connected with it; and

                     (e)  that part of the value of the business supplies another entity made in the income year that is attributable to supplies the other entity made to a third entity at a time when both the other entity and third entity were connected with the primary entity.

Value of business supplies

           (10)  The value of the business supplies an entity makes in an income year is the sum of:

                     (a)  for taxable supplies (if any) the entity makes during the year in the course of carrying on a business—the value (as defined by section 9‑75 of the GST Act) of the supplies; and

                     (b)  for other supplies the entity makes during the year in the course of carrying on a business—the prices (as defined by section 9‑75 of the GST Act) of the supplies.

Winding up a business

           (11)  Subsections (7) and (8) apply to an entity as if it carried on a business in an income year if:

                     (a)  in that year the entity was winding up a business it previously carried on; and

                     (b)  the entity was a small business taxpayer for the income year in which it stopped carrying on that business.

40‑345  Balancing adjustments for depreciating assets that retain CGT indexation

             (1)  The amount included in your assessable income under subsection 40‑285(1) or 104‑240(1) of the new Act as a result of a balancing adjustment event occurring for:

                     (a)  plant that you acquired at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or

                     (b)  a depreciating asset that is not plant and that you acquired before 1 July 2001;

is reduced (but not below nil) if:

                     (c)  for a paragraph (a) case—there would have been a reduction under subsection 42‑192(2) of the former Act as a result of that event; or

                     (d)  for a paragraph (b) case—there would have been a reduction under subsection 42‑192(2) of the former Act as a result of that event if the asset were plant.

             (2)  The amount of the reduction is the amount worked out under subsection 42‑192(2) of the former Act.

             (3)  There is no reduction under subsection (1) to an amount included in your assessable income under subsection 104‑240(1) if the balancing adjustment event results in a discount capital gain under Division 115.

             (4)  However, you can choose not to make a reduction under subsection (1) and instead take advantage of the discount capital gain.

             (5)  Subsection (6) applies to an entity (the transferee) if there is roll‑over relief under section 40‑340 of the new Act as a result of a balancing adjustment event happening to a depreciating asset held by the transferee.

             (6)  Subsections (1), (2), (3) and (4) apply also to the transferee if:

                     (a)  for a depreciating asset that is plant:

                              (i)  the transferor referred to in section 40‑340 of the new Act started to hold the plant under a contract entered into at or before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999; or

                             (ii)  the transferor constructed it and the construction started at or before that time; or

                            (iii)  the transferor acquired it in some other way at or before that time; or

                            (iv)  the transferor acquired it from an entity that was working out the decline in value of the plant under subsection 40‑10(3) or 40‑12(3) of this Act and subparagraph (i), (ii) or (iii) of this paragraph applied to that entity or to the earliest successive transferor; or

                     (b)  for a depreciating asset that is not plant:

                              (i)  the transferor started to hold the asset under a contract entered into before 1 July 2001; or

                             (ii)  the transferor constructed it and the construction started at or before that day; or

                            (iii)  the transferor acquired it in some other way before that day.

40‑365  Involuntary disposals

                   Section 40‑365 of the new Act applies to a case where:

                     (a)  a balancing adjustment event occurred for plant in the circumstances mentioned in subsection 42‑293(2) of the former Act before 1 July 2001; and

                     (b)  you start to hold a replacement asset or assets after that day; and

                     (c)  the conditions in subsections 40‑365(3) and (4) of the new Act are satisfied.

Subdivision 40‑ELow‑value and software development pools

Table of sections

40‑420      Low‑value pools under Division 42 continue

40‑430      Allocating assets to low‑value pools

40‑450      Software development pools

40‑420  Low‑value pools under Division 42 continue

             (1)  A low‑value pool you created under Subdivision 42‑M of the former Act continues under the new Act as if it had been created under Subdivision 40‑E of the new Act.

             (2)  For the purposes of working out the decline in value of depreciating assets in such a pool for your income year in which 1 July 2001 occurs, step 3 of the method statement in subsection 40‑440(1) of the new Act applies to the pool closing balance, worked out under section 42‑470 of the former Act, for the income year before that year.

