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 75
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 82—Pre‑10 May 2006 entitlements to life benefit termination payments 130
Subdivision 82‑A—Application of Division 130
82‑10..................... Pre‑10 May 2006 entitlements—transitional termination payments 130
Subdivision 82‑B—Transitional 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‑C—Pre‑payment statements 137
82‑10E................... Transitional termination payments—pre‑payment statements.. 137
Subdivision 82‑D—Directed 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‑E—Pre‑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 290—Contributions 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 292—Excess 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
301‑90................... Application of Subdivision 301‑F of the Income Tax Assessment Act 1997 310
301‑95................... Amendment of assessments to give effect to Subdivision 301‑F of the Income Tax Assessment Act 1997 etc......................................................................................... 310
301‑100................. Amendment of assessments—transitional rule for permanent incapacity benefits, etc. 310
301‑105................. Transitional rules for Schedule 9 to the Treasury Laws Amendment (2022 Measures No. 4) Act 2023 312
Division 302—Superannuation death benefits paid from complying plans etc. 313
302‑5..................... Extended application to certain foreign superannuation funds 313
302‑195................. Extended meaning of death benefits dependant for superannuation income stream 313
302‑195A.............. Meaning of death benefits dependant for 2008‑2009 income year 314
Division 303—Superannuation benefits paid in special circumstances 315
303‑10................... Superannuation lump sum member benefit paid to member having a terminal medical condition 315
303‑15................... Superannuation lump sum member benefit paid to member on compassionate ground relating to the coronavirus..................................................................... 315
Division 304—Superannuation benefits in breach of legislative requirements etc. 317
304‑15................... Excess payments from release authorities....................... 317
Division 305—Superannuation benefits paid from non‑complying superannuation plans 318
Subdivision 305‑B—Superannuation benefits from foreign superannuation funds 318
305‑80................... Lump sums paid into complying superannuation plans post‑FIF abolition 318
Division 306—Roll‑overs etc. 320
306‑10................... Roll‑over superannuation benefit—directed termination payment 320
Division 307—Key concepts relating to superannuation benefits 321
307‑125................. Treatment of tax free component of existing pension payments etc. 321
307‑127................. Extension—income stream replacing an earlier one because of an involuntary roll‑over 324
307‑230................. Total superannuation balance—modification for transfer balance just before 1 July 2017 325
307‑231................. Total superannuation balance—limited recourse borrowing arrangements 326
307‑290................. Taxed and untaxed elements of death benefit superannuation lump sums 326
307‑345................. Low rate component—Effect of rebate under the Income Tax Assessment Act 1936 327
Part 3‑32—Co‑operatives and mutual entities 328
Division 316—Demutualisation of friendly society health or life insurers 328
Subdivision 316‑A—Application 328
316‑1..................... Application of Division 316 of the Income Tax Assessment Act 1997 328
Part 3‑35—Insurance business 329
Division 320—Life insurance companies 329
Operative provisions 329
Subdivision 320‑A—Preliminary 329
320‑5..................... Life insurance companies that are friendly societies........ 329
Subdivision 320‑C—Deductions and capital losses 330
320‑85................... Deduction for increase in value of liabilities under risk components of life insurance policies 330
Subdivision 320‑D—Taxable income and tax loss of life insurance companies 330
320‑100................. Savings—tax losses of previous income years............... 331
Subdivision 320‑F—Virtual PST 331
320‑170................. Transfer of part of an asset to a virtual PST.................... 331
320‑175................. Transfers of assets to virtual PST................................... 332
320‑180................. Deferred annuities purchased before 1 July 2007........... 333
Subdivision 320‑H—Segregation of assets for the purpose of discharging exempt life insurance policies 333
320‑225................. Transfer of part of an asset to segregated exempt assets. 333
320‑230................. Transfers of assets to segregated exempt assets.............. 334
Division 322—Assistance for policyholders with insolvent general insurers 336
Subdivision 322‑B—Tax treatment of entitlements under financial claims scheme 336
322‑25................... Application of section 322‑25 of the Income Tax Assessment Act 1997 336
322‑30................... Application of section 322‑30 of the Income Tax Assessment Act 1997 336
Part 3‑45—Rules for particular industries and occupations 337
Division 328—Small business entities 337
328‑1..................... Definitions...................................................................... 337
