How to use our effective life determinations
Our effective life determinations will not be challenged in any audit process and have been referred to as ‘safe harbour lives'.
You don't have to use our effective life determinations. However, in some situations, you don't have a choice to use our effective life determination.
For example, if you acquire the asset from an associate (such as your spouse or business partner), you must use the same effective life they used (if they used the diminishing value method) or the effective life that is yet to elapse (if they used the prime cost method).
For some intangible depreciating assets, including intellectual property, you must use their statutory effective life:
|
Asset |
Effective life |
|---|---|
|
Standard patent |
20 years |
|
Innovation patent |
8 years |
|
Petty patent |
6 years |
|
Registered design |
15 years |
|
Copyright (except copyright in a *film) |
The shorter of:
|
|
A licence (except one relating to a copyright or *in-house software) |
The term of the licence |
|
A licence relating to a copyright (except copyright in a *film) |
The shorter of:
|
|
In-house software |
5 years |
|
Spectrum licence |
The term of the licence |
|
Telecommunications site access right |
The term of the right |
We make the effective life determination having regard to the period the depreciating asset can be used by any entity for one or more of the following purposes (a specified purpose):
- producing assessable income
- exploration or prospecting
- mining site rehabilitation
- environmental protection activities
- producing exempt income or non-assessable non-exempt income, or
- conducting research and development activities (assuming that this is reasonably likely).
The effective life that applies to an asset is generally the one in force at the time you either:
- entered into the contract to acquire it
- started to construct it
- otherwise acquired it.
However, if you don't start using a depreciating asset or have it installed ready for use within 5 years of the time specified, the effective life that applies is the one in force at the date you first use the depreciating asset or have it installed ready for use for any purpose.
Our effective life determinations are set out in Income Tax (Effective Life of Depreciating Assets) Determination 2015.
They can also be found in the Depreciation and capital allowances tool.
Income Tax (Effective Life of Depreciating Assets) Determination 2015
Tables A and B in the Income Tax (Effective Life of Depreciating Assets) Determination 2015 list the effective life determinations made to date.
Tables A and B are periodically updated to incorporate further effective life determinations when effective life reviews are completed. Assets already reviewed are marked with an asterisk (*) in the third column of Tables A and B.
The date from which an effective life determined by us applies is set out in the fourth column of Tables A and B.
Table A
Table A is an industry category table.
It lists assets that are specific to a particular industry or for which a particular effective life is appropriate because of the way the asset is used in that industry. Industry headings in Table A are generally drawn from the classification subject categories in the Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.
When using Table A:
- you can only use the entries for a listed industry if you are a participant of that industry
- if an asset either corresponds exactly to a description for the industry in which it is used or it satisfies the general description of an asset used in the functional process of that industry, the effective life is the life specified
- in some cases, an entry will contain an instruction to see a Table A entry for another industry. If this applies to an asset in your industry, you can use the effective life specified for the relevant asset in the other industry, even though you don't participate in that other industry
- For example, under the industry heading ‘Cafes, restaurants, takeaway food services, pubs, taverns, bars and clubs (hospitality)’, one of the asset entries says ‘Poker/gaming assets – see Table A Casino operations’. In this case, if you operate a pub and have poker/gaming assets, you can use their effective lives specified for the casino operations industry.
- If the particular asset is not listed under your industry heading in Table A, either specifically or under a general functional group or class, you can use a relevant effective life shown in Table B.
Table B
Table B is an asset category table which covers assets generally.
You can only use Table B entries if the particular asset is not listed under your relevant industry heading in Table A.
If you don't use the asset in an industry specified in Table A and the asset corresponds to a description in Table B, the effective life is the life specified for that description.
You must be satisfied that an asset is a depreciating asset for the purposes of Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) before using an effective life determination in either Table A or B. An asset that is a depreciating asset for another taxpayer or industry may not necessarily be a depreciating asset for you or your industry.
If a particular asset is not listed in either Table A or B, it means we haven't made a determination of its effective life. You will need to work out the asset's effective life by self-assessing the effective life.
