Depreciation provisions
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This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
End of attentionBasis for depreciation
Generally, the normal depreciation rules apply for working out the attributable income of a CFC. This means you can choose to depreciate assets by the diminishing value method or the prime cost method. In addition, the rates of depreciation that apply for working out taxable income will also apply in working out attributable income.
Example 19: Deduction for depreciation
A CFC purchased a depreciable asset on 1 July 2003 and uses it solely for the production of notional assessable income. For the statutory accounting period ended 30 June 2004, depreciation would be worked out as follows using the diminishing value method.
Cost at 1 July 2003
|
$20,000
|
Depreciation - 20% × 20,000
|
$4,000
|
Written down value at 30 June 2004
|
$16,000
|
Depreciation in 2003-04
|
$4,000
|
End of exampleApportionment for exempt usage
A notional allowable deduction for depreciation must be reduced if an asset is only partially used for the production of notional assessable income. The normal rules apply in working out the reduction.
Example 20: Apportionment of deduction for depreciation
A CFC purchased a depreciable asset on 1 July 2003 and used it for the production of income. For the statutory accounting period ended 30 June 2004, only 50% of the usage was for the production of notional assessable income. Depreciation, using the diminishing value method, would be worked out as follows.
Cost at 1 July 2003
|
$20,000
|
20% depreciation to 30 June 2004
|
$4,000
|
Written down value at 30 June 2004
|
$16,000
|
Depreciation in 2003-04 (50% of $4,000)
|
$2,000
|
End of exampleAsset used in a non-attributable period
Special rules apply for an asset held by a CFC during a period for which it was either:
- not necessary to work out the attributable income of the CFC, or
- not necessary to take depreciation on the asset into account in working out the attributable income of the CFC.
In such cases, the depreciation rules apply as if the asset were held solely for the production of notional assessable income during the period.
Example 21: Deduction for depreciation in non-attributable period
A CFC purchased a depreciable asset on 1 July 2001 and used it for the production of income. It was not necessary to work out the attributable income of the CFC for the period ending 30 June 2002. For the statutory accounting period ended 30 June 2003, only 50% of the usage was for the production of notional assessable income. In working out the depreciation for the 2002-03 period using the diminishing value method, the first step is to notionally depreciate the asset to the beginning of the income year.
Cost at 1 July 2001
|
$60,000
|
20% depreciation to 30 June 2002
|
$4,000
|
Notional written down value at 30 June 2002
|
$16,000
|
The next step is to determine the depreciation for the 2002-03 income year
Notional written down value at 30 June 2002
|
$16,000
|
20% depreciation to 30 June 2003
|
$3,200
|
Notional written down value at 30 June 2003
|
$12,800
|
The last step is to apportion the depreciation because the asset is not used wholly for the production of notional assessable income.
Depreciation in 2002-03 (50% of $3,200)
|
$1,600
|
End of exampleSale of a depreciable asset
Under the normal operation of the Act, a deduction for the difference may be allowed where an asset is sold for less than the notional depreciated value of the asset. This deduction is also allowable in working out the attributable income of a CFC.
Example 22: Deduction on disposal
In the next statutory accounting period the depreciable asset in example 22 was again used for 50% of the time to derive notional assessable income. At the end of the year it was sold for $9,000. The depreciation calculation would be as follows.
Notional written down value at 30 June 2003
|
$12,800
|
20% depreciation to 30 June 2004
|
$2,560
|
Notional written down value at 30 June 2004
|
$10,240
|
Proceeds of sale
|
$9,000
|
Notional loss
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$1,240
|
Depreciation in 2003-04 (50% of $2,560)
|
$1,280
|
Deduction for loss (50% of $1,240)
|
$620
|
An amount may also be included in notional assessable income as a result of the sale of the asset.
End of example
Example 23: Notional assessable income on disposal
Assume that the asset was sold for $18,000. In this case an amount would be included in notional assessable income as follows.
Cost at 1 July 2001
|
$20,000
|
Depreciation allowed
|
$2,800
|
Actual written down value at 30 June 2004
|
$17,120
|
Proceeds of sale
|
$18,000
|
Actual written down value
|
$17,120
|
Notional assessable income on disposal
|
$880
|
Contact the Tax Office where you lodge your return for further details.
End of exampleWhat about other capital deductions?
There are other provisions of the Act that allow for a deduction of the capital amounts and these may apply when working out attributable income - for example, Division 10 of Part III. Where the assets were used in a non-attributable income period, the Tax Office must determine the amount of the deduction allowed or the recoupment included in notional assessable income. However, it is not expected that this will often occur. Contact the tax office where you lodge your tax return for further details.
Last modified: 05 Dec 2006QC 17522