40‑430  Allocating assets to low‑value pools

                   For the purposes of Subdivision 40‑E of the Income Tax Assessment Act 1997, you cannot allocate a depreciating asset to a low‑value pool if:

                     (a)  you can deduct an amount for the asset under former section 73BA of the Income Tax Assessment Act 1936; or

                     (b)  you could so deduct an amount if you had not chosen a tax offset under former section 73I of that Act;

for a period before, or starting at the same time as, the allocation has effect.

40‑450  Software development pools

                   Subsection 40‑450(2) of the new Act has effect as if the reference to expenditure being allocated to a software development pool included a reference to expenditure being allocated to a software pool under Division 46 of the former Act.

Subdivision 40‑FPrimary production depreciating assets

Table of sections

40‑515      Water facilities, grapevines and horticultural plants

40‑520      Special rule for water facilities you no longer hold

40‑525      Amounts deducted for water facilities

40‑515  Water facilities, grapevines and horticultural plants

             (1)  This section applies to you if you have deducted or can deduct an amount under Division 387 of the former Act for an amount (the qualifying amount) of expenditure on any of these (the primary production asset):

                     (a)  the construction, manufacture, installation or acquisition of a water facility; or

                     (b)  the establishment of horticultural plants; or

                     (c)  the establishment of grapevines;

and you would have been able to deduct amounts for the qualifying amount for the income year in which 1 July 2001 occurs under the former Act if it had continued to apply.

             (2)  Subdivision 40‑F of the new Act applies to the primary production asset on this basis:

                     (a)  the qualifying amount is taken to be:

                              (i)  for a water facility—the amount of capital expenditure you incurred on the construction, manufacture, installation or acquisition of the water facility; or

                             (ii)  for a horticultural plant or a grapevine—the amount of capital expenditure incurred that is attributable to the establishment of the plant or grapevine; and

                     (b)  for horticultural plants, you use the effective life determined under section 387‑175 of the former Act; and

                     (c)  amounts that have been deducted or can be deducted for the qualifying amount under the former Act or the Income Tax Assessment Act 1936 are taken to be a decline in value under Subdivision 40‑F of the new Act.

40‑520  Special rule for water facilities you no longer hold

             (1)  This section applies to you if:

                     (a)  you have deducted or can deduct an amount under Division 387 of the former Act for an amount (the qualifying amount) of expenditure on a water facility; and

                     (b)  you do not hold the water facility at the start of 1 July 2001.

             (2)  Subdivision 40‑F of the new Act applies to the water facility on the basis specified in subsection 40‑515(2) of this Act, and no other taxpayer can deduct amounts for it under the new Act.

40‑525  Amounts deducted for water facilities

                   The reference in subsection 40‑555(1) of the new Act to a person having deducted or being able to deduct an amount under Subdivision 40‑F of the new Act for expenditure on a water facility includes a reference to the person having deducted or being able to deduct an amount for it under:

                     (a)  Subdivision 387‑B of the former Act; or

                     (b)  former section 75B of the Income Tax Assessment Act 1936.

Subdivision 40‑GCapital expenditure of primary producers and other landholders

Table of sections

40‑645      Electricity supply and telephone lines

40‑650      Special rule for land that you no longer hold

40‑670      Farm consultants

40‑645  Electricity supply and telephone lines

             (1)  This section applies to you if you have deducted or can deduct an amount under Division 387 of the former Act for an amount (the qualifying amount) of expenditure on:

                     (a)  connecting or upgrading the supply of mains electricity to land; or

                     (b)  a telephone line on land;

and you hold the land to which the electricity or telephone line relates at the start of 1 July 2001.

             (2)  You deduct amounts for the qualifying amount under Subdivision 40‑G of the new Act in the same way you were writing it off under Division 387 of the former Act.