Important terms and definitions in Tables A and B
The terms ‘freestanding’ and ‘fixed’ describe certain assets listed in Tables A and B.
For the purposes of the determination of the effective life of such assets, the terms have the following meanings:
- Freestanding – are items designed to be portable or movable; any attachment to the premises is only for the item’s temporary stability.
- Fixed – are items annexed or attached by any means (for example screws, nails, bolts, glue, adhesive, grout or cement) but not merely for temporary stability.
The terms ‘environmental control structure’ and ‘protective structure’ are used to describe certain agricultural assets listed in Table A.
For the determination of effective life of such assets, the terms have the following meanings:
- Environmental control structure – is a structure designed to provide a protective environment within which the operator is able to monitor and manipulate factors influencing the growing environment. This includes factors such as temperature, humidity, air movement, light, water and pests to enable the greatest efficiency in producing the desired product.
- Protective structure – is a structure used primarily and principally for protecting a growing product from one or more natural elements such as sun, hail, birds and wind.
The terms ‘including’, ‘includes’ and ‘incorporating’ have been used in describing certain assets in Tables A and B.
Where used, the terms have the following meanings:
- Including or includes – when an entry is described as ‘including’ or ‘includes’ other items, these other items are separate assets, each with the same effective life.
- For example, the entry ‘Refrigeration assets (including chillers, compressors, condensers, evaporative coolers and pumps)’ indicates that chillers, compressors, condensers, evaporative coolers and pumps are separate assets within the class of refrigeration assets, all of which have the specified effective life.
- Incorporating – when an entry is described as ‘incorporating’ other items, these other items are not separate assets but are merely components of the one single asset being described.
- For example, the entry ‘Conveyor systems (incorporating structures, belts, gearboxes and motors)’ indicates that the structures, belts, gearboxes and motors are components of the one asset, the conveyor system.
The terms ‘hire cars’ and ‘rental cars’ have been used to describe certain assets in Tables A and B.
For the determination of effective life of such assets, the terms have the following meanings:
- Hire car – is a passenger car hired with a driver, not being a taxi.
- Rental car – is a passenger car hired, leased or rented for short-term use without a driver.
Capped lives
Where a capped life for a depreciating asset is available (see section 40-102), the asset is marked in Tables A or B with a hash (#) in the third column.
From the 2012–13 income year, a capped life of 10 years is available for eligible shipping vessels but only if certain conditions are met.
These conditions mean that not all shipping vessels listed under the Water transport and support services (48100 to 48200 and 52110 to 52190) sub-category in Table A will be eligible for the capped life at any given time.
For this reason, no shipping vessels have been marked with a hash (#) in the third column of Table A as would occur with other assets that have no additional eligibility requirements for a capped life.
You need to determine if a particular shipping vessel you hold meets the eligibility requirements of subsections 40-102(4) and (4A) of the ITAA 1997 to determine if the capped life can be applied.
Decline in value calculation
The effective life shown in Tables A or B is a component of the formula under which the decline in value of the depreciating asset is calculated.
The decline in value of a depreciating asset can be calculated using either the prime cost method or diminishing value method.
In some cases, you must use the same method used by the former holder of the asset. For example, if you acquire the asset from an associate such as your spouse or business partner.
For some intangible depreciating assets, including an item of intellectual property, you must always use the prime cost method.
For more information, see Uniform capital allowance system: calculating the decline in value.
Depreciation and capital allowances tool
The effective lives contained in Tables A and B can also be found through the Depreciation and capital allowances tool (or DCAT) by searching for asset name, searching by industry type or using the Effective life of asset tab. This tool can help to work out the decline in value of depreciating assets and capital works for both individual and business taxpayers.
Applying for a review of effective life of assets not listed
You can apply for a review of the effective life of the assets used in your business or industry if they are not currently listed, or where existing determinations no longer correctly reflect asset effective lives.
Complete the Effective life review application form with the details of at least 5 other entities that have agreed to participate in the effective life review. This is to ensure our determination covers assets commonly used by the industry and reflects current industry practices and expectations.