New Business Tax System (Capital Allowances - Transitional and Consequential) Act 2001 (77 of 2001)

Schedule 2   General consequential amendments

Income Tax Assessment Act 1997

216   At the end of Division 27

Add:

27-35 Certain sections not to apply to certain assets or expenditure

Sections 27-5, 27-10, 27-15 and 27-20 do not apply to assets, or to expenditure, for which you can deduct amounts under Division 40 or 328.

Note: See instead Subdivision 27-B.

Subdivision 27-B - Division 40

Table of sections

27-80 Cost or opening adjustable value of depreciating assets reduced for input tax credits

27-85 Cost or opening adjustable value of depreciating assets reduced: decreasing adjustments

27-90 Cost or opening adjustable value of depreciating assets increased: increasing adjustments

27-95 Balancing adjustment events

27-100 Pooling

27-105 Other Division 40 expenditure

27-110 Input tax credit etc. relating to 2 or more things

27-80 Cost or opening adjustable value of depreciating assets reduced for input tax credits

(1) A *depreciating asset's *cost is reduced if:

(a) an entity's acquisition or importation of the asset constitutes a *creditable acquisition or *creditable importation; and

(b) the entity is or becomes entitled to an *input tax credit for the acquisition or importation; and

(c) the entity can deduct amounts for the asset under Division 40 or 328.

The reduction is the amount of the input tax credit.

(2) A *depreciating asset's *cost is also reduced if:

(a) the entity that *holds the asset incurs expenditure that is included in the second element of the asset's cost for the income year in which the asset's *start time occurs; and

(b) the entity is or becomes entitled to an *input tax credit for the *creditable acquisition or *creditable importation to which the expenditure relates; and

(c) the entity can deduct amounts for the asset under Division 40 or 328.

The reduction is the amount of the input tax credit.

(3) However, subsections (1) and (2) do not apply if the *cost of the *depreciating asset is modified under Division 40 to be its *market value.

(3A) A *depreciating asset's *opening adjustable value for an income year is reduced if:

(a) an entity's acquisition or importation of the asset constitutes a *creditable acquisition or *creditable importation; and

(b) the entity is or becomes entitled to an *input tax credit in an income year (the credit year ) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred; and

(c) the income year is after the one in which the asset's *start time occurs; and

(d) the entity can deduct amounts for the asset under Division 40 or 328.

(4) A *depreciating asset's *opening adjustable value for an income year is reduced if:

(a) the entity that *holds the asset incurs expenditure that is included in the second element of the asset's cost for that income year; and

(b) that income year is after the one in which the asset's*start time occurs; and

(c) the entity is or becomes entitled to an *input tax credit for the *creditable acquisition or *creditable importation to which the expenditure relates for the income year in which the expenditure was incurred; and

(d) the entity can deduct amounts for the asset under Division 40 or 328.

The reduction is the amount of the input tax credit.

(5) If the reduction under subsection (2) or (4) is more than:

(a) for a subsection (2) case - the *depreciating asset's *cost; or

(b) for a subsection (4) case - the depreciating asset's *opening adjustable value;

the excess is included in the entity's assessable income unless the entity is an *exempt entity.

Exception: pooling

(6) This section does not apply to:

(a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the *current year; or

(b) *in-house software if expenditure on the software is allocated to a software development pool for the current year; or

(c) a project pool.

27-85 Cost or opening adjustable value of depreciating assets reduced: decreasing adjustments

(1) This section applies to an entity if:

(a) the entity can deduct amounts for a *depreciating asset under Division 40 or 328; and

(b) the entity has a *decreasing adjustment in an income year that relates directly or indirectly to the asset.

(1A) However, this section does not apply to a *decreasing adjustment that arises under Division 129 or 132 of the *GST Act.

Note: See instead section 27-87.

(2) The asset's *cost is reduced by an amount equal to the *decreasing adjustment if the adjustment arises in the income year in which the asset's *start time occurs.

(3) The asset's *opening adjustable value for an income year is reduced by an amount equal to the *decreasing adjustment if the adjustment arises in that year and that year is after the one in which the asset's*start time occurs.

(4) If the reduction under subsection (2) or (3) is more than:

(a) for a subsection (2) case - the *depreciating asset's *cost; or

(b) for a subsection (3) case - the depreciating asset's *opening adjustable value;

the excess is included in the entity's assessable income unless the entity is an *exempt entity.

Exception: pooling

(5) This section does not apply to:

(a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the *current year; or

(b) *in-house software if expenditure on the software is allocated to a software development pool for the current year; or

(c) a project pool.

27-87 Certain decreasing adjustments included in assessable income

(1) This section applies to an entity if:

(a) the entity can deduct amounts for a *depreciating asset under Division 40 or 328; and

(b) the entity has a *decreasing adjustment that arises under Division 129 or 132 of the *GST Act in an income year that relates directly or indirectly to the asset.

