TD 93/142A1 - Addendum
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.View the consolidated version for this notice.
- include in the table the minimum residual values for depreciating assets with an effective life of 8 years
- correct the figures in the effective life columns for 13.3 years and 20 years with effect from 1 July 2018
- update Example 1 to reflect that accelerated rates of depreciation and broadbanding could have only been available to assets acquired after 26 February 1992 and before 1 July 2001
- insert Example 2 to demonstrate the minimum acceptable residual value for a car subject to a lease entered into after 1 July 2002.
(a) At the end of the first sentence, insert 'and applies to leases entered into before 1 July 2018'.
(b) Omit the table; substitute:
|Plant and machinery classified according to effective life in years||Term of lease||5||6.66||8||10||13.3||20|
(c) After the paragraph; insert:
3A. The following table corrects the figures for the 13.3 and 20 year effective life columns and applies to leases entered into after 30 June 2018:
Minimum residual values - percentage of cost Plant and machinery classified according to effective life in years Term of lease 5 6.66 8 10 13.3 20 1st year 60 63.75 65.63 67.5 69.83 71.25 2nd year 45 52.5 56.25 60.0 63.75 67.50 3rd year 30 41.25 46.88 52.5 58.13 63.75 4th year 15 30.0 37.50 45.0 52.50 60.00 5th year nil 18.75 28.13 37.5 46.88 56.25
The figures in the above table follow the methodology set out in paragraph 2 of this Determination which can also be expressed as:
Minimum residual value as a percentage of cost = 75% - [ ( 75% / Effective life ) x Term of the lease ]
(a) Omit 'table'; substitute 'applicable table'.
(b) Omit the example.
(c) After the paragraph, insert new paragraphs 5 and 6 (and headings):
5. An asset with an effective life of 20 years, acquired after 26 February 1992 and before 1 July 2001, is leased for 4 years.
The 20-year effective life column in the table at paragraph 3 of this Determination 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.
6. A car with an effective life of 8 years, acquired on 1 July 2012, is leased for 5 years.
Using the 8-year effective life column in the table at paragraph 3 of this Determination the minimum residual value will be 28.13% of the cost of the car. This percentage of cost was determined as follows:
Minimum residual value as a percentage of cost = 75% - [ ( 75% / 8) x 5] = 28.13%
In the absence of evidence indicating that the car would have a lower market value at the end of the lease, the minimum acceptable residual value for the car would be 28.13% of the cost of the asset.
Commissioner of Taxation
20 June 2018
You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).