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........................................................ 338
328‑111................. Access to certain small business concessions for former STS taxpayers that are winding up a business........................................................................................ 339
328‑112................. Working out whether you are a small business entity for certain small business concessions—entities connected with you......................................................... 339
328‑115................. When you stop using the STS accounting method.......... 340
328‑120................. Continuing to use the STS accounting method............... 341
328‑125................. Meaning of STS accounting method............................... 342
328‑175................. Choices made in relation to depreciating assets used in primary production business 342
328‑180................. Increased access to accelerated depreciation from 12 May 2015 to 30 June 2023 343
328‑181................. Full expensing—2020 budget time to 30 June 2023....... 347
328‑182................. Backing business investment.......................................... 348
328‑185................. Depreciating assets allocated to STS pools..................... 348
328‑195................. Opening pool balances for 2007‑08 income year............ 348
328‑200................. General small business pool for the 2012‑13 income year 349
328‑440................. Taxpayers who left the STS on or after 1 July 2005....... 350
328‑445................. Bonus deduction for upskilling employees of small business entities etc. 350
328‑450................. Expenditure eligible for the bonus deduction for upskilling employees of small business entities etc. 352
328‑455................. Technology investment boost deduction......................... 353
328‑460................. What expenditure qualifies for the technology investment boost 354
Division 355—Research and Development 358
Subdivision 355‑D—Registration for activities before 2011‑12 income year 358
355‑200................. Registration for activities before 2011‑12 income year... 358
Subdivision 355‑E—Balancing adjustments for decline in value deductions for assets used in R&D activities 359
355‑320................. Balancing adjustment—assets only used for R&D activities 359
355‑325................. Balancing adjustment—R&D partnership assets only used for R&D activities 363
355‑340................. Balancing adjustment—tax exempt entities that become taxable 367
Subdivision 355‑F—Integrity rules 368
355‑415................. Expenditure reduced to reflect group mark‑ups.............. 368
Subdivision 355‑K—Modified application of the old R&D law 368
355‑550................. Prepayments of R&D expenditure extending into the 2011‑12 income year 368
Subdivision 355‑M—Undeducted core technology expenditure 369
355‑600................. Scope.............................................................................. 370
355‑605................. Core technology that is a depreciating asset.................... 370
355‑610................. Core technology that is not a depreciating asset.............. 371
Division 375—Australian films 372
Subdivision 375‑G—Film losses 372
375‑100................. Film component of tax loss for 1997‑98 or later income year 372
375‑105................. Film component of tax loss for 1989‑90 to 1996‑97 income years 372
375‑110................. Film loss for 1989‑90 or later income year..................... 372
Division 392—Long‑term averaging of primary producers’ tax liability 373
392‑1..................... Application of Division 392 of the Income Tax Assessment Act 1997 373
392‑25................... Transitional provision—election under section 158A of the Income Tax Assessment Act 1936 373
Division 393—Farm management deposits 375
Subdivision 393‑A—Tax consequences of farm management deposits 375
393‑1..................... Application of Division 393 of the Income Tax Assessment Act 1997 375
393‑5..................... Unrecouped FMD deduction.......................................... 375
393‑10................... Unrecouped FMD deduction for deposits made as a result of section 25B of the Loan (Income Equalization Deposits) Act 1976......................................................... 376
393‑27................... Trustee may choose that a beneficiary is a chosen beneficiary of the trust 376
393‑30................... Unclaimed moneys......................................................... 377
Subdivision 393‑B—Meaning of farm management deposit and owner 377
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......................................................... 377
Division 410—Copyright collecting societies 379
410‑1..................... Application of section 51‑43 of the Income Tax Assessment Act 1997 379
Division 415—Designated infrastructure projects 380
Subdivision 415‑B—Application of Subdivision 415‑B of the Income Tax Assessment Act 1997 380
415‑10................... Application of Subdivision 415‑B of the Income Tax Assessment Act 1997 380
Part 3‑50—Climate change 381
Division 420—Registered emissions units 381
Subdivision 420‑A—General application provision 381
420‑1..................... Application of Division 420 of the Income Tax Assessment Act 1997 381
