ATO Interpretative Decision

ATO ID 2003/754

Income Tax

Capital Allowances: Division 40 - use of effective life former holder was using where 'same user' rule applies
FOI status: may be released

This ATO ID has been amended in order to provide advice regarding changes to operation of the law for assets which start to be held on or after 10 May 2006.

This document has changed over time. View its history.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

For the purposes of the 'same user' rule in subsection 40-95(5) of the Income Tax Assessment Act 1997 (ITAA 1997), was the former holder of a depreciating asset using an effective life to work out their decline in value deduction for that asset if they were using a rate in their calculation formula?

Decision

No. The former holder was not using an effective life for the purposes of the 'same user' rule in subsection 40-95(5) of the ITAA 1997 to work out their decline in value deduction because the rate they were using was accelerated and does not bear any direct relationship to the effective life of the asset.

Facts

The taxpayer acquired a depreciating asset after 30 June 2001 in circumstances where the 'same user' rule in subsection 40-95(5) of the ITAA 1997 applied to the acquisition. The asset was being written off by the former holder (who had acquired the plant prior to 11.45am, by legal time in the Australian Capital Territory, on 21 September 1999) using an 'accelerated' diminishing value rate set out in former Subdivision 42-D of the ITAA 1997. The taxpayer did not allocate the asset to a low-value pool (Subdivision 40-E of the ITAA 1997).

Reasons for Decision

The amount you deduct for the decline in value of a depreciating asset under Division 40 of the ITAA 1997 is generally worked out by using the formula for either the diminishing value method or the prime cost method (sections 40-70 and 40-75 of the ITAA 1997 (See Note). A choice of the method you use is generally available (subsection 40-65(1) of the ITAA 1997). However, because of the application of the 'same user' rule in subsection 40-65(3) of the ITAA 1997 the taxpayer must use the diminishing value method because the former holder used that method.

The formula the taxpayer must use for the diminishing value method is contained in subsection 40-70(1) of the ITAA 1997 (see note). A component of this formula is the asset's effective life.

A choice of the effective life you use is generally available (subsection 40-95(1) of the ITAA 1997). However, because of the application of the 'same user' rule in subsection 40-95(5) of the ITAA 1997 the taxpayer must use the same effective life that the former holder was using (paragraph 40-95(5)(c) of the ITAA 1997).

The former holder was using the diminishing value method formula in former subsection 42-160(1) of the ITAA 1997 because they acquired the asset before 21 September 1999. That formula contains a diminishing value 'rate' component which is set out in former Subdivision 42-D of the ITAA 1997. While the starting point of working out that rate is the effective life of the plant, the rate incorporates a factor of loading and a factor of broad banding. The result is a rate of depreciation that is 'accelerated' in comparison to the effective life of the plant. In these circumstances, the former holder is not 'using' an effective life for the purposes of paragraph 40-95(5)(c) of the ITAA 1997. This means that the taxpayer must, under subsection 40-95(6) of the ITAA 1997, use an effective life determined by the Commissioner.

Note: For certain depreciating assets a taxpayer starts to hold on or after 10 May 2006, the decline in value is worked out under the diminishing value method using the formula in subsection 40-72(1) of the ITAA 1997. However, this change does not affect the decision in the ATO ID.

Amendment History

Date of Amendment	Part	Comment
3 August 2017	All	Updated keywords, leglislative references, formatting and related ATO IDs.

Date of decision: 15 May 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   subsection 40-65(1)
   subsection 40-65(3)
   section 40-70
   subsection 40-70(1)
   section 40-75
   subsection 40-95(1)
   subsection 40-95(5)
   paragraph 40-95(5)(c)
   subsection 40-95(6)
   subsection 42-160(1) (repealed as of 30 June 2001)

Income Tax (Transitional Provisions) Act 1997
section 40-340

Related ATO Interpretative Decisions
ATO ID 2003/753

Keywords
Accelerated depreciation
Capital Allowances CoE
Commissioner's determination of effective life
Decline in value
Decline in value methods
Diminishing value
Diminishing value method
Depreciating assets
Effective life
Plant acquired post 21 September 1999
Removal of accelerated depreciation
Retention of accelerated depreciation

Siebel/TDMS Reference Number: 3181794; 1-5UVE5K0

Business Line: Private Groups and High Wealth Individuals

Date of publication: 22 August 2003
Date reviewed: 28 July 2017

ISSN: 1445-2782

history

	Date:	Version:
	15 May 2003	Original statement
You are here	3 August 2017	Updated statement

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