New Business Tax System (Capital Allowances - Transitional and Consequential) Act 2001 (77 of 2001)
Schedule 2 General consequential amendments
Income Tax Assessment Act 1997
244 Division 58
Repeal the Division, substitute:
Division 58 - Capital allowances for depreciating assets previously owned by an exempt entity
Table of Subdivisions
Guide to Division 58
58-A Application
58-B Calculating decline in value of privatised assets under Division 40
Guide to Division 58
58-1 What this Division is about
This Division sets out special rules that apply in calculating deductions for the decline in value of depreciating assets and balancing adjustments for assets previously owned by an exempt entity if the assets:
· continue to be owned by that entity after the entity becomes taxable; or
· are acquired from that entity, in connection with the acquisition of a business, by a purchaser that is a taxable entity.
There is a choice of 2 methods for each depreciating asset:
· the notional written down value method; and
· the undeducted pre-existing audited book value method.
Subdivision 58-A - Application
Table of sections
58-5 Application of Division
58-10 When an asset is acquired in connection with the acquisition of a business
58-5 Application of Division
(1) This Division applies in 2 situations.
Entity sale
(2) The first (an entity sale situation ) is where:
(a) at a particular time on or after 1 July 2001, an entity is an exempt entity; and
(b) just after that time, the entity's *ordinary income or *statutory income becomes to any extent assessable income.
(3) In an entity sale situation:
(a) the entity is a transition entity ; and
(b) the time when the entity's *ordinary income or *statutory income becomes to that extent assessable is the transition time ; and
(c) the income year in which the *transition time occurs is the transition year for the entity; and
(d) the *depreciating assets the *transition entity *held just before the transition time are privatised assets .
Asset sale
(4) The second (an asset sale situation ) is where:
(a) at a particular time on or after 1 July 2001, an entity (the purchaser ) whose *ordinary income or statutory income is to any extent assessable acquires a *depreciating asset from an *exempt entity; and
(b) the asset is acquired in connection with the acquisition of a *business from the exempt entity.
(5) In an asset sale situation:
(a) the *exempt entity is the tax exempt vendor ; and
(b) the time when the *depreciating asset is acquired is the acquisition time ; and
(c) the income year in which the *acquisition time occurs is the acquisition year ; and
(d) each *depreciating asset the purchaser acquires from the *tax exempt vendor at the acquisition time is a privatised asset .
58-10 When an asset is acquired in connection with the acquisition of a business
(1) A *depreciating asset is taken to be acquired in connection with the acquisition of a *business from the *exempt entity if and only if:
(a) the asset was used by the exempt entity in carrying on a business and the purchaser or another person uses the asset in carrying on the business; or
(b) subsection (2) applies.
(2) This subsection applies if:
(a) the asset was used by the *exempt entity in performing functions, or engaging in activities, that did not constitute the carrying on of a *business by the exempt entity and the asset is used by the purchaser or another person in performing those functions or engaging in those activities as part of carrying on a business; or
(b) all of these subparagraphs apply:
(i) the acquisition by the purchaser of the asset was connected with the acquisition of another asset by the purchaser or another person from the exempt entity or from an *associate of the exempt entity;
(ii) ownership of the other asset gives the purchaser or other person a right, or imposes on the purchaser or other person an obligation, to perform functions or engage in activities as part of the carrying on of a business or confers on the purchaser or other person a commercial advantage or opportunity in connection with performing functions or engaging in activities as part of the carrying on of a business;
(iii) the asset is used by the purchaser or other person in performing those functions or engaging in those activities under the right or obligation or in taking the benefit of the advantage or opportunity; or
(c) the asset was acquired by the purchaser under an *arrangement under which the purchaser or another person acquired another asset from the exempt entity or from an associate of the exempt entity and:
(i) the other asset is taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection; or
(ii) where the other asset is not a depreciating asset, it would, if it were a depreciating asset, be taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection;
to be acquired in connection with the acquisition of a business from the exempt entity.
(3) Paragraphs (2)(a), (b) and (c) do not apply if the asset is used by the purchaser solely to derive assessable income from the provision of office or residential accommodation.
Subdivision 58-B - Calculating decline in value of privatised assets under Division 40
Table of sections
58-60 Purpose of rules in this Subdivision
58-65 Choice of method to work out cost of privatised asset
58-70 Application of Division 40
58-75 Meaning of notional written down value
58-80 Meaning of undeducted pre-existing audited book value
58-85 Pre-existing audited book value of depreciating asset
58-90 Method for transition entity
58-60 Purpose of rules in this Subdivision
This Subdivision sets out rules that affect the way in which the *transition entity or the purchaser work out the decline in value of, and balancing adjustments for, *privatised assets under Division 40 after the *transition time or the *acquisition time.
58-65 Choice of method to work out cost of privatised asset
(1) The *transition entity or the purchaser has a choice to work out the first element of the *cost of each *privatised asset.
(2) The choice is to use either:
(a) the *notional written down value of the asset; or
(b) the *undeducted pre-existing audited book value (if any) of the asset.
(3) The choice must be made:
(a) for the *transition entity - by the day on which the transition entity lodges its income tax return for the *transition year; or
(b) for the purchaser - by the day on which the purchaser lodges the purchaser's income tax return for the *acquisition year;
or within a further period allowed by the Commissioner.