Part 3‑80—Roll‑overs applying to assets generally 382
Division 615—Roll‑overs for business restructures 382
Subdivision 615‑A—Modifications for roll‑overs between the 2011 and 2012 Budget times 382
615‑5..................... Roll‑overs between the 2011 and 2012 Budget times..... 382
615‑10................... Modifications—when additional consequences can apply 382
615‑15................... Modifications—trading stock......................................... 383
615‑20................... Modifications—revenue assets....................................... 383
Division 620—Assets of wound‑up corporation passing to corporation with not significantly different ownership 384
Subdivision 620‑A—Corporations covered by Subdivision 124‑I 384
620‑10................... Application of Subdivision 620‑A of the Income Tax Assessment Act 1997 384
Part 3‑90—Consolidated groups 385
Division 700—Application of Part 3‑90 of Income Tax Assessment Act 1997 385
700‑1..................... Application of Part 3‑90 of Income Tax Assessment Act 1997 385
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 386
Subdivision 701‑A—Preliminary 386
701‑1..................... Transitional group and transitional entity........................ 386
701‑5..................... Chosen transitional entity................................................ 387
701‑7..................... Working out the cost base or reduced cost base of a pre‑CGT asset after certain roll‑overs 388
701‑10................... Interpretation................................................................... 389
Subdivision 701‑B—Modified application of provisions 389
701‑15................... Tax cost and trading stock value not set for assets of chosen transitional entities 389
701‑20................... Working out allocable cost amount on formation for subsidiary members other than chosen transitional entities........................................................................................ 390
701‑25................... No operation of value shifting and loss transfer provisions to membership interests in chosen transitional entities............................................................................. 393
701‑32................... No adjustment of amount of liabilities required in working out allocable cost amount 393
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.............. 394
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 395
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.............................................................................. 396
701‑50................... Increased allocable cost amount for leaving entity if it takes privatised asset brought into group by chosen transitional entity............................................................. 397
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 401
701A‑1.................. Continuing majority‑owned entity, designated group etc. 401
701A‑5.................. Modified application of Part 3‑90 of Income Tax Assessment Act 1997 to trading stock of continuing majority‑owned entity..................................................... 402
701A‑7.................. Modified application of Part 3‑90 of Income Tax Assessment Act 1997 to registered emissions units of continuing majority‑owned entity................................... 403
701A‑10................ Modified application of Part 3‑90 of Income Tax Assessment Act 1997 to certain internally generated assets of continuing majority‑owned entity................................... 404
Division 701B—Modified application of provisions of Income Tax Assessment Act 1997 relating to CGT event L1 410
701B‑1.................. Modified application of CGT Consolidation provisions to allow immediate availability of capital loss for CGT event L1.......................................................................... 410
Division 701C—Modified application etc. of provisions of Income Tax Assessment Act 1997: transitional foreign‑held membership structures 412
Subdivision 701C‑A—Overview 412
701C‑1.................. Overview........................................................................ 412
Subdivision 701C‑B—Membership rules allowing foreign holding 413
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........................................................................................ 413
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...................................................................... 415
701C‑20................ Transitional foreign‑held subsidiaries and transitional foreign‑held indirect subsidiaries 416
Subdivision 701C‑C—Modifications of tax cost setting rules 417
Application and object 418
701C‑25................ Application and object of this Subdivision..................... 418
Basic modification 418
701C‑30................ Transitional foreign‑held subsidiary to be treated as part of head company 418
Other modifications 419
701C‑35................ Trading stock value not set for assets of transitional foreign‑held subsidiaries 419
701C‑40................ Cost setting rules for exit cases—modification of core rules 419
701C‑50................ Cost setting rules for exit cases—reference to modification of core rule 420
Division 701D—Transitional foreign loss makers 421
Subdivision 701D‑A—Object of this Division 421
701D‑1.................. Object of this Division.................................................... 421