(2) The amount of the *decreasing adjustment is included in the entity's assessable income for the income year unless the entity is an *exempt entity.

27-90 Cost or opening adjustable value of depreciating assets increased: increasing adjustments

(1) This section applies to an entity if:

(a) the entity can deduct amounts for a *depreciating asset under Division 40 or 328; and

(b) the entity has an *increasing adjustment in an income year that relates directly or indirectly to the asset.

(1A) However, this section does not apply to an *increasing adjustment that arises under Division 129 or 132 of the *GST Act.

Note: See instead section 27-92.

(2) The asset's *cost is increased by an amount equal to the *increasing adjustment if the adjustment arises in the income year in which the asset's *start time occurs.

(3) The asset's *opening adjustable value for an income year is increased by an amount equal to the *increasing adjustment if the adjustment arises in that year and that year is after the one in which the asset's *start time occurs.

Exception: pooling

(4) This section does not apply to:

(a) a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the *current year; or

(b) *in-house software if expenditure on the software is allocated to a software development pool for the current year; or

(c) a project pool.

27-92 Certain increasing adjustments can be deducted

(1) This section applies to an entity if:

(a) the entity can deduct amounts for a *depreciating asset under Division 40 or 328; and

(b) the entity has an *increasing adjustment that arises under Division 129 or 132 of the *GST Act in an income year that relates directly or indirectly to the asset.

(2) The entity can deduct the amount of the *increasing adjustment for the income year.

(3) However, the entity cannot deduct the amount to the extent (if any) that the adjustment arises from an increase in the extent to which the activity giving rise to the adjustment is of a private or domestic nature.

27-95 Balancing adjustment events

(1) The *termination value of a *depreciating asset is reduced if the relevant *balancing adjustment event is a *taxable supply. The reduction is an amount equal to the *GST payable on the supply.

(2) However, subsection (1) does not apply if the *termination value of the *depreciating asset is modified under Division 40 to be its *market value.

(3) The *termination value of a *depreciating asset is increased if the entity that *held the asset has a *decreasing adjustment that relates directly or indirectly to that *taxable supply in the income year in which the *balancing adjustment event occurred. The increase is the amount of the decreasing adjustment.

(4) The *termination value of a *depreciating asset is decreased if the entity that *held the asset has an *increasing adjustment that relates directly or indirectly to that *taxable supply in the income year in which the *balancing adjustment event occurred. The decrease is the amount of the increasing adjustment.

(5) An amount is included in the assessable income of the entity that *held the asset if the entity has a *decreasing adjustment that relates directly or indirectly to that *taxable supply in a later income year. The amount included is the amount of the decreasing adjustment.

(6) The entity that *held the asset can deduct an amount if the entity has an *increasing adjustment that relates directly or indirectly to that *taxable supply in a later income year. The amount it can deduct is the amount of the increasing adjustment.

27-100 Pooling

(1) This section contains special rules for expenditure (the pooled expenditure ) incurred by an entity:

(a) on a *depreciating asset allocated to a low-value pool; or

(b) on a depreciating asset allocated to a pool under Division 328 for or in an income year; or

(c) on *in-house software if the expenditure on the software is allocated to a software development pool; and

(d) on *project amounts if the amounts are allocated to a project pool.

Reduction to pools etc.

(2) There is a reduction under subsection (3) or (5) if:

(a) the pooled expenditure relates directly or indirectly to a *creditable acquisition or *creditable importation; and

(b) the entity is or becomes entitled to an *input tax credit in an income year (the credit year ) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred.

(2A) There is a reduction under subsection (4) if:

(a) the pooled expenditure relates directly or indirectly to a *creditable acquisition or *creditable importation; and

(b) the entity is or becomes entitled to an *input tax credit in an income year (the credit year ) for the acquisition or importation.

Reduced cost of assets allocated to a pool

(2B) A *depreciating asset's *cost is reduced if:

(a) an entity's acquisition or importation of the asset constitutes a *creditable acquisition or *creditable importation; and

(b) the entity is or becomes entitled to an *input tax credit for the acquisition or importation and the income year in which the acquisition or importation occurred is the same as the one in which the input tax credit arose; and

(c) the asset is allocated to a low-value pool or a pool under Division 328 for or in that year.

The reduction is the amount of the input tax credit.

Low-value pools

(3) For a low-value pool, the *closing pool balance of the pool for:

(a) if the credit year is later than the first income year for which *depreciating assets were allocated to the pool - the income year before the credit year; or

(b) if the credit year is the first income year for which *depreciating assets were allocated to the pool - the credit year;

is reduced by an amount equal to the input tax credit.

Software development pools and project pools

(4) For a software development pool or a project pool, the expenditure in the pool for the credit year, or the *pool value for the credit year, is reduced by an amount equal to the *input tax credit.

STS pools

(5) For a pool under Division 328, the *opening pool balance of the pool for the credit year is reduced by an amount equal to the input tax credit.

