Income Tax Assessment Act 1997
Note: A Commissioner ' s Remedial Power (CRP 2017/2) is relevant to this part of the tax law. Taxation Administration (Remedial Power - Small Business Restructure Roll-over) Determination 2017 (F2017L01687) modifies the operation of s 40-340 of the Income Tax Assessment Act 1997 and any other provisions of a taxation law whose operation is affected by the modified operation of s 40-340 in relation to an asset transferred under a small business restructure roll-over (item 8 of the table in s 40-340(1) ).
The operation of the relevant provisions is modified as follows:
If s 40-340 of ITAA 1997 provides for rollover relief in relation to a disposal of a depreciating asset because the condition in item 8 of the table in s 40-340(1) of ITAA 1997 is satisfied in relation to the asset, that section has effect as if it also provided that the disposal of the asset has no direct consequences under the income tax law (other than Div 40 of ITAA 1997).
The modification applies in respect of transfers on or after 8 May 2018.
An entity must treat a modification as not applying to it or any other entity if the modification would produce a less favourable result for it. The Commissioner is empowered by s 370-5 of Sch 1 to the Taxation Administration Act 1953 to make modifications, by legislative instrument, to ensure the law is administered to achieve its intended purpose or object.
You work out the decline in value of a * depreciating asset for an income year using the prime cost method in this way:
|Asset ' s *cost||×||
Asset ' s *effective life
days held has the same meaning as in subsection 40-70(1) .
Greg acquires an asset for $3,500 and first uses it on the 26th day of the income year. If the effective life of the asset is 3 1/3 years, the asset would decline in value in that year by:
$3,500 × [ 365 - 25 ]
The asset ' s adjustable value at the end of the income year is:
$3,500 - $978 = $2,522
However, you must adjust the formula in subsection (1) for an income year (the change year ):
(a) for which you recalculate the * depreciating asset ' s * effective life; or
(b) after the year in which the asset ' s start time occurs and in which an amount is included in the second element of the asset ' s * cost; or
(c) for which the asset ' s * opening adjustable value is reduced under section 40-90 (about debt forgiveness); or
(d) in which the *remaining effective life of the asset is calculated under section 40-103 ; or
(e) for which there is a reduction to the asset ' s opening adjustable value under paragraph 40-365(5)(b) (about involuntary disposals) where you are using the prime cost method; or
(f) for which the opening adjustable value of the asset is modified under subsection 27-80(3A) or (4) , 27-85(3) or 27-90(3) ; or
(g) for which there is a reduction in the asset ' s opening adjustable value under section 775-70 ; or
(h) for which there is an increase in the asset ' s opening adjustable value under section 775-75 .
The adjustments apply for the change year and later years.
For recalculating a depreciating asset ' s effective life: see section 40-110 .
You may also adjust the formula for an income year if you had undeducted core technology expenditure for the asset at the end of your last income year commencing before 1 July 2011 (see section 355-605 of the Income Tax (Transitional Provisions) Act 1997 ).
You must also adjust the formula if an accelerated decline in value applied to the asset under Subdivision 40-BA of the Income Tax (Transitional Provisions) Act 1997 : see subsection 40-135(3) of that Act.
[ CCH Note: S 40-75(2) will be amended by No 92 of 2020, s 3 and Sch 7 item 13, by substituting note 3, effective 1 January 2021. Note 3 will read:
The adjustments are:
(a) instead of the asset ' s * cost, you use its * opening adjustable value for the change year plus the amounts (if any) included in the second element of its cost for that year; and
(b) instead of the asset ' s * effective life, you use its * remaining effective life. 40-75(4)
The remaining effective life of a * depreciating asset is any period of its * effective life that is yet to elapse as at:
(a) the start of the change year; or
(b) in the case of a roll-over under section 40-340 - the time when the * balancing adjustment event occurs for the transferor.
Effective life is worked out in years and fractions of years.
You must also adjust the formula in subsection (1) for an intangible * depreciating asset that:
(a) is mentioned in an item in the table in subsection 40-95(7) (except item 5, 7 or 8); and
(b) you acquire from a former * holder of the asset.
The adjustment applies for the income year in which you acquire the asset and later income years.40-75(6)
Instead of the asset ' s * effective life under the table in subsection 40-95(7) , you use the number of years remaining in that effective life as at the start of the income year in which you acquire the asset. Limit on decline 40-75(7)
The decline in value of a * depreciating asset under this section for an income year cannot be more than:
(a) for the income year in which the asset ' s * start time occurs - its * cost; or
(b) for a later year - the sum of its * opening adjustable value for that year and any amount included in the second element of its cost for that year.