How we prioritise our effective life reviews
We analyse both subjective and objective factors when deciding which industries or assets to review. Subjective factors examined include:
- Examination of old determinations to ascertain if they are inconsistent with current industry norms and therefore in need of review.
- Identification of new or emerging industries that do not currently have safe harbour effective life determinations in the Commissioner’s schedule.
- Requests from a taxpayer or industry group for new or revised determinations of effective life.
We also use objective measures of risk to identify industries or assets to review. To this end, we have identified the following three risk factors, each being of equal weight:
- the dollar amount of depreciation claimed annually
- the number of taxpayers who own the assets
- whether or not the asset or industry is listed in the effective life schedule and, if so, whether or not that listing is inconsistent with current industry practice.
We collect and rank data for each of these factors to prioritise assets and industries for review. This approach is not limited to generic assets and, in some cases, may be extended to assets used across a whole industry sector. For example, we have identified that the retail trade sector is comprised of 41 discrete segments. Instead of reviewing the effective life of depreciating assets used by each of these segments, we can identify assets that are used by most retail traders, such as point-of-sale and display assets. This helps us focus on assets that represent a significant proportion of the dollar value of depreciation claimed across this sector.