Taxation Ruling

TR 2017/2

Income tax: effective life of depreciating assets (applicable from 1 July 2017)

  • Please note that the PDF version is the authorised version of this ruling.
    This Ruling, which applies from 1 July 2017, replaces TR 2016/1 (see paragraph 5 of this Ruling for further details).
    This document has changed over time. View its history.

Executive summary

1. This Ruling discusses the methodology used by the Commissioner of Taxation in making a determination of the effective life of depreciating assets under section 40-100 of the Income Tax Assessment Act 1997 (ITAA 1997). [1]

2. Determinations made by the Commissioner of the effective life of depreciating assets apply for the purposes of provisions of Division 40 under which the effective life of a depreciating asset is used to work out the asset's decline in value. [2] The effective life determination is made having regard to the period the depreciating asset can be used for a purpose specified in subsection 40-100(5) (a specified purpose [3] ), one of which is use for a taxable purpose. To the extent that the asset is used for a taxable purpose, a deduction may be available under Division 40 for the depreciating asset's decline in value (see section 40-25).

3. Effective life determinations made to date are consolidated in Tables A and B in the Schedule to this Ruling.

4. 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). The explanation provided in this Ruling of the methodology used by the Commissioner in making a determination of effective life may assist taxpayers who choose to make their own estimate of the effective life of a depreciating asset.

Previous ruling

5. This Ruling replaces Taxation Ruling TR 2016/1, which is withdrawn from 1 July 2017. To the extent that the Commissioner's views in that Ruling still apply, they have been incorporated into this Ruling.

Ruling

Effective life determination

6. The Commissioner has made a determination of the effective life of certain depreciating assets which takes effect from 1 July 2017. This determination has been incorporated into Tables A and B in the Schedule to this Ruling.

7. The date from which an effective life determined by the Commissioner is applicable is set out in the fourth column of Tables A and B.

Effective life applicable

8. If you first use a depreciating asset or have it installed ready for use within five years of the time (the relevant time):

·
you entered into the contract to acquire it
·
you started to construct it, or
·
you otherwise acquired it

then the effective life that will apply is the one that was in force at the relevant time (see section 40-95).

9. If you do not start to use a depreciating asset or have it installed ready for use within the five year period, then the effective life that will apply is the one that is in force at the date you first use the depreciating asset or have it installed ready for use for any purpose (see section 40-95).

How to use Tables A and B

10. Table A is an industry category table which lists assets that are peculiar to a particular industry or for which a particular effective life is appropriate because of the way the asset is used in that industry. The industry headings in Table A are drawn, where possible, from the classification subject categories in the Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.

·
Only a participant of a listed industry can use the Table A entries for that industry.
·
If an asset either corresponds exactly to a description in Table A for the industry in which it is used or it satisfies the general description of an asset used in the functional process of that industry, the effective life is the life specified.
·
If the particular asset is not listed under the relevant industry heading in Table A, either specifically or under a general functional group/class, then the industry participant can use a relevant effective life shown in Table B.

11. Table B is an asset category table which covers assets generally:

·
Taxpayers in industry can only use Table B entries if the particular asset is not listed under the relevant industry heading in Table A.
·
If the taxpayer is not using the asset in an industry specified in Table A and the asset corresponds to a description in Table B, the effective life is the life specified for that description.

12. Before using an effective life determination in Table A or B, taxpayers must first be satisfied that the asset in question is a depreciating asset for the purposes of Division 40. An asset being a depreciating asset as used by a particular taxpayer or industry may not necessarily be a depreciating asset for another taxpayer or industry.

13. If a particular asset is not listed in either Table A or B then the Commissioner has not made a determination of its effective life and you will need to work out its effective life yourself (see section 40-105 and Appendix 1, Working out your own effective life - paragraphs 46 to 49 below).

Date of effect

14. This Ruling applies from 1 July 2017. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Ruling.

Commissioner of Taxation
28 June 2017


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