Income Tax (Transitional Provisions) 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-D - Balancing adjustments  

SECTION 40-340   Roll-overs  

40-340(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

40-340(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

40-340(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).

40-340(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.

40-340(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.

40-340(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

40-340(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

40-340(8)    
An entity ' s average turnover for an income year (the current year ) is:

Sum of relevant group turnovers

Number of averaging years

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

40-340(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

40-340(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

40-340(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.