Income Tax (Transitional Provisions) Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 705 - Tax cost setting amount for assets where entities become members of consolidated groups  

Subdivision 705-E - Expenditure relating to exploration, mining or quarrying  

SECTION 705-305   Rules affecting depreciating assets  

705-305(1)    
The main object of this section is to ensure that a depreciating asset ' s tax cost is set, and other matters relevant to working out the deductions of the head company of the consolidated group for the decline in value of the asset are dealt with, so as to:

(a) ensure that the head company does not get excessive deductions on account of expenditure (by any entity) relating to the asset; and

(b) reflect the deductions of an entity for a period ending before the joining time for expenditure relating to the asset; and

(c) ensure that the effective life of the asset for the head company reflects the rate or rates at which the joining entity was able to deduct expenditure relating to the asset (whether or not the expenditure formed part of the cost of the asset).

Prime cost method of working out decline in value of asset

705-305(2)    
If the joining entity could not deduct an amount under Subdivision 40-B of the Income Tax Assessment Act 1997 for the income year that includes the joining time for the decline in value of a depreciating asset, subsection 701-55(2) of that Act has effect as if the prime cost method for working out the decline in value of the asset applied just before the joining time.

Note:

This may affect both the method of working out the decline in value of the asset and the asset ' s effective life.

Adjustable value of asset

705-305(3)    
Division 705 of the Income Tax Assessment Act 1997 has effect as if the adjustable value of a depreciating asset just before and at the joining time were increased by the amount described in subsection (4), if section 40-35 , 40-37 , 40-40 or 40-43 treated the joining entity as holding a notional asset.

Note:

This affects not only the adjustable value of the depreciating asset but also the joining entity ' s terminating value for the asset (which section 705-30 of that Act defines as being equal to the asset ' s adjustable value just before the joining time).

705-305(4)    
The amount of the increase is so much of the adjustable value of the notional asset just before the joining time as reasonably relates to the depreciating asset.

Cost of asset

705-305(5)    
Division 705 of the Income Tax Assessment Act 1997 has effect as if the cost of a depreciating asset were increased by expenditure incurred that did not form part of the asset ' s cost worked out under Division 40 of that Act but would have if it had been incurred just before the joining time under a contract entered into after 30 June 2001.

Earlier deductions for decline in value of asset

705-305(6)    
Division 705 of the Income Tax Assessment Act 1997 has effect as if deductions relating to expenditure described in subsection (5) were deductions for the decline in value of the depreciating asset.

Example:

Such deductions include:

(a) deductions under former Subdivision 330-A , 330-C or 330-H of the Income Tax Assessment Act 1997 , or a corresponding previous law, for the expenditure; and

(b) deductions under Division 40 of that Act for the decline in value of a notional asset that section 40-35 , 40-37 , 40-40 or 40-43 of this Act treated an entity as holding because of the expenditure.

Effective life of asset

705-305(7)    
If a depreciating asset ' s tax cost setting amount does not exceed the joining entity ' s terminating value for the asset, Division 40 of the Income Tax Assessment Act 1997 has effect as if the effective life of the asset were such period as is reasonable, having regard to the following:

(a) the remainder of the effective life of the asset, worked out just before the joining time;

(b) the remainder of the effective life, worked out just before the joining time, of each notional asset (which section 40-35 , 40-37 , 40-40 or 40-43 of this Act treats an entity as holding wholly or partly because of expenditure relating to the depreciating asset);

(c) any other relevant matters.

Subsection 701-55(2) of that Act has effect subject to this subsection.

Note 1:

The effective life of the depreciating asset was set on 1 July 2001 by subsection 40-75(4) of this Act, but may have been reset since under Subdivision 40-B of the Income Tax Assessment Act 1997 .

Note 2:

The effective life of a notional asset is specified by whichever one of sections 40-35 , 40-37 , 40-40 and 40-43 of this Act is relevant to the notional asset.

Choosing to reduce tax cost setting amount of asset

705-305(8)    
If:

(a) a depreciating asset ' s tax cost setting amount would be greater than the joining entity ' s terminating value for the asset; and

(b) the head company of the consolidated group chooses to apply this subsection to the asset;

the asset ' s tax cost setting amount is reduced so that it equals the terminating value.

Note 1:

A consequence of the choice is that subsection (7) applies to the asset.

Note 2:

The amount of the reduction is not re-allocated among other assets.

705-305(9)    
Section 705-55 of the Income Tax Assessment Act 1997 has effect as if subsection (8) of this section were included in section 705-45 of that Act.

Note:

This affects the order of reductions in the asset ' s tax cost setting amount under subsection (8) of this section and section 705-40 of the Income Tax Assessment Act 1997 .