Taxation Ruling

TR 2000/18A4 - Addendum
(as at 1 July 2002)

Income tax: effective life of depreciating assets

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FOI status:

may be released

Addendum

Update of Taxation Ruling TR 2000/18

Preamble

Taxation Ruling TR 2000/18 has been updated to reflect terms used in Division 40 i.e. references to depreciating asset have replaced references to plant where appropriate. A new paragraph has been inserted to make reference to the introduction of statutory caps for certain assets. In addition, minor changes have been made to make the ruling easier to read.

Set out below are the paragraphs that have been affected by the update.

Omit the Ruling Heading:

Income tax: Depreciation effective life

and substitute:

Income tax: Effective life of depreciating assets

Omit para 4 and substitute:

You may choose to use the Commissioner's determination of the effective life of a depreciating asset or you may make your own estimate (see section 40-95 of the Act). The explanation of the methodology used by the Commissioner in making determinations may assist taxpayers who choose to make their own estimate of effective life.

Omit the second sentence in para 6 and substitute:

If you were using an effective life from Taxation Ruling IT 2685 for the purpose of calculating your deduction for an asset under Division 42 of the Act you can continue to use that effective life for the purpose of calculating your deduction under Division 40 for the asset."

Omit para 8 and substitute:

For plant:

•

you entered into a contract to acquire,

•

you otherwise acquired, or

•

you started to construct,

before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999, you may use the effective life for the plant set out in Taxation Ruling IT 2685 regardless of when you first use it or have it installed ready for use.

Omit in the first sentence in para 9:

depreciating

and substitute:

a depreciating.

Omit in the first sentence in para 16:

Capital Allowances

and substitute:

capital allowances.

Omit the additional space after "used" in para 18.

Omit from the heading before para 19:

plant

and substitute:

a depreciating asset.

Insert at the end of para 19:

(see section 40-100 of the Act).

Omit from the third sentence of para 24:

a variety of

and substitute:

various.

Omit from the first sentence in para 25:

we do

and substitute:

the Commissioner does.

Omit para 26 and substitute:

How intensive an industry uses an asset may impact directly on the asset's effective life. To establish what is the industry norm, industry is consulted wherever possible.

Omit from the third sentence of para 28:

, from one or more of a variety of causes,

Omit from the fourth sentence of para 28:

we consider the industry norm

and substitute:

the industry norm is considered.

Omit from the first sentence in para 29:

we consider the level of repairs and maintenance

and substitute:

why the level of repairs and maintenance is considered.

Omit from the first sentence in para 29:

we consider

and substitute:

it is considered.

Omit from the third sentence in para 30:

We consider these factors

and substitute:

These factors are considered.

Omit from the second sentence of para 32:

we have estimated the period for which it can be used by any taxpayer for its intended purpose

and substitute:

the period for which a particular asset can be used by any taxpayer for its intended purpose has been estimated.

Omit from the third sentence of para 32:

we have taken that approach only

and substitute:

that approach has only been taken.

Omit from the fourth sentence in para 33:

fixed number

and substitute:

pre-determined number.

Omit the additional space after "for" in the first sentence in para 37.

Omit the second and third sentences in para 39 and substitute:

Clearly, unpredictable obsolescence cannot be taken into account when making an estimate of effective life. The Commissioner would only take obsolescence into account if it can be predicted with a high level of certainty across a majority of users.

Omit from the first sentence in para 43:

we can establish a general scrapping or abandonment practice

and substitute:

a general scrapping or abandonment practice can be established.

Omit from the last sentence of para 44:

effective life is

and substitute:

effective life of an asset is.

Omit para 47 and substitute:

The factors outlined above are essentially the same factors the Commissioner considers you would use if you worked out the effective life of an asset yourself. There is, however, one critical difference.

Omit from the last sentence in para 48:

use: see subsection 40-105(1) of the Act

and substitute:

use (see subsection 40-105(1) of the Act).

Omit from the first sentence in para 49:

only determines

and substitute:

only makes determinations of.

Omit from the first sentence in para 51:

this Ruling

and substitute:

this ruling.

Omit the additional space before "40-75(1)" in the first sentence in para 51.

Omit from the third sentence in para 54:

we listed motor vehicles

and substitute:

motor vehicles are listed.

Omit the fourth and fifth sentences in para 54 and substitute:

In the attached schedule they are included only in the asset list. Whilst some assets are included in both tables with the same effective life, this is the exception rather than the norm. Generally, an asset would be included in an industry list only if the Commissioner determined a different effective life for use in that industry.

Before para 55 insert the heading:

New and Reviewed Items.

Omit para 55 and substitute:

New and reviewed items have been marked with an asterisk (*) in column 3 of Tables A and B .

Renumber paras 56-82 as paras 57-83.

