ATO Interpretative Decision
ATO ID 2003/753 (Withdrawn)
Income Tax
Capital Allowances: Division 42 - use of effective life former owner was using where 'same user' rule appliesFOI status: may be released
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This ATO ID is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1997 that was repealed with effect from 1 July 2001. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions relating to the former provision. Refer to ATO ID 2003/754 which reflects the same view in respect of the replacement provision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 15 September 2006
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
For the purposes of the 'same user' rule in subsection 42-100(5) of the Income Tax Assessment Act 1997 (ITAA 1997), was the former owner of a unit of plant using an effective life to work out their depreciation deduction for that plant if they were using a rate in their calculation formula?
Decision
No. The former owner was not using an effective life for the purposes of the 'same user' rule in subsection 42-100(5) of the ITAA 1997 to work out their depreciation deduction because the rate they were using was accelerated and does not bear any direct relationship to the effective life of the plant.
Facts
The taxpayer acquired a unit of plant after 21 September 1999 in circumstances where the 'same user' rule in subsection 42-100(5) of the ITAA 1997 applied to the acquisition. The plant was being depreciated by the former owner (who had acquired the plant prior to 21 September 1999) using an 'accelerated' diminishing value rate set out in Subdivision 42-D of the ITAA 1997. The taxpayer does not meet the conditions for small business taxpayers to retain accelerated depreciation in section 42-345 of the ITAA 1997. The taxpayer did not allocate the plant to a 'same rate' pool (Subdivision 42-L of the ITAA 1997) or a low-value pool (Subdivision 42-M of the ITAA 1997).
Reasons for Decision
The amount you deduct for the depreciation of plant under Division 42 of the ITAA 1997 is worked out under Subdivision 42-E of the ITAA 1997, generally by using the relevant formula for either the diminishing value method or the prime cost method (subsection 42-20(1) of the ITAA 1997). A choice of the method you use is generally available (subsection 42-25(3) of the ITAA 1997). However, because of the application of the 'same user' rule in subsection 42-25(5) of the ITAA 1997 the taxpayer must use the diminishing value method because the former owner used that method.
The formula the taxpayer must use for the diminishing value method is contained in subsection 42-160(3) of the ITAA 1997 because they acquired the plant after 21 September 1999 (subsection 42-160(2) of the ITAA 1997). A component of this formula is the effective life of the unit of plant.
A choice of the effective life you use is generally available (subsection 42-100(1) of the ITAA 1997). However, because of the application of the 'same user' rule in subsection 42-100(5) of the ITAA 1997 the taxpayer must use the same effective life that the former owner was using (paragraph 42-100(5)(c) of the ITAA 1997).
The former owner was using the diminishing value method formula in subsection 42-160(1) of the ITAA 1997 because they acquired the plant before 21 September 1999. That formula contains a diminishing value 'rate' component which is set out in Subdivision 42-D of the ITAA 1997. While the starting point of working out that rate is the effective life of the plant, the rate incorporates a factor of loading and a factor of broadbanding. The result is a rate of depreciation that is 'accelerated' in comparison to the effective life of the plant. In these circumstances, the former owner is not 'using' an effective life for the purposes of paragraph 42-100(5)(c) of the ITAA 1997. This means that the taxpayer must, under subsection 42-100(6) of the ITAA 1997, use an effective life determined by the Commissioner.
Date of decision: 15 May 2003Year of income: Year ended 30 June 2000 Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
subsection 42-20(1)
subsection 42-25(3)
subsection 42-25(5)
subsection 42-100(1)
subsection 42-100(5)
paragraph 42-100(5)(c)
subsection 42-100(6)
subsection 42-160(1)
subsection 42-160(2)
subsection 42-160(3)
section 42-345
ATO ID 2003/754
Other References:
NAT 1996-6.2001 'Guide To Depreciation 2000-01'
Keywords
Accelerated depreciation
Capital Allowances CoE
Depreciable plant
Depreciation
Depreciation methods
Depreciation rates
Effective life
Plant acquired post 21 September 1999
Plant acquired pre 21 September 1999
Removal of accelerated depreciation
Retention of accelerated depreciation
ISSN: 1445-2782
| Date: | Version: | |
| 15 May 2003 | Original statement | |
| You are here → | 15 September 2006 | Archived |