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

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.

SECTION 40-10

40-10 Simplified outline of this Division

View history reference

The key concepts about depreciating assets and certain other capital expenditure are outlined below (in bold italics ).

Simplified outline of this Division
Item	Major topic Subordinate topics Rules	Provisions
1	Rules about depreciating assets
1.1	Core provisions	Subdivision 40-B
	*Depreciating assets* are assets with a limited effective life that are reasonably expected to decline in value.
	Broadly, the *effective life* of a depreciating asset is the period it can be used to produce income.
	The *decline in value* is based on the cost and effective life of the depreciating asset, not its actual change in value. It begins at *start time* , when you begin to use the asset (or when you have it installed ready for use). It continues while you use the asset (or have it installed).
	Usually, the owner of a depreciating asset *holds* the asset and can therefore claim deductions for its decline in value. Sometimes the economic owner will be different to the legal owner and the economic owner will be the holder.
.
1.2	Cost	Subdivision 40-C
	The *cost* of a depreciating asset includes both:
	•	expenses you incur to start holding the asset; and
	•	additional expenses that contribute to its present condition and location (eg. improvements).
.
1.3	Balancing adjustments	Subdivision 40-D
	When you stop holding a depreciating asset you may have to include an amount in your assessable income, or deduct an amount under a *balancing adjustment* . The adjustment reconciles the decline with the actual change in value.
.
1.4	Low-value and software development pools	Subdivision 40-E
	Low-cost assets and assets depreciated to a low value may be placed in a *low value pool* , which is treated as a single depreciating asset. You can also pool in-house software expenditure in a *software development pool* .
.
1.5	Primary production depreciating assets	Subdivision 40-F
	You can deduct amounts for capital expenditure on:
	•	*water facilities* immediately; or
	•	*horticultural plants* over a period that relates to the effective life of the plant; or
	•	*fodder storage assets* immediately; or
	•	*fencing assets* immediately.
2	Rules about other capital expenditure
2.1	Capital expenditure of primary producers and other landholders	Subdivision 40-G
	You can deduct amounts for capital expenditure on:
	•	*landcare operations* immediately; or
	•	*electricity and telephone lines* over 10 income years.
.
2.2	Capital expenditure that is immediately deductible	Subdivision 40-H
	You can get an immediate deduction for certain capital expenditure on:
	•	*exploration or prospecting* ; and
	•	*rehabilitation of mine and quarry sites* ; and
	•	*paying petroleum taxes* ; and
	•	*environmental protection activities* .
.
2.3	Capital expenditure that is deductible over time	Subdivision 40-I
	You can deduct amounts for certain capital expenditure associated with projects you carry on. You deduct the amount over the life of the project using a *project pool* .
	You can also deduct amounts for certain business related costs over 5 years where the amounts are not otherwise taken into account and are not denied a deduction.
.
2.4	Capital expenditure for establishing trees in carbon sink forests	Subdivision 40-J
	You can deduct amounts for capital expenditure for the establishment of trees in carbon sink forests.

View history note

History

S 40-10 amended by No 141 of 2020, s 3 and Sch 4 item 82, by substituting " • fodder storage assets immediately; or " for " • fodder storage assets over 3 income years; or " in table item 1.5, column headed " Major topic " , effective 1 January 2021.

S 40-10 amended by No 67 of 2015, s 3 and Sch 2 item 2, by substituting table item 1.5, applicable to assets that an entity starts to hold, or to expenditure an entity incurs, at or after 7.30 pm, by legal time in the Australian Capital Territory, on 12 May 2015. Table item 1.5 formerly read:

1.5 Primary production depreciating assets Subdivision 40-F

You can deduct amounts for capital expenditure on:

• water facilities over 3 income years; or

• horticultural plants over a period that relates to the effective life of the plant.

S 40-10 amended by No 38 of 2008 , s 3 and Sch 8 item 3, by inserting item 2.4 at the end of the table, applicable to the 2007-08 income year and later income years.

S 40-10 amended by No 32 of 2006, s 3 and Sch 2 item 19, by inserting " where the amounts are not otherwise taken into account and are not denied a deduction " after " 5 years " in table item 2.3, applicable to expenditure incurred on or after 1 July 2005.

S 40-10 amended by No 129 of 2004 and substituted by No 76 of 2001.

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