No reduction if market value

(5A) However, there is no reduction to the *cost of a *depreciating asset if its cost is modified under Division 40 to be its *market value.

Second element of cost

(6) There is a reduction under subsection (7) if:

(a) the entity incurs expenditure in an income year (also the credit year ) that is included in the second element of the *cost of a *depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the credit year; and

(b) the entity is or becomes entitled, after the credit year, to an *input tax credit for the expenditure.

(7) An amount equal to the amount of the *input tax credit is applied in reduction of:

(a) for a low-value pool:

(i) if the credit year is later than the first income year for which *depreciating assets were allocated to the pool - the *closing pool balance of the pool for the income year before the credit year; or

(ii) if the credit year is the first income year for which *depreciating assets were allocated to the pool - the *closing pool balance of the pool for the credit year; or

(b) for a pool under Division 328 - the *opening pool balance of the pool for the credit year.

(7A) There is a reduction to an amount of expenditure included in the second element of the *cost of a *depreciating asset if:

(a) the asset is allocated to a low-value pool or a pool under Division 328 for or in the income year in which the expenditure was incurred; and

(b) the entity that incurred the expenditure is or becomes entitled to an *input tax credit for the expenditure; and

(c) the entitlement arises in the income year in which the expenditure was incurred.

The reduction is the amount of the input tax credit.

Increasing adjustments

(8) There is an increase under subsection (9) if the entity has an *increasing adjustment (except one that arises under Division 129 or 132 of the *GST Act) in an income year (the adjustment year ) that relates directly or indirectly to a *creditable acquisition or *creditable importation to which the pooled expenditure relates.

Note: For an increasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-92.

(9) An amount equal to the amount of that *increasing adjustment is added to:

(a) for a low-value pool:

(i) if the adjustment year is later than the first income year for which *depreciating assets were allocated to the pool - the *closing pool balance of the pool for the income year before the adjustment year; or

(ii) if the adjustment year is the first income year for which *depreciating assets were allocated to the pool - the *closing pool balance of the pool for the adjustment year; or

(b) for a pool under Division 328 - the *opening pool balance of the pool for the adjustment year; or

(c) for *in-house software - the amount of expenditure allocated to the software development pool for the adjustment year; or

(d) for a project pool - the *pool value for the adjustment year.

Decreasing adjustments

(10) There is a decrease under subsection (11) if the entity has a *decreasing adjustment (except one that arises under Division 129 or 132 of the *GST Act) in an income year (also the adjustment year ) that relates directly or indirectly to a *creditable acquisition or *creditable importation to which the pooled expenditure relates.

Note: For a decreasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-87.

(11) An amount equal to the amount of the *decreasing adjustment is applied in reduction of:

(a) for a low-value pool:

(i) if the adjustment year is later than the first income year for which *depreciating assets were allocated to the pool - the *closing pool balance of the pool for the income year before the adjustment year; or

(ii) if the adjustment year is the first income year for which *depreciating assets were allocated to the pool - the *closing pool balance of the pool for the adjustment year; or

(b) for a pool under Division 328 - the *opening pool balance of the pool for the adjustment year; or

(c) for *in-house software - the amount of expenditure allocated to the software development pool for the adjustment year; or

(d) for a project pool - the *pool value for the adjustment year.

(12) If the amount available for reduction under subsection (11) is more than the amount referred to in paragraph (11)(a), (b), (c) or (d) (whichever is applicable), the excess is included in the entity's assessable income unless the entity is an *exempt entity.

27-105 Other Division 40 expenditure

(1) This section applies to expenditure for which an entity can deduct amounts under Division 40 (but not under Subdivision 40-B or 40-E, or Subdivision 40-I to the extent that that Subdivision relates to project pools).

(2) The amount of the expenditure is reduced if the entity is or becomes entitled to an *input tax credit for a *creditable acquisition or *creditable importation to which the expenditure directly or indirectly relates. The reduction is the amount of the input tax credit that relates to that expenditure.

(3) If the entity has a *decreasing adjustment in an income year that relates directly or indirectly to the expenditure, an amount equal to the decreasing adjustment is included in the entity's assessable income for that income year.

(4) If the entity has an *increasing adjustment in an income year that relates directly or indirectly to the expenditure, the entity can deduct an amount equal to the increasing adjustment for that income year.

(5) If the entity is a partnership and section 40-570 or 40-665 applies, an amount equal to the *input tax credit, the *decreasing adjustment or the *increasing adjustment is apportioned to each of the partners as appropriate.

(6) However, this section does not apply to an *exempt entity.

27-110 Input tax credit etc. relating to 2 or more things

This Subdivision applies to an *input tax credit, or an *increasing adjustment or *decreasing adjustment, that relates directly or indirectly to 2 or more things of which at least one is a *depreciating asset as if a reasonable proportion of the input tax credit or adjustment related directly or indirectly to each of those depreciating assets and each of those other things.