CHAPTER 2
-
LIABILITY RULES OF GENERAL APPLICATION
PART 2-10
-
CAPITAL ALLOWANCES: RULES ABOUT DEDUCTIBILITY OF CAPITAL EXPENDITURE
Division 40
-
Capital allowances
History
Div 40 substituted for Divs 40, 41 and 42 by No 76 of 2001.
Subdivision 40-D
-
Balancing adjustments
History
Subdiv 40-D inserted by No 76 of 2001.
Commissioner
'
s Remedial Power
Note:
A Commissioner
'
s Remedial Power (CRP 2017/2) is relevant to this part of the tax law. Taxation Administration (Remedial Power
-
Small Business Restructure Roll-over) Determination 2017 (F2017L01687) modifies the operation of s
40-340
of the
Income Tax Assessment Act 1997
and any other provisions of a taxation law whose operation is affected by the modified operation of s
40-340
in relation to an asset transferred under a small business restructure roll-over (item 8 of the table in s
40-340(1)
).
The operation of the relevant provisions is modified as follows:
If s
40-340
of ITAA 1997 provides for rollover relief in relation to a disposal of a depreciating asset because the condition in item 8 of the table in s
40-340(1)
of ITAA 1997 is satisfied in relation to the asset, that section has effect as if it also provided that the disposal of the asset has no direct consequences under the income tax law (other than Div
40
of ITAA 1997).
The modification applies in respect of transfers on or after 8 May 2018.
An entity must treat a modification as not applying to it or any other entity if the modification would produce a less favourable result for it. The Commissioner is empowered by s
370-5
of Sch
1
to the
Taxation Administration Act 1953
to make modifications, by legislative instrument, to ensure the law is administered to achieve its intended purpose or object.
Operative provisions
SECTION 40-292
Adjustments
-
assets used for both general tax purposes and R
&
D activities
40-292(1)
This section applies if:
(a)
a *balancing adjustment event happens in an income year (the
event year
) for an asset you *held and for which:
(i)
you can deduct, for an income year, an amount under section
40-25
, as that section applies apart from Division
355
and former section
73BC
of the
Income Tax Assessment Act 1936
; or
(ii)
you could have deducted, for an income year, an amount as described in subparagraph (i) if you had used the asset; and
(b)
you are entitled under section
355-100
to *tax offsets for one or more income years for deductions (the
R
&
D deductions
) under section
355-305
for the asset.
Note 1:
This section applies in a modified way if you have deductions for the asset under former section
73BA
or
73BH
of the
Income Tax Assessment Act 1936
(see section
40-292
of the
Income Tax (Transitional Provisions) Act 1997
).
Note 2:
To the extent that any amount is included in your assessable income under section
40-285
in relation to R
&
D activities, you may have an additional amount included in your assessable income (see section
355-447
).
Note 3:
To the extent any amount that you are entitled to as a deduction under section
40-285
relates to R
&
D activities, you may have an additional amount you can deduct (see section
355-466
).
History
S 40-292(1) amended by No 92 of 2020, s 3 and Sch 5 items 15 and 16, by substituting
"
Note 1
"
for
"
Note
"
in the note and inserting notes 2 and 3, effective 1 January 2021 and applicable in relation to assessments for income years commencing on or after 1 July 2021.
Section 40-290 to be applied as if use for conducting R
&
D activities were use for a taxable purpose
40-292(2)
In applying section
40-290
(including references in that section to the reduction of deductions under section
40-25
) in relation to the asset, assume that using the asset for a *taxable purpose includes using it for the purpose of conducting the *R
&
D activities to which the R
&
D deductions relate.
40-292(3)
(Repealed by No 92 of 2020)
History
S 40-292(3) repealed by No 92 of 2020, s 3 and Sch 5 item 17, effective 1 January 2021 and applicable in relation to assessments for income years commencing on or after 1 July 2021. S 40-292(3) formerly read:
Increase in amounts deductible under section 40-285
40-292(3)
If you are entitled under section 355-100 to a *tax offset for the event year in respect of deductions under Division 355 totalling at least $20,000, any amount (the
section 40-285 amount
) you can deduct for the asset under section 40-285 (after applying subsection (2) of this section) for the event year is increased by:
(a)
if your *aggregated turnover for the event year is less than $20 million
-
½
of the amount worked out under subsection (5) of this section; and
(b)
otherwise
-
⅓
of the amount worked out under subsection (5) of this section.