Subdivision 701D‑B—Rules allowing transitional foreign loss makers to remain outside consolidated group 421
701D‑10................ Transitional foreign loss maker not member of group if certain conditions satisfied 422
701D‑15................ Choice to apply transitional rules to entity...................... 424
Division 702—Modified application of this Act to assets that an entity brings into a consolidated group 425
702‑1..................... Modified application of section 40‑77 of this Act to assets that an entity brings into a consolidated group........................................................................................ 425
702‑4..................... Extended operation of subsection 40‑285(3).................. 426
702‑5..................... Modified application of subsection 40‑285(6) of this Act after entity brings assets into consolidated group........................................................................................ 427
Division 703—Consolidated groups and their members 429
703‑30................... Debt interests that are not membership interests............. 429
703‑35................... Employee share schemes................................................ 429
Division 705—Tax cost setting amount for assets where entities become members of consolidated groups 430
Subdivision 705‑E—Expenditure relating to exploration, mining or quarrying 430
705‑300................. Application and object of this Subdivision..................... 430
705‑305................. Rules affecting depreciating assets.................................. 431
705‑310................. Adjustable value of head company’s notional assets...... 433
Division 707—Losses for head companies when entities become members etc. 435
Subdivision 707‑A—Transfer of losses to head company 435
707‑145................. Certain choices to cancel the transfer of a loss may be revoked 435
Subdivision 707‑C—Amount of transferred losses that can be utilised 436
707‑325................. Increasing the available fraction for a bundle of losses by increasing the real loss‑maker’s modified market value............................................................................... 436
707‑326................. Events involving only value donor and real loss‑maker not covered by rule against inflation of modified market value.................................................................... 440
707‑327................. Choosing available fraction to apply to value donor’s loss 441
707‑328................. Income year and conditions for possible transfer under Division 170 of the Income Tax Assessment Act 1997........................................................................................ 443
707‑328A.............. Some events involving only group members not covered by rule against inflation of modified market value........................................................................................ 445
707‑329................. Modified market value at a time before 8 December 2004 447
707‑350................. Alternative loss utilisation regime to Subdivision 707‑C of the Income Tax Assessment Act 1997 448
707‑355................. Ignore certain losses in working out when a choice can be made under this Subdivision 450
Subdivision 707‑D—Special rules about losses 451
707‑405................. Special rules about losses referable to part of income year 451
Division 709—Other rules applying when entities become subsidiary members etc. 452
Subdivision 709‑D—Deducting bad debts 452
709‑200................. Application of Subdivision 709‑D of the Income Tax Assessment Act 1997 452
Division 712—Certain rules for where entities cease to be subsidiary members of consolidated groups 453
Subdivision 712‑E—Expenditure relating to exploration, mining or quarrying 453
712‑305................. Reducing adjustable value of head company’s notional asset.. 453
Division 713—Rules for particular kinds of entities 454
Subdivision 713‑L—Transitional relief for certain transactions relating to life insurance companies 454
713‑500................. Object of Subdivision..................................................... 454
713‑505................. When this Subdivision applies (first case)...................... 454
713‑510................. When this Subdivision applies (second case)................. 455
713‑515................. Entities must choose the relief......................................... 456
713‑520................. Conditions...................................................................... 456
713‑525................. Time of transfer.............................................................. 457
713‑530................. What the relief is............................................................. 458
713‑535................. Subsequent consequences............................................... 458
713‑540................. Requirement to notify happening of new event............... 460
713‑545................. Discount capital gain in certain cases.............................. 460
Subdivision 713‑M—General insurance companies 461
713‑700................. Application..................................................................... 461
Division 715—Interactions between the consolidation rules and other areas of the income tax law 462
