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9. Capital allowances

Last updated 24 July 2023

Instructions to complete your capital allowances.

Small business entities

If you are a small business using the simplified depreciation rules.

Show at item 9 – label S Temporary full expensing deductions the total amount of any deduction for any eligible new assets under temporary full expensing you claimed at item 6 – label X Depreciation expenses.

Show at item 9 – label T the total number of eligible new assets you are claiming under temporary full expensing.

You will not be penalised for specifying an incorrect amount at labels S and T where you have made your best attempt to determine the amounts you are claiming for.

You have finished this question, continue to: 10. Small business entity simplified depreciation.

Depreciating assets first deducted this income year

For all other entities that are not a small business using the simplified depreciation rules, complete the following labels:

A – Intangible depreciating assets first deducted

Write at item 9 – label A the cost of all intangible depreciating assets for which the company is claiming a deduction for decline in value for the first time. This will include any amounts claimed under temporary full expensing.

The following intangible assets are regarded as depreciating assets (as long as they are not trading stock):

  • certain items of intellectual property (patents, registered designs, copyrights and licences of these)
  • computer software, or a right to use computer software, that the company acquires, develops or has someone else develop for its use for the purposes for which it is designed (in-house software)
  • mining, quarrying or prospecting rights and information
  • spectrum licences
  • certain indefeasible rights to use telecommunications cable systems (IRUs)
  • certain telecommunications site access rights.

A depreciating asset that the company holds starts to decline in value from the time the company uses it (or installs it ready for use) for any purpose. However, the company can only claim a deduction for the decline in value to the extent it uses the asset for a taxable purpose, such as for producing assessable income.

If the company has allocated any intangible depreciating assets with a cost of less than $1,000 to a low-value pool for the income year, also include the cost of those assets at A. Do not reduce the cost for estimated non-taxable use.

Expenditure on in-house software which has been allocated to a software development pool is not included at label A.

For more information on decline in value, cost, low-value pools, in-house software and software-development pools, see Guide to depreciating assets 2023.

Consolidated or MEC groups

The head company of a consolidated or MEC group must also include the cost of intangible depreciating assets that a subsidiary member would have included at label A if it had not joined the consolidated or MEC group. However, the head company must not include the cost of depreciating assets at label A if the subsidiary member deducted their decline in value before becoming a member of the consolidated or MEC group.

For a company that was a subsidiary member of a consolidated or MEC group for part of the income year and is completing a tax return because of any non-membership periods, write at label A the cost of intangible depreciating assets first deducted during the non-membership periods. However, do not include the cost of depreciating assets where the head company of the consolidated or MEC group deducted its decline in value during any period that the subsidiary was a member of the group, and that period was before the non-membership period in which the subsidiary first deducted the decline in value.

B – Other depreciating assets first deducted

A depreciating asset that the company holds starts to decline in value from the time the company uses it (or installs it ready for use) for any purpose. However, the company can only claim a deduction for the decline in value to the extent it uses the asset for a taxable purpose, such as for producing assessable income.

Write at item 9 – label B the cost of all depreciating assets (other than intangible depreciating assets) for which the company is claiming a deduction for the decline in value for the first time. This will include any amounts claimed under temporary full expensing.

If the company has allocated any assets (other than intangible depreciating assets) with a cost of less than $1,000 to a low-value pool for the income year, also include the cost of those assets at label B. Do not reduce the cost for estimated non-taxable use.

For information:

Consolidated or MEC groups

The head company of a consolidated or MEC group must also include the cost of depreciating assets that a subsidiary member would have included at label B if it had not joined the consolidated or MEC group. However, the head company must not include the cost of depreciating assets at label B if the subsidiary member deducted its decline in value before becoming a member of the consolidated or MEC group.

For a company that was a subsidiary member of a consolidated or MEC group for part of the income year and is completing a tax return because of any non-membership periods, write at label B the cost of depreciating assets first deducted during the non-membership periods. However, do not include the cost of depreciating assets where the head company of the consolidated or MEC group deducted its decline in value during any period the subsidiary was a member of the group, and that period was before the non-membership period in which the subsidiary first deducted the decline in value.

C – Self-assessment of effective life

For most depreciating assets, you can choose to:

  • work out the effective life yourself (self-assess), or
  • use an effective life determined by the Commissioner.

If you have adopted the Commissioner’s effective life determination for all your depreciating assets, print X in the No box at item 9 – label C.

If you have self-assessed the effective life of any of your depreciating assets, print X in the Yes box at label C.

P – Are you making a choice to opt out of temporary full expensing for some or all of your eligible assets?

You can choose to opt out of temporary full expensing on an asset–by-asset basis in the income year it was first used or installed ready for use for a taxable purpose, and apply the other depreciation rules to that asset. Once a choice is made it cannot be revoked.

If you have incurred improvement costs in the 2022-23 income year for an asset that you opted out of temporary full expensing for in a prior income year, you need to make a separate choice to opt out of TFE for the improvement costs if you do not want temporary full expensing to apply to those costs.

