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-C - Cost  

Operative provisions

SECTION 40-185   Amount you are taken to have paid to hold a depreciating asset or to receive a benefit  

40-185(1)  
This Division applies to you as if you had paid, to * hold a * depreciating asset or for an economic benefit for such an asset, the greater of these amounts:


(a) the sum of the amounts that would have been included in your assessable income because you started to hold the asset or received the benefit, or because you gave something to start holding the asset or receive the benefit, if you ignored the value of anything you gave that reduced the amount actually included; or


(b) the sum of the applicable amounts set out in this table in relation to holding the asset or receiving the benefit.

Example 1:

Gold Medals Ltd manufactures some medals for a local sporting association ' s annual meeting in return for a die cut stamping machine. The medals have a market value of $20,000. The machine has an arm ' s length value of $100,000 but Gold Medals has to contribute $75,000 towards acquiring it from the association. Gold Medals will have to include:


($100,000 - $75,000) = $25,000

in its assessable income because of section 21A of the Income Tax Assessment Act 1936 .

The first element of the machine ' s cost will be the greater of:

  • · the amount it paid ($75,000) plus the market value of the non-cash benefits it provided ($20,000), which comes to $95,000; and
  • · the amount that was assessable income from receiving the machine ($25,000) plus the amount by which that assessable income was reduced because of the payment Gold Medals made ($75,000), which comes to $100,000.
  • So, in this case, the first element of the machine ' s cost to Gold Medals is $100,000.

    Example 2:

    Laura travels overseas to purchase a purpose-built vehicle for use in her trade. The purchase of the vehicle is the sole reason for the trip. Laura incurs expenses for airfares and accommodation. These expenses are included in the cost of the vehicle because they are " in relation to starting to hold " the vehicle.


    Amount you are taken to have paid to hold a depreciating asset or to receive a benefit
    Item In this case: The amount is:
    1 You pay an amount The amount
    .
    2 You incur or increase a liability to pay an amount The amount of the liability or increase when you incurred or increased it
    .
    3 All or part of a liability to pay an amount owed to you by another entity is terminated The amount of the liability or part when it is terminated
    .
    4 You provide a *non-cash benefit The *market value of the non-cash benefit when it is provided
    .
    5 You incur or increase a liability to provide a *non-cash benefit The *market value of the non-cash benefit or the increase when you incurred or increased the liability
    .
    6 All or part of a liability to provide a *non-cash benefit (except the *depreciating asset) owed to you by another entity is terminated The *market value of the non-cash benefit when the liability is terminated

    Note 1:

    Item 1 includes not only amounts actually paid but also amounts taken to have been paid. Examples include the price of the notional purchase made when trading stock is converted to a depreciating asset under section 70-110 , the cost of an asset held under a hire purchase arrangement under section 240-25 and a lessor ' s deemed purchase price when a luxury car lease ends under subsection 242-90(3) .

    Note 2:

    Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

    40-185(2)  
    In applying the table in subsection (1) to a liability of yours to pay an amount or provide a * non-cash benefit, don ' t count any part of the liability you have already satisfied.


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