Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-90 - CONSOLIDATED GROUPS  

Division 716 - Miscellaneous special rules  

Subdivision 716-G - Low-value and software development pools  

Depreciating assets arising from expenditure in joining entity's software development pool

SECTION 716-340   Depreciating assets arising from expenditure in joining entity ' s software development pool  

716-340(1)    
This section modifies the basis on which Subdivision 40-B and sections 40-455 , 701-10 , 701-55 and 701-60 and Division 705 operate if:

(a) an entity (the joining entity ) becomes a ^* subsidiary member of a ^* consolidated group at a time (the joining time ); and

(b) the joining entity had incurred before the joining time expenditure that it allocated to a software development pool; and

(c) some or all of the expenditure is reasonably related to ^* in-house software that:

(i) is a ^* depreciating asset; and

(ii) became an asset of the ^* head company of the consolidated group at the joining time because section 701-1 (Single entity rule) applied to the joining entity.

Note 1:

Subdivision 40-B allows deductions for the decline in value of a depreciating asset, but only if expenditure on the asset has not been allocated to a software development pool. Section 40-455 provides for deduction of expenditure allocated to such a pool. Section 701-5 (Entry history rule) treats the head company as having incurred the expenditure that was allocated to the pool.

Note 2:

Section 701-10 provides that, for each asset the joining entity has at the joining time, the asset ' s tax cost is set at the joining time at the asset ' s tax cost setting amount, which is defined by section 701-60 as the amount worked out under Division 705 , which in turn depends on the adjustable value of the asset worked out under section 40-85 .

Note 3:

Section 701-55 affects matters relevant to working out the head company ' s deductions for the decline in value of depreciating assets that became assets of the head company at the joining time because section 701-1 (Single entity rule) applied to the joining entity.

Note 4:

This section operates whether or not the joining entity ' s deductions under section 40-455 for the period before the joining time for expenditure allocated to the pool total 100% of the expenditure allocated to the pool.

Object

716-340(2)    
The main object of this section is to ensure that:

(a) the ^* head company ' s deductions for the ^* in-house software:

(i) are not worked out under section 40-455 on the basis of section 701-5 (Entry history rule) treating the expenditure relating to the software as being the head company ' s expenditure; and

(ii) are instead worked out under Subdivision 40-B , using the ^* prime cost method with the ^* effective life given by subsection 40-95(7) and taking account of the ^* tax cost setting amount for the software; and

(b) the tax cost setting amount is worked out in a way that takes account of deductions for the period before the joining time for the expenditure reasonably related to the in-house software.

Joining entity taken not to have incurred certain expenditure

716-340(3)    
Subdivision 40-B and section 40-455 operate for the head company core purposes mentioned in section 701-1 (Single entity rule) as if the expenditure reasonably related to the ^* in-house software had not been incurred by the joining entity.

Note 1:

This has the effects that:

(a) subsection 40-50(2) does not apply because of section 701-5 (Entry history rule) to deny the head company deductions under Subdivision 40-B for the decline in value of the software; and

(b) the head company cannot deduct the expenditure under section 40-455 as it operates because of section 701-5 .

Note 2:

This does not prevent the head company from deducting under section 40-455 expenditure that is not reasonably related to the in-house software and that the head company is treated by section 701-5 as having incurred and allocated to a software development pool because the joining entity did.

Prime cost method of working out decline in value of software

716-340(4)    
Subsection 701-55(2) operates as if the ^* prime cost method of working out the decline in value of the ^* in-house software applied just before the joining time.

Note:

This affects the method of working out the decline in value of the software for the head company of the consolidated group.

Effective life of software

716-340(5)    
Subdivision 40-B operates as if the ^* effective life of the ^* in-house software were the period specified for in-house software in subsection 40-95(7) . Subsection 701-55(2) is subject to this subsection.

Cost of in-house software

716-340(6)    
Sections 701-10 and 701-60 and Division 705 (and section 40-85 , so far as it affects that Division) operate as if the ^* cost of the ^* in-house software were the total amount of the joining entity ' s expenditure that reasonably related to the software and was allocated to a software development pool.

Earlier decline in value of the in-house software

716-340(7)    
Sections 701-10 and 701-60 and Division 705 (and section 40-85 , so far as it affects that Division) operate as if the decline in value, and deductions for the decline in value, of the ^* in-house software for a period before the joining time were the amount worked out under subsection (8).

716-340(8)    
Work out the amount by:

(a) working out, for each software development pool to which expenditure relating to the ^* in-house software was allocated, the amount of the joining entity ' s deductions under section 40-455 that reasonably relates to the software; and

(b) adding up each of those amounts if there are 2 or more such pools.

Note:

Subsections (6), (7) and (8) can affect the working out of the tax cost setting amount for the in-house software, by affecting the joining entity ' s terminating value for the software, which section 705-30 defines as being the adjustable value of the software just before the joining time, and which is relevant to sections 705-40 and 705-57 (which may reduce the tax cost setting amount for the software).