Income Tax Assessment Act 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-10 - CAPITAL ALLOWANCES: RULES ABOUT DEDUCTIBILITY OF CAPITAL EXPENDITURE  

Division 40 - Capital allowances  

Subdivision 40-B - Core provisions  

Operative provisions

SECTION 40-75   Prime cost method  

40-75(1)    
You work out the decline in value of a ^* depreciating asset for an income year using the prime cost method in this way:

where:

Asset ' s *cost

×

Days held 365

×

100%                             Asset ' s *effective life

where:

days held has the same meaning as in subsection 40-70(1) .

Example:

Greg acquires an asset for $3,500 and first uses it on the 26th day of the income year. If the effective life of the asset is 3 ⅓ years, the asset would decline in value in that year by:

$3,500

×

[ 365 − 25 ] 365

×

100%   3 ⅓

=   $978

The asset ' s adjustable value at the end of the income year is:

$3,500   −   $978   =   $2,522

40-75(2)    
However, you must adjust the formula in subsection (1) for an income year (the change year ):

(a) for which you recalculate the ^* depreciating asset ' s ^* effective life; or

(b) after the year in which the asset ' s start time occurs and in which an amount is included in the second element of the asset ' s ^* cost; or

(c) for which the asset ' s ^* opening adjustable value is reduced under section 40-90 (about debt forgiveness); or

(d) in which the *remaining effective life of the asset is calculated under section 40-103 ; or

(e) for which there is a reduction to the asset ' s opening adjustable value under paragraph 40-365(5)(b) (about involuntary disposals) where you are using the prime cost method; or

(f) for which the opening adjustable value of the asset is modified under subsection 27-80(3A) or (4) , 27-85(3) or 27-90(3) ; or

(g) for which there is a reduction in the asset ' s opening adjustable value under section 775-70 ; or

(h) for which there is an increase in the asset ' s opening adjustable value under section 775-75 .

The adjustments apply for the change year and later years.

Note 1:

For recalculating a depreciating asset ' s effective life: see section 40-110 .

Note 2:

You may also adjust the formula for an income year if you had undeducted core technology expenditure for the asset at the end of your last income year commencing before 1 July 2011 (see section 355-605 of the Income Tax (Transitional Provisions) Act 1997 ).

Note 3:

Subdivision 40-BA or 40-BB of the Income Tax (Transitional Provisions) Act 1997 may also require you to adjust the formula: see subsections 40-135(3) and 40-180(2) of that Act.

40-75(3)    
The adjustments are:

(a) instead of the asset ' s ^* cost, you use its ^* opening adjustable value for the change year plus the amounts (if any) included in the second element of its cost for that year; and

(b) instead of the asset ' s ^* effective life, you use its ^* remaining effective life.

40-75(4)    

The remaining effective life of a ^* depreciating asset is any period of its ^* effective life that is yet to elapse as at:

(a) the start of the change year; or

(b) in the case of a roll-over under section 40-340 - the time when the ^* balancing adjustment event occurs for the transferor.

Note:

Effective life is worked out in years and fractions of years.

40-75(5)    
You must also adjust the formula in subsection (1) for an intangible ^* depreciating asset that:

(a) is mentioned in an item in the table in subsection 40-95(7) (except item 5, 7 or 8); and

(b) you acquire from a former ^* holder of the asset.

The adjustment applies for the income year in which you acquire the asset and later income years.

40-75(6)    
Instead of the asset ' s ^* effective life under the table in subsection 40-95(7) , you use the number of years remaining in that effective life as at the start of the income year in which you acquire the asset.

Limit on decline

40-75(7)    
The decline in value of a ^* depreciating asset under this section for an income year cannot be more than:

(a) for the income year in which the asset ' s ^* start time occurs - its ^* cost; or

(b) for a later year - the sum of its ^* opening adjustable value for that year and any amount included in the second element of its cost for that year.