Subdivision 715‑F—Interactions with Division 230 (financial arrangements) 462
715‑380................. Exit history rule not to affect certain matters related to Division 230 financial arrangements 462
Subdivision 715‑J—Entry history rule and choices 463
715‑658................. Application..................................................................... 463
715‑659................. Extension of time for making choice if joining time was before commencement 463
Subdivision 715‑K—Exit history rule and choices 463
715‑698................. Application..................................................................... 464
715‑699................. Extension of time for making choice if leaving time was before commencement 464
Division 716—Miscellaneous special rules 465
Subdivision 716‑G—Software development pools 465
716‑340................. Expenditure incurred before 1 July 2001 and allocated to a software pool 465
Division 719—MEC rules 466
Subdivision 719‑A—Modified application of Part 3‑90 to MEC groups 466
719‑2..................... Modified application of Part 3‑90 to MEC groups......... 466
Subdivision 719‑B—MEC groups and their members 467
719‑5..................... Debt interests that are not membership interests............. 467
719‑10................... Effect of Division 701C.................................................. 467
719‑15................... Modified effect of subsection 701D‑10(2)..................... 467
719‑30................... Employee share schemes................................................ 468
Subdivision 719‑C—Cost setting 468
719‑160................. Transitional cost setting rules on joining have effect with modifications 468
719‑161................. Modified effect of section 701‑1..................................... 469
719‑163................. Modified effect of section 701‑35................................... 470
719‑165................. Modified effect of paragraph 701‑45(1)(b)..................... 470
Subdivision 719‑F—Losses 471
719‑305................. Available fraction for bundle of losses not affected by concessional rules 471
719‑310................. Certain choices may be revoked...................................... 471
Subdivision 719‑I—Bad debts 471
719‑450................. Application of Subdivision 719‑I of the Income Tax Assessment Act 1997 471
Division 721—Liability for payment of tax where head company fails to pay on time 472
Subdivision 721‑A—Application of Division 472
721‑25................... References in tax sharing agreements to former table item 25 472
Part 3‑95—Value shifting 473
Division 723—Direct value shifting by creating right over non‑depreciating asset 473
723‑1..................... Application of Division 723........................................... 473
Division 725—Direct value shifting affecting interests in companies and trusts 474
725‑1..................... Application of Division 725........................................... 474
Division 727—Indirect value shifting affecting interests in companies and trusts, and arising from non‑arm’s length dealings 475
727‑1..................... Application of Division 727........................................... 475
727‑230................. Transitional exclusion for certain indirect value shifts relating mainly to services 476
727‑470................. Affected interests do not include equity or loan interests owned by entity that is eligible to be an STS taxpayer........................................................................................ 477
Chapter 4—International aspects of income tax 478
Part 4‑5—General 478
Division 815—Cross‑border transfer pricing 478
Subdivision 815‑A—Cross‑border transfer pricing 478
815‑1..................... Application of Subdivision 815‑A of the Income Tax Assessment Act 1997 478
815‑5..................... Cross‑border transfer pricing guidance........................... 478
815‑10................... Scheme penalty applies in pre‑commencement period as if only the old law applied 479
815‑15................... Application of Subdivisions 815‑B, 815‑C and 815‑D of the Income Tax Assessment Act 1997 479
Division 820—Application of the thin capitalisation rules 481
820‑10................... Application of Division 820 of the Income Tax Assessment Act 1997 481
820‑12................... Application of Division 974 of the Income Tax Assessment Act 1997 for the purposes of Division 820 of that Act.................................................................................. 481
820‑45................... Transitional provision—accounting standards and prudential standards 482
Division 830—Application of the foreign hybrid rules 484
830‑1..................... Standard application........................................................ 484
830‑15................... Modified version of income tax law to apply for certain past income years 485
830‑20................... Modifications of income tax law..................................... 487
Division 832—Hybrid mismatch rules 489
Subdivision 832‑A—Application of Division 832 of the Income Tax Assessment Act 1997 489
832‑10................... Application of Division 832 of the Income Tax Assessment Act 1997 (other than imported hybrid mismatch rule)................................................................................ 489
832‑15................... Application of imported hybrid mismatch rule................ 489