(4) The choice, once made, cannot be changed.
58-70 Application of Division 40
Application of Division 40
(1) The *transition entity and the purchaser work out the decline in value of, and the effect of a *balancing adjustment event occurring for, each *privatised asset using Division 40 (Capital allowances) as if the asset had been acquired under a contract entered into on or after 1 July 2001.
Entity sale situation
(2) Division 40 applies to a *privatised asset *held by the *transition entity as if the asset had not been used, or *installed ready for use, for any purpose before the *transition time.
(3) The first element of the *cost to the *transition entity at the *transition time is the *notional written down value of the asset or the *undeducted pre-existing audited book value of the asset (depending on the choice made for the asset).
(4) No amount incurred before the *transition time is included in the second element of the *cost of a *privatised asset.
Asset sale situation
(5) The first element of the *cost of a *privatised asset to the purchaser at the *acquisition time is the sum of:
(a) the *notional written down value of the asset or the *undeducted pre-existing audited book value of the asset (depending on the choice made for the asset); and
(b) the amount of any incidental costs to the purchaser in acquiring the asset.
58-75 Meaning of notional written down value
(1) The notional written down value of a *privatised asset is its *adjustable value in the hands of:
(a) the *transition entity just before the *transition time; or
(b) the *tax exempt vendor just before the *acquisition time;
worked out using the assumptions in this section.
Application of Division 40
(2) Assume that Division 40 had always applied to work out the decline in value of the *privatised asset.
Use for taxable purposes
(3) Assume that, in applying Division 40 to the *privatised asset, it had always been used by the *transition entity or the *tax exempt vendor wholly for *taxable purposes.
Cost and acquisition time: exempt Australian government agency
(4) If the *transition entity or the *tax exempt vendor was an *exempt Australian government agency just before the *transition time and had acquired the *privatised asset from another exempt Australian government agency:
(a) assume that the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the other exempt Australian government agency and that the first element of its *cost to the transition entity or tax exempt vendor is the amount that was its cost to the other exempt Australian government agency; or
(b) if it had, before its acquisition by the transition entity or tax exempt vendor, been successively *held by 2 or more exempt Australian government agencies - assume that:
(i) the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the first of those exempt Australian government agencies that owned it; and
(ii) the first element of its cost to the transition entity or tax exempt vendor is the sum of the amount that was the first element of its cost to the first of those exempt Australian government agencies that owned it and any amount included in the second element of its cost for that first agency or a later successive agency.
Effective life
(5) Assume that:
(a) the *transition entity or the *tax exempt vendor had chosen to use an *effective life determined by the Commissioner for the *privatised asset as in force at the *transition time or the *acquisition time; and
(b) subsection 40-95(2) did not apply.
(6) Assume also that section 40-110 (about recalculating effective life) did not apply.
58-80 Meaning of undeducted pre-existing audited book value
(1) The undeducted pre-existing audited book value of a *privatised asset is its *adjustable value in the hands of:
(a) the *transition entity just before the *transition time; or
(b) the *tax exempt vendor just before the *acquisition time;
worked out using the assumptions in this section.
Application of Division 40
(2) Assume that Division 40 had always applied to work out the decline in value of the *privatised asset.
Use for taxable purposes
(3) Assume that, in applying Division 40 to the *privatised asset, it had always been used by the *transition entity or the *tax exempt vendor wholly for *taxable purposes.
Cost
(4) Assume that:
(a) the first element of the *privatised asset's *cost to the *transition entity or the *tax exempt vendor is its *pre-existing audited book value as at the latest time (the test time ) at which it had a pre-existing audited book value; and
(b) no amount was included in the second element of the asset's cost before the test time; and
(c) any amount included in the second element of the asset's cost after the test time had been incurred by the transition entity or the tax exempt vendor.
Acquisition time
(5) Assume that the *transition entity or the *tax exempt vendor had acquired the *privatised asset at the test time.
Effective life
(6) Assume that:
(a) the *transition entity or the *tax exempt vendor had chosen to use an *effective life determined by the Commissioner for the *privatised asset as in force at the *transition time or the *acquisition time; and
(b) subsection 40-95(2) did not apply.
(7) Assume also that section 40-110 (about recalculating effective life) did not apply.
58-85 Pre-existing audited book value of depreciating asset
(1) A *privatised asset has a pre-existing audited book value if:
(a) a balance sheet, as at the end of an annual accounting period (the balance date ), that was prepared as part of an *exempt entity's final accounts for that period showed the asset as an asset of the exempt entity and specified a value for it; and
(b) a qualified independent auditor who was engaged, or was required by law, to undertake an audit of those accounts had prepared and signed, before 4 August 1997, a final audit report on those accounts; and
(c) the report did not state that the auditor was not satisfied that the specified value fairly represented the value of the asset.
The asset is taken to have had a pre-existing audited book value at the balance date of an amount equal to the specified value.
(2) If a balance sheet did not specify a value for the asset but specified a total value for 2 or more assets including the asset, the balance sheet is taken to have specified as the value of the asset so much of that total value as is reasonably attributable to the asset.
58-90 Method for transition entity
The *transition entity must, in working out the decline in value of a *privatised asset, use the *diminishing value method or the *prime cost method for the asset that it used to work out the *notional written down value, or the *undeducted pre-existing audited book value, of the asset.