             (3)  A reference in subsection 40‑650(4), (5) or (7) of the new Act to an amount being deducted under Subdivision 40‑G of that Act includes a reference to an amount being deducted under:

                     (a)  Subdivision 387‑F of the former Act; or

                     (b)  former section 70 of the Income Tax Assessment Act 1936.

40‑650  Special rule for land that you no longer hold

             (1)  This section applies to you if:

                     (a)  you have deducted or can deduct an amount under Division 387 of the former Act for an amount (the qualifying amount) of expenditure on connecting or upgrading the supply of mains electricity to land or a telephone line on land; and

                     (b)  you do not hold the land to which the electricity or telephone line relates at the start of 1 July 2001.

             (2)  Subdivision 40‑G of the new Act applies to the qualifying amount on the basis specified in that Subdivision, and no other taxpayer can deduct amounts for it under the new Act.

40‑670  Farm consultants

                   A person approved as a farm consultant under Subdivision 387‑A of the former Act is taken to be approved as a farm consultant under section 40‑670 of the new Act.

Subdivision 40‑ICapital expenditure that is deductible over time

Table of sections

40‑825      Genuine prospectors

40‑832      New method not to apply in some cases

40‑825  Genuine prospectors

                   The exemption provided by section 330‑60 of the former Act continues to apply to ordinary income derived before 20 August 2001.

40‑832  New method not to apply in some cases

                   If:

                     (a)  on or after 10 May 2006 you abandon, sell or otherwise dispose of a project; and

                     (b)  you have deducted or can deduct amounts for project amounts in relation to that project; and

                     (c)  on or after that day, you start to operate that project again; and

                     (d)  it is reasonable to conclude that you did this for the main purpose of ensuring that deductions for project amounts in relation to that project would be worked out under section 40‑832 of that Act;

the Income Tax Assessment Act 1997 applies to you as if the project had started to operate before 10 May 2006.

Subdivision 40‑JShips depreciated under section 57AM of the Income Tax Assessment Act 1936

Table of sections

40‑840      Ships depreciated under section 57AM of the Income Tax Assessment Act 1936

40‑840  Ships depreciated under section 57AM of the Income Tax Assessment Act 1936

             (1)  This section applies if:

                     (a)  you have deducted or can deduct amounts for a ship under section 57AM of the Income Tax Assessment Act 1936 as in force before its repeal by Schedule 1 to the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006; and

                     (b)  you hold the ship when this section commences.

             (2)  Division 40 of the Income Tax Assessment Act 1997 applies to the ship after the commencement of this section.

             (3)  For the purposes of that application:

                     (a)  the cost of the ship when this section commences is its cost under the Income Tax Assessment Act 1936 just before that time; and

                     (b)  the ship’s adjustable value when this section commences is its depreciated value under the Income Tax Assessment Act 1936 just before that time; and

                     (c)  paragraphs 40‑285(1)(a) and (2)(a) have effect as if amounts you have deducted or can deduct under section 57AM of the Income Tax Assessment Act 1936, as in force before its repeal, are taken to be part of the ship’s decline in value under Subdivision 40‑B of the Income Tax Assessment Act 1997.

Division 43Deductions for capital works

Table of sections

43‑100      Application of Division 43 to quasi‑ownership rights over land

43‑105      Application of subsections 43‑50(1) and (2) to hotel buildings and apartment buildings

43‑110      Application of subsection 43‑75(3)

43‑100  Application of Division 43 to quasi‑ownership rights over land

                   Division 43 of the Income Tax Assessment Act 1997 applies to quasi‑ownership rights over land granted in respect of:

                     (a)  capital works being a hotel building or an apartment building begun after 30 June 1997; and

                     (b)  other capital works begun after 26 February 1992.

43‑105  Application of subsections 43‑50(1) and (2) to hotel buildings and apartment buildings

                   Subsections 43‑50(1) and (2) of the Income Tax Assessment Act 1997 do not apply to capital works being a hotel building or an apartment building begun before 1 July 1997.

