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

Schedule 2   General consequential amendments

Income Tax Assessment Act 1997

291   At the end of subsection 118-10(1)

Add:

Example: On 10 July 2001, Gayle buys a print for $450 and hangs it in her home. On 30 November 2001 she takes the print to her office and hangs it in the lobby. Gayle self assesses the effective life of the print to be 7 years.

Gayle sells the print to Anna for $700 on 2 January 2002.

How much can Gayle deduct for the 2001-02 income year?

The cost of the print is $450. Gayle chooses to use the prime cost method to calculate its decline in value.

The print's decline in value is:

$450 * (177 / 365) * (100% / 7 years)

= $31

Gayle can deduct $6 as the taxable use portion of the decline in value under Division 40:

(34 / 177) * 31

Due to the balancing adjustment event that occurred on 2 January 2002, $54 is included in Gayle's assessable income for the 2001-02 income year under section 40-285. The amount is reduced for non-taxable use by section 40-290.

A capital gain of $202 is disregarded under this section because the asset is a collectable acquired for less than $500.