Insert before renumbered para 57 the heading:

Statutory Caps

Insert new para 56 before renumbered para 57:

Taxation Laws Amendment Bill (No. 4) 2002 has been introduced into Parliament. Schedule 4 of that Bill proposes the introduction of statutory caps on the Commissioner's determined effective life for certain assets. Where the Commissioner has determined effective lives for assets in excess of the proposed statutory caps for those assets, they have been marked with a hash (#) in column 3 of Tables A and B.

Omit in renumbered para 59:

determined

and substitute:

made a determination of.

Omit in the first sentence of renumbered para 60:

the schedule attached to this Ruling

and substitute:

Tables A or B .

Omit in the second sentence of renumbered para 60:

is set

and substitute:

was determined.

Omit renumbered para 61 and substitute:

All items that have been removed are listed in Tables C to F of the schedule attached to this Ruling. These tables do not represent re-determinations made by the Commissioner. For easy identification, removed items have been listed exactly as they appeared in Taxation Ruling IT 2685. Removed items fall into four categories:

•

no effective life determined;

•

assets for which a deduction was previously allowed using the replacements method;

•

assets for which there were previously statutory rates; and

•

redundant assets.

Omit the heading before renumbered para 62 and substitute:

No effective life determined

Omit from the first sentence in renumbered para 62:

was set

and substitute:

was determined.

Omit from the second sentence in renumbered para 62:

e.g.livestock

and substitute:

e.g. livestock

Omit from the first sentence in renumbered para 63:

a schedule of

and substitute:

tables setting out.

Omit from the first sentence in renumbered para 63:

The schedule is

and substitute:

Tables A and B are.

Omit the renumbered para 64 and substitute:

Table C lists the assets that have been removed because no effective life was determined for them.

Omit from the second sentence in renumbered para 72:

attached to IT 2685

and substitute:

attached to Taxation Ruling IT 2685".

Omit from the third sentence in renumbered para 72:

Table D of the attached schedule

and substitute:

Table D .

Omit the heading Loose tools before renumbered para 73.

Omit the renumbered para 79 and substitute:

Horticultural plants are depreciating assets. The deduction for a horticultural plant is also based on its effective life and is available under Subdivision 40-F of the Act.

Omit the additional space after "methodology" in the first sentence of the renumbered para 80.

Omit from the second sentence of the renumbered para 80:

anticipated have

and substitute:

anticipated, have.

Omit from the last sentence in renumbered para 81:

deductions for capital expenditure incurred in establishing the new plant will

and substitute:

deductions will.

Omit the renumbered para 82 and substitute:

Industry bodies and interested taxpayers have been consulted during the course of the reviews. In addition, the items marked with an asterisk in Tables A and B have been reviewed by an independent panel presently comprising a representative from CPA Australia, the Corporate Tax Association, The Treasury, The Australian Valuation Office and the Australian Taxation Office.

Schedule

As part of the ongoing review being undertaken by the ATO of the effective life of assets there will be periodic consolidations of Tables A, B and F to reflect changes.

The Commissioner has made determinations that commence on 1 July 2002, pursuant to section 40-100 of the Income Tax Assessment Act 1997, determining the effective life of the following:

•

Aeroplanes and Helicopters;

•

Cars;

•

Gas Distribution and Transmission;

•

Gas, Oil, Condensate, LNG and LPG Manufacturing;

•

Gas and Oil Production;

•

Heavy Mobile Equipment - Construction and Mining;

•

Mobile Telecommunication Services and International Submarine Cables;

•

Oil Refining;

•

Ports; and

•

Radiology.

These determinations, plus other minor amendments are incorporated in the attached consolidated Tables A and B which are contained in the new '1 July 2002 Schedule'.

Table F has also been updated to include the following redundant items:

•

Oil Companies' Plant and Machinery:

•

Distilling (oil and tar) plant

•

Tanks Wagons

•

Trailers and Carts

•

Materials Handling Plant and Equipment:

•

Racks, stillages trollies and baskets

•

Refrigeration Equipment - Clip-on integrally mounted or static

•

Mining Machinery and Plant - Port loading facility foundation

•

Stevedoring Plant - Coal trimming machines

A consolidated version of Table F is also contained in the new '1 July 2002 Schedule'.

Delete Legislative References and Replace with the following:

Legislative references:

- ITAA 1997 Div 40

- ITAA 1997 40-F

- ITAA 1997 40-70(1)

- ITAA 1997 40-75(1)

- ITAA 1997 40-95

- ITAA 1997 40-100

- ITAA 1997 40-100(4)

- ITAA 1997 40-100(4)(b)

- ITAA 1997 40-105(1)

- ITAA 1997 Div 42

- ITAA 1936 Subdiv 960Q

Commissioner of Taxation
26 June 2002

Table A - Effective lives (Industry Categories) - as at 1 July 2002

Table B - Effective lives (Asset Categories) - as at 1 July 2002

Table F - Redundancies - as at 1 July 2002