43‑110  Application of subsection 43‑75(3)

                   Subsection 43‑75(3) of the Income Tax Assessment Act 1997 does not apply to capital works being a hotel building or an apartment building begun before 1 July 1997.

Division 45Disposal of leases and leased plant

Table of sections

45‑1          Application of Division 45 of the Income Tax Assessment Act 1997

45‑3          Application of Division 45 to disposals between February 1999 and September 1999

45‑40        Application of Division to plant formerly owned by exempt entities

45‑1  Application of Division 45 of the Income Tax Assessment Act 1997

                   Division 45 of the Income Tax Assessment Act 1997 applies to assessments for the income year in which 22 February 1999 occurs and later income years.

45‑3  Application of Division 45 to disposals between February 1999 and September 1999

             (1)  For disposals of plant or interests in plant on or after 22 February 1999 and before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, Division 45 of the Income Tax Assessment Act 1997 applies with the modifications specified in this section.

             (2)  That Division applies as if subsection 45‑5(2) were replaced by this provision:

             (2)  The amount included is the lesser of:

                     (a)  the excess referred to in paragraph (1)(e); and

                     (b)  the amounts you have deducted or can deduct for depreciation of the plant or, if you disposed of an interest in the plant, so much of those amounts as is attributable to that interest.

It is included for the income year in which the disposal occurred.

             (3)  That Division applies as if paragraph 45‑5(5)(a) were replaced by this provision:

                     (a)  it is included in that assessable income under a provision of this Act outside this Division and Parts 3‑1 and 3‑3 (about capital gains and losses); or

             (4)  That Division applies as if subsection 45‑10(2) were replaced by this provision:

             (2)  The amount included is the lesser of:

                     (a)  the excess referred to in paragraph (1)(f); and

                     (b)  that part of the amounts the partnership has deducted or can deduct for depreciation of the plant that has been or would be reflected in your interest in the partnership net income or partnership loss (your partnership amount) or, if you disposed of part of your interest in the plant, so much of your partnership amount as is attributable to that part of that interest.

It is included for the income year in which the disposal occurred.

             (5)  That Division applies as if paragraph 45‑10(5)(a) were replaced by this provision:

                     (a)  it is included in that assessable income under a provision of this Act outside this Division and Parts 3‑1 and 3‑3 (about capital gains and losses); or

             (6)  That Division applies as if this section were added at the end of that Division:

45‑40  Application of Division to plant formerly owned by exempt entities

             (1)  There are the consequences set out in this table for a transition entity that disposes of the plant, interest in plant or interest (or part) in a partnership to an entity specified in subsection (3).

 

Consequences for transition entities

Item

In this situation:

There are these consequences:

1

The entity chooses, under section 58‑20, that depreciation deductions and balancing adjustments are to be calculated by reference to the notional written down value of plant

(a) section 45‑5 has effect as if paragraph 45‑5(2)(b) were omitted and replaced by paragraph 58‑85(8)(a); and

(b) section 45‑10 has effect as if paragraph  45‑10(2)(b) operated on that part of the amount worked out under paragraph 58‑85(8)(a) that has been or would be reflected in the entity’s interest in the partnership net income or partnership loss if that amount were an amount deducted for depreciation of the plant.

2

The entity chooses, under section 58‑20, that depreciation deductions and balancing adjustments are to be calculated by reference to the undeducted pre‑existing audited book value of plant

(a) section 45‑5 has effect as if paragraph 45‑5(2)(b) were omitted and replaced by paragraph 58‑145(8)(a); and

(b) section 45‑10 has effect as if paragraph 45‑10(2)(b) operated on that part of the amount worked out under paragraph 58‑145(8)(a) that has been or would be reflected in the entity’s interest in the partnership net income or partnership loss if that amount were an amount deducted for depreciation of the plant.

             (2)  There are the consequences set out in this table for an entity that:

                     (a)  acquired the plant from a tax exempt vendor in connection with the acquisition of a business; and

                     (b)  disposes of the plant, interest in plant or interest (or part) in a partnership to an entity specified in subsection (3).

 

Consequences for transition entities