Division 840—Withholding taxes 491
Subdivision 840‑M—Managed investment trust amounts 491
840‑805................. Managed investment trust amounts................................. 491
840‑810................. Payment of tax under section 840‑805............................ 492
Subdivision 840‑S—Labour mobility program withholding tax 492
840‑905................. Application of Subdivision 840‑S of the Income Tax Assessment Act 1997 493
Division 842—Exempt Australian source income and gains of foreign residents 494
Subdivision 842‑I—Investment manager regime 494
842‑207................. Application of replacement version of Subdivision 842‑I 494
842‑208................. Modified meaning of IMR foreign fund for the purposes of earlier income years 495
842‑209................. Residence of corporate limited partnerships.................... 495
842‑210................. Treatment of IMR foreign fund that is a corporate tax entity 496
842‑215................. Treatment of foreign resident beneficiary that is not a trust or partnership 497
842‑220................. Treatment of foreign resident partner that is not a trust or partnership 501
842‑225................. Treatment of trustee of an IMR foreign fund.................. 503
842‑230................. Pre‑2012 IMR deduction................................................ 506
842‑235................. Pre‑2012 IMR capital loss.............................................. 506
842‑240................. Pre‑2012 non‑IMR net income, pre‑2012 non‑IMR Division 6E net income and pre‑2012 non‑IMR net capital gain................................................................................. 506
842‑245................. Pre‑2012 non‑IMR partnership net income and pre‑2012 non‑IMR partnership loss 508
Division 880—Sovereign entities and activities 510
880‑1..................... Application of Division 880 of the Income Tax Assessment Act 1997 510
880‑5..................... Certain income of sovereign entity in respect of a scheme is non‑assessable non‑exempt income if covered by a private ruling................................................................ 510
880‑10................... Certain amounts of sovereign entity in respect of a scheme are not deductible if covered by a private ruling........................................................................................ 511
880‑15................... Sovereign entity’s capital gain from membership interest etc.—gain disregarded 511
880‑20................... Sovereign entity’s capital loss from membership interest etc.—loss disregarded 512
880‑25................... Asset of sovereign entity—deemed sale and purchase.... 512
Chapter 5—Administration 514
Part 5‑35—Miscellaneous 514
Division 909—Regulations 514
909‑1..................... Regulations..................................................................... 514
Chapter 6—The Dictionary 515
Part 6‑1—Concepts and topics 515
Division 960—General 515
Subdivision 960‑B—Utilisation of tax attributes 515
960‑20................... Utilisation—corporate loss carry back............................ 515
Subdivision 960‑E—Entities 515
960‑100................. Effect of this Subdivision............................................... 516
960‑105................. Entities, and members of entities, benefiting from the application of this Subdivision 516
960‑110................. No taxation consequences to result from changes to managed investment scheme 517
960‑115................. Certain entities treated as agents...................................... 518
Subdivision 960‑M—Indexation 518
960‑262................. Application of Subdivision 960‑M of the Income Tax Assessment Act 1997 518
960‑275................. Indexation factor............................................................. 518
Endnotes 520
Endnote 1—About the endnotes 520
Endnote 2—Abbreviation key 522
Endnote 3—Legislation history 523
Endnote 4—Amendment history 541
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‑BA—Backing 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‑BB—Temporary 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 2023:
(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.
(5) For the purposes of paragraph (3)(b), to work out the cost of a depreciating asset that is capital works (see section 43‑20 of the Income Tax Assessment Act 1997):
(a) disregard section 40‑45 of that Act and work out the cost of the capital works using Subdivision 40‑C of that Act; and
(b) disregard section 40‑215 of that Act.
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 2023; 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 2023.
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 2023.
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‑C—Cost
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‑D—Balancing 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‑E—Low‑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‑F—Primary 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‑G—Capital 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‑I—Capital 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‑J—Ships 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 43—Deductions 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 45—Disposal 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 Septembe