Taxation Determination

TD 93/142

Income tax: in calculating the residual value of a leased item, may a lower residual value than those outlined in IT 28 be adopted in light of the more generous depreciation rates?

  • Please note that the PDF version is the authorised version of this ruling.
    This document has changed over time. View its history.

FOI status:

may be releasedFOI number: I 1215663

This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination 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 Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

1. No. The residual value of a leased item should reflect its market value at the end of the lease, not its written-down value.

2. The table at para. 20 of IT 28 is intended to be a rough guide to the minimum market value of items with different effective lives. It is based on a straight-line amortisation of the cost of an item over its effective life, requiring a minimum residual value of 75% of the cost written down in that way. It is not based on actual depreciation allowable, whether by the diminishing value method or at accelerated or broadbanded rates, although the table in IT 28 was set out, for convenience, according to prime cost depreciation rates.

3. A table based on effective lives, rather than depreciation rates, is set out below.

Minimum residual values - percentage of cost
Plant and machinery classified according to effective life in years
Term of lease 5 6.66 10 13.3 20
1st year 60 63.75 67.5 68.5 70
2nd year 45 52.5 60.0 62.5 65
3rd year 30 41.25 52.5 55.0 60
4th year 15 30.0 45.0 50.0 55
5th year nil 18.75 37.5 45.0 50

4. A residual value lower than those outlined in the table may be used where a well considered and fair estimate of the likely market value of the item at the end of the lease would result in a lower value

Example An asset with an effective life of 20 years, acquired after 26 February 1992, is leased for 4 years.The 20 year effective life column should be used to determine an acceptable minimum residual value, even though the prime cost rate of depreciation for such an asset would now be 13%. In the absence of evidence indicating that the asset would have a lower market value at the end of the lease, the minimum acceptable residual value for the item would be 55% of the cost of the asset.

Commissioner of Taxation

Previously issued as Draft TD 93/D109


ATO references:
NO NO 92/1936-6

ISSN 1038 - 8982

Related Rulings/Determinations:

IT 28

Subject References:
residual values.

TD 93/142 history
  Date: Version: Change:
You are here 22 July 1993 Original ruling  
  20 June 2018 Consolidated ruling Addendum