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  

SECTION 40-10   40-10   Simplified outline of this Division  


The key concepts about depreciating assets and certain other capital expenditure are outlined below (in bold italics ).


Simplified outline of this Division
Item Major topic
Subordinate topics
Rules
Provisions
1 Rules about depreciating assets
1.1 Core provisions Subdivision 40-B
Depreciating assets are assets with a limited effective life that are reasonably expected to decline in value.
Broadly, the effective life of a depreciating asset is the period it can be used to produce income.
The decline in value is based on the cost and effective life of the depreciating asset, not its actual change in value. It begins at start time , when you begin to use the asset (or when you have it installed ready for use). It continues while you use the asset (or have it installed).
Usually, the owner of a depreciating asset holds the asset and can therefore claim deductions for its decline in value. Sometimes the economic owner will be different to the legal owner and the economic owner will be the holder.
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1.2 Cost Subdivision 40-C
The cost of a depreciating asset includes both:
· expenses you incur to start holding the asset; and
· additional expenses that contribute to its present condition and location (eg. improvements).
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1.3 Balancing adjustments Subdivision 40-D
When you stop holding a depreciating asset you may have to include an amount in your assessable income, or deduct an amount under a balancing adjustment . The adjustment reconciles the decline with the actual change in value.
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1.4 Low-value and software development pools Subdivision 40-E
Low-cost assets and assets depreciated to a low value may be placed in a low value pool , which is treated as a single depreciating asset. You can also pool in-house software expenditure in a software development pool .
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1.5 Primary production depreciating assets Subdivision 40-F
You can deduct amounts for capital expenditure on:
· water facilities immediately; or
· horticultural plants over a period that relates to the effective life of the plant; or
· fodder storage assets over 3 income years; or
· fencing assets immediately.
2 Rules about other capital expenditure
2.1 Capital expenditure of primary producers and other landholders Subdivision 40-G
You can deduct amounts for capital expenditure on:
· landcare operations immediately; or
· electricity and telephone lines over 10 income years.
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2.2 Capital expenditure that is immediately deductible Subdivision 40-H
You can get an immediate deduction for certain capital expenditure on:
· exploration or prospecting ; and
· rehabilitation of mine and quarry sites ; and
· paying petroleum taxes ; and
· environmental protection activities .
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2.3 Capital expenditure that is deductible over time Subdivision 40-I
You can deduct amounts for certain capital expenditure associated with projects you carry on. You deduct the amount over the life of the project using a project pool .
You can also deduct amounts for certain business related costs over 5 years where the amounts are not otherwise taken into account and are not denied a deduction.
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2.4 Capital expenditure for establishing trees in carbon sink forests Subdivision 40-J
You can deduct amounts for capital expenditure for the establishment of trees in carbon sink forests.


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