40-292(4)
(Repealed by No 92 of 2020)
History
S 40-292(4) repealed by No 92 of 2020, s 3 and Sch 5 item 17, effective 1 January 2021 and applicable in relation to assessments for income years commencing on or after 1 July 2021. S 40-292(4) formerly read:
Increase in amounts assessable under section 40-285
40-292(4)
Any amount (the
section 40-285 amount
) that is included in your assessable income for the asset under section 40-285 (after applying subsection (2) of this section) for the event year is increased by
⅓
of the amount worked out under subsection (5) of this section.
40-292(5)
(Repealed by No 92 of 2020)
History
S 40-292(5) repealed by No 92 of 2020, s 3 and Sch 5 item 17, effective 1 January 2021 and applicable in relation to assessments for income years commencing on or after 1 July 2021. S 40-292(5) formerly read:
Component of any increase in amounts deductible or assessable
40-292(5)
The amount is worked out as follows:
| |
Sum of your R
&
D deductions |
× |
Adjusted section 40-285 amount |
|
| |
Total decline in value |
|
where:
adjusted section 40-285 amount
means:
(a)
if the section
40-285
amount is a deduction
-
the amount of the deduction; or
(b)
if the section
40-285
amount is an amount included in your assessable income
-
so much of the section
40-285
amount as does not exceed the total decline in value.
total decline in value
means the *cost of the asset less its *adjustable value.
History
S 40-292 substituted by No 93 of 2011, s 3 and Sch 3 item 24, effective 8 September 2011. For application, savings and transitional provisions see note under Div
355
heading. S 40-292 formerly read:
SECTION 40-292 Adjustments where deductions for decline in value also allowable under section 73BA or 73BH of
Income Tax Assessment Act 1936
Section applies if deductions for decline in value under both this Division and section 73BA
40-292(1)
This section applies if:
(a)
a
*
balancing adjustment event occurs for a
*
depreciating asset you
*
held and:
(i)
whose decline in value you worked out under Subdivision
40-B
; or
(ii)
whose decline in value you would have worked out under that Subdivision if you had used the asset; and
(b)
for any income year in which you held the asset, you also deducted an amount for it under section
73BA
or
73BH
of the
Income Tax Assessment Act 1936
, or could have done so if:
(i)
you had not chosen a tax offset under section
73I
of that Act; or
(ii)
section
73BAF
of that Act had not been enacted.
History
S 40-292(1) amended by No 16 of 2003.
Section 40-290 to be applied as if use for carrying on research and development activities were use for a taxable purpose
40-292(2)
If this section applies, you must, in applying section
40-290
(including references in that section to the reduction of deductions under section
40-25
) in relation to the
*
depreciating asset, assume that when you used it either for a taxable purpose or for the purpose of the carrying on by or on behalf of you of research and development activities, within the meaning of section
73B
of the
Income Tax Assessment Act 1936
, you used it for a taxable purpose.
Increase in amounts deductible or assessable under section
40-285
where 1.25 rate deductions under section 73BA or 73BH
40-292(3)
If:
(a)
this section applies; and
(b)
the amount you deducted under section
73BA
or
73BH
of the
Income Tax Assessment Act 1936
, as mentioned in paragraph (1)(b) of this section, for at least one income year was worked out by multiplying a notional Division
40
deduction (within the meaning of section 73BA) or a notional Division 42 deduction (within the meaning of section
73BJ
) by 1.25 (or would have been so worked out had section
73BAF
of the
Income Tax Assessment Act 1936
not been enacted);
then subsection (4) applies.
History
S 40-292(3) amended by No 16 of 2003.
40-292(4)
Any amount (the
section 40-285 amount
) that you can deduct, or that is included in your assessable income, for the
*
depreciating asset under section
40-285
(after applying subsection (2) of this section) is increased by the amount worked out using the formula:
| |
Sum of all 1.25 rate
notional Division 40/42
deductions
Total decline in value |
× |
Adjusted section 40-285 amount |
× |
0.25 |
|
where:
adjusted section
40-285
amount
means:
(a)
if the section
40-285
amount is a deduction
-
the amount of the deduction; or
(b)
if the section
40-285
amount is an amount included in your assessable income
-
so much of the section
40-285
amount as does not exceed the formula component
total decline in value
.
sum of all 1.25 rate notional Division 40/42 deductions
means the sum of all notional Division
40
deductions and notional Division 42 deductions (see paragraph (3)(b)) that were multiplied by 1.25 in working out the amounts you deducted for the
*
depreciating asset as mentioned in paragraph (1)(b).
total decline in value
means the cost of the
*
depreciating asset less its
*
adjustable value.
Note:
An asset whose tax cost is set under Division
701
of this Act may have its adjustable value reduced in applying this section: see section
73BAG
of the
Income Tax Assessment Act 1936
.
S 40-292 amended by No 16 of 2003 and inserted by No 170 of 2001.
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