Write at item 9 – label P:

  • A if you are opting out for some of your assets, or
  • B if you are opting out for all of your assets.

For more information, see Temporary full expensing.

Q – Number of assets you are opting out for

Write at item 9 – label Q the number of assets for which you have made the choice to opt out of temporary full expensing.

R – Value of assets you are opting out for

Write at item 9 – label R the value of the assets for which you made the choice to opt out of temporary full expensing. The value is the amount you would have otherwise claimed for these assets under temporary full expensing if you had not made the choice to opt out.

You will not be penalised for specifying an incorrect amount at labels Q and R where you have made your best attempt to determine the opt put amounts.

S – Temporary full expensing deductions

Write at item 9 – label S the total value of the deductions that you are claiming under temporary full expensing.

T – Number of assets you are claiming for

Write at item 9 – label T the number of assets for which you are claiming temporary full expensing.

You will not be penalised for specifying an incorrect amount at labels S and T where you have made your best attempt to determine the amounts you are claiming.

U – Are you using the alternative income test?

If you have self-assessed your eligibility for the alternative income test, print X in the Yes box at label U.

If you are not using the alternative income test, print X in the No box at label U.

Corporate tax entities unable to meet the aggregated turnover test may still be eligible for temporary full expensing if they satisfy the alternative income test. You satisfy the alternative income test if:

  • you have less than $5 billion of ordinary and statutory income (excluding non-assessable non-exempt income) for 2018–2019 (or for 2019–20 if that year ends on or before 6 October 2020), and
  • the total cost of certain depreciating assets held and first used, or first installed ready for use, for a taxable purpose in 2016–17, 2017–18 and 2018–19 combined exceeds $100 million including  
    • the cost of any improvements in the year the depreciating asset was first used, or first installed ready for use, for a taxable purpose
    • the cost of a depreciating asset that is capital works – which is determined under ordinary cost rules for depreciating assets and not reduced by any portion deductible outside those rules.

To determine whether the total cost of depreciating assets exceeds $100 million, you do not take into account assets that are:

  • intangible assets
  • depreciating assets that would  
    • not be used principally in Australia for the principal purpose of carrying on a business, or
    • never be located in Australia.

There are also assets excluded from temporary full expensing if applying the alternative income test. For more information, see item 7 – label F Deduction for the decline in value of depreciating assets.

For all depreciating assets

Complete the following labels:

D – Recalculation of effective life

You may recalculate the effective life of assets in certain circumstances if the effective life you have been using is no longer accurate. There are also circumstances where you must recalculate the effective life of a depreciating asset.

If you have not recalculated the effective life of any of your depreciating assets in this income year, print X in the No box at label D.

If you have recalculated the effective life of any of your depreciating assets this income year, print X in the Yes box at label D.

E – Total adjustable values at end of income year

Write at item 9 – label E the total of the adjustable values of your depreciating assets as at the end of the income year. This is the value of all assets costs (first and second elements) less any decline in value up to that time, or the closing value of all assets.

If the company has allocated any assets with a cost of less than $1,000 to a low-value pool for the income year, do not include the adjustable values of those assets at label E.

F – Assessable balancing adjustments on the disposal of intangible depreciating assets

Write at item 9 – label F the total assessable income you have from balancing adjustment events where you ceased to hold intangible depreciating assets this income year (this type of assessable income may arise if, for example, you disposed of an intangible depreciating asset for more than its adjustable value). If you do not have any assessable balancing adjustment amounts for intangible assets this year, leave label F blank.

If the company has allocated any assets with a cost of less than $1,000 to a low-value pool for the income year, do not include the assessable balancing adjustments for these assets at label F.

G – Deductible balancing adjustments on the disposal of intangible depreciating assets

Write at item 9 – label G the total deductible amount you have from balancing adjustment events where you ceased to hold intangible depreciating assets this income year (this type of deduction may arise if, for example, you disposed of an intangible depreciating asset for less than its adjustable value). If you do not have any deductible balancing adjustment amounts for intangible assets this year, leave label G blank.

If the company has allocated any assets with a cost of less than $1,000 to a low-value pool for the income year, do not include the assessable balancing adjustments for these assets at label G.

H – Termination value of intangible depreciating assets

Write at item 9 – label H the termination value of each balancing adjustment event occurring for intangible depreciating assets to which the UCA rules in Division 40 of the ITAA 1997 apply, including assets allocated to a low-value pool.

Do not write at label H any termination value for in-house software for which the company has allocated expenditure to a software development pool.

A balancing adjustment event occurs if the company stops holding or using a depreciating asset or decides not to use it in the future, for example, assets were sold, lost or destroyed.

A balancing adjustment event may occur in a year after the company claims temporary full expensing for an asset, on either the cost of acquisition or improvements. If so, the company will need to calculate a balancing adjustment amount.

Any non-taxable use of an asset in an income year after the year in which temporary full expensing has been claimed will not reduce balancing adjustment amounts for balancing adjustment events happening after the claim year.

For further information, see Working out your deduction.

