INCOME TAX ASSESSMENT ACT 1997

CHAPTER 2 - LIABILITY RULES OF GENERAL APPLICATION  

PART 2-10 - CAPITAL ALLOWANCES: RULES ABOUT DEDUCTIBILITY OF CAPITAL EXPENDITURE  

Division 40 - Capital allowances  

Subdivision 40-B - Core provisions  

Operative provisions

SECTION 40-110   Recalculating effective life  

40-110(1)  


You may choose to recalculate the * effective life of a * depreciating asset from a later income year if the effective life you have been using is no longer accurate because of changed circumstances relating to the nature of the use of the asset.
Example:

Some examples of changes in circumstances that may result in your recalculating the effective life of a depreciating asset are:

  • · your use of the asset turns out to be more or less rigorous than you expected (or was anticipated by the Commissioner ' s determination);
  • · there is a downturn in demand for the goods or services the asset is used to produce that will result in the asset being scrapped;
  • · legislation prevents the asset ' s continued use;
  • · changes in technology make the asset redundant;
  • · there is an unexpected demand, or lack of success, for a film.
  • 40-110(2)  


    You must recalculate a * depreciating asset ' s * effective life from a later income year if:


    (a) you:


    (i) self-assessed its effective life; or

    (ii) are using an effective life worked out under section 40-100 (about the Commissioner ' s determination), or 40-102 (about the capped life of certain depreciating assets), and the * prime cost method; or

    (iii) are using an effective life because of subsection 40-95(4), (4B), (4C), (5), (5B) or (5C) ; and


    (b) its * cost is increased in that year by at least 10%.

    Note 1:

    You may conclude that the effective life is the same.

    Note 2:

    For the elements of the cost of a depreciating asset, see Subdivision 40-C .

    Example 1:

    Paul purchases a photocopier and self-assesses its effective life at 6 years. In a later year he incurs expenditure to increase the quality of the reproductions it makes. He recalculates its effective life, but concludes that it remains the same.

    Example 2:

    Fiona also purchases a photocopier and self-assesses its effective life at 6 years. In a later year she incurs expenditure to incorporate a more robust paper handling system. She recalculates its effective life, and concludes that it is increased to 7 years.

    40-110(3)  


    You must recalculate a * depreciating asset ' s * effective life for the income year in which you started to * hold it if:


    (a) you are using an effective life because of subsection 40-95(4) , (4B), (4C), (5), (5B) or (5C); and


    (b) the asset ' s * cost is increased after you started to hold it in that year by at least 10%.

    40-110(3A)  


    Subsections (1), (2) and (3) do not apply to a *depreciating asset that is a *mining, quarrying or prospecting right or *mining, quarrying or prospecting information.

    40-110(3B)  


    You may choose to recalculate the *effective life of a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, from a later income year if the effective life you have been using is no longer accurate:


    (a) because of changed circumstances relating to an existing or proposed mine, petroleum field or quarry to which that right or information relates; or


    (b) because that right or information now relates to an existing or proposed mine, petroleum field or quarry; or


    (c) because that right or information no longer relates to an existing or proposed mine, petroleum field or quarry.

    40-110(4)  


    A recalculation under this section must be done using:


    (a) if paragraph (b) does not apply - section 40-105 (about self-assessing effective life); or


    (b) if the *depreciating asset is a *mining, quarrying or prospecting right or *mining, quarrying or prospecting information:


    (i) subsections 40-95(10) and (11) (if the right or information relates to an existing or proposed mine, petroleum field or quarry); or

    (ii) subsection 40-95(12) (if the right or information no longer relates to an existing or proposed mine, petroleum field or quarry).
    Exception: intangibles

    40-110(5)  


    This section does not apply to an intangible * depreciating asset to which an item in the table in subsection 40-95(7) applies.

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