Generally, the termination value is the amount the company received or is deemed to have received for the balancing adjustment event. It also includes the market value of any non-cash benefits, such as goods and services that the company receives for the asset.

For more information on balancing adjustment events, termination value, in-house software and software development pools, see Guide to depreciating assets 2023.

A special balancing adjustment event will also occur in an income year after the year in which temporary full expensing has been claimed when it is no longer reasonable to conclude that:

  • the company will use the depreciating asset principally in Australia for the principal purpose of carrying on a business; or
  • the depreciating asset will never be located in Australia.

This special balancing adjustment event is not triggered with respect to companies using the simplified depreciation rules, other than for those depreciating assets that are excluded from the simplified depreciation rules. For those other depreciating assets, the event may still be triggered if temporary full expensing has been claimed with respect to that asset.

If this special balancing adjustment event is triggered:

  • the company is treated as though it had ceased to hold the asset and the termination value of the asset will be equal to its market value at that time, resulting in the temporary full expensing deduction being clawed back to the extent of the assets then market value; and
  • the first element of cost is modified so that the first element of cost of the asset is the asset’s termination value at the time of the event, such that though the company may not thereafter work out the decline in value for that asset using temporary full expensing, the company might, in a later income year, be entitled to claim other capital allowances it is entitled to for that asset (for example, under the general capital allowances rules for the proportion of business use). The company may not claim a deduction for the asset under the general capital allowance rules in the same year as the special balancing adjustment event.

For more information, see Record keeping for capital expenses.

I – Termination value of other depreciating assets

Write at item 9 – label I the termination value of each balancing adjustment event occurring for depreciating assets, including assets allocated to a low-value pool.

Do not include at I any termination value for:

  • assets allocated in a prior year to a general small business pool
  • intangible depreciating assets
  • buildings or structures for which a deduction is available under the capital works provisions
  • assets used in R&D activities that are subject to the R&D tax incentive
  • assets falling within the provisions relating to investments in Australian films.

A balancing adjustment event occurs if the company stops holding or using a depreciating asset or decides not to use it in the future, for example, assets were sold, lost or destroyed.

A balancing adjustment event may occur in a year after the company claims temporary full expensing for an asset, on either the cost of acquisition or improvements. If so, the company will need to calculate a balancing adjustment amount.

Any non-taxable use of an asset in an income year after the year in which temporary full expensing has been claimed will not reduce balancing adjustment amounts for balancing adjustment events happening after the claim year.

For more information, see Working out your deduction.

Generally, the termination value is the amount the company received or is deemed to have received for the balancing adjustment event. It also includes the market value of any non-cash benefits, such as goods and services that the company received for the asset.

A special balancing adjustment event will also occur in an income year after the year in which temporary full expensing has been claimed when it is no longer reasonable to conclude that either:

  • the company will use the depreciating asset principally in Australia for the principal purpose of carrying on a business
  • the depreciating asset will never be located in Australia.

This special balancing adjustment event is not triggered with respect to companies using the simplified depreciation rules, other than for those depreciating assets that are excluded from the simplified depreciation rules. For those other depreciating assets, the event may still be triggered if temporary full expensing has been claimed with respect to that asset.

If this special balancing adjustment event is triggered:

  • the company is treated as though it had ceased to hold the asset and the termination value of the asset will be equal to its market value at that time, resulting in the temporary full expensing deduction being clawed back to the extent of the assets then market value
  • the first element of cost is modified so that the first element of cost of the asset is the asset’s termination value at the time of the event, such that though the company may not thereafter work out the decline in value for that asset using temporary full expensing, the company might, in a later income year, be entitled to claim other capital allowances it is entitled to for that asset (for example, under the general capital allowances rules for the proportion of business use). The company may not claim a deduction for the asset under the general capital allowance rules in the same year as the special balancing adjustment event.

For more information on balancing adjustment events and termination value, see the Guide to depreciating assets 2023.

N – Subsequent year accelerated depreciation deductions for assets using backing business investment

If you are an entity that used the Backing business investment – accelerated depreciation in a previous year for one or more assets, write at item 9 – label N the amount of depreciation you are claiming in 2022–23 for these assets.

For entities connected with mining operations, exploration or prospecting

Complete in this section, labels J, K and L.

Write at item 9 – label J the total of any amounts you have allocated to a project pool for mining capital expenditure or transport capital expenditure incurred this income year. If you have not allocated any such amounts to a project pool, leave label J blank.

For information on project amount and how to work out your deductions, see the Guide to depreciating assets 2023.

Item 9 – labels K and L require information on your deductions for the decline in value of depreciating assets used in exploration or prospecting. This includes deductions claimed for the cost of depreciating assets used in exploration or prospecting. If you did not claim any deductions for depreciating assets used in exploration or prospecting, you do not need to complete these items.

Write at item 9 – label K the total of your deductions for decline in value of intangible depreciating assets used in exploration or prospecting.

Write at item 9 – label L the total of your deductions for decline in value of other depreciating assets used in exploration or prospecting.

Continue to: 10: Small business entity simplified depreciation

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