Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012739982646

Ruling

Subject: Depreciation

Question 1

Are you entitled to claim decline in value of investment trading software?

Answer

Yes.

Question 2

Is there a balancing adjustment when trading management software ceases to be used?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You purchased and installed a share trading software system (system) to assist in trading shares to gain capital gains.

You commenced using the system and you earned some dividends and managed a small profit.

The supporting company that supplied the system disappeared without being able to be traced and no support was available. Therefore in the same month you sold all your shares and ceased trading.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 Division 40

Reasons for decision

Section 40-25 of the ITAA 1997 states you can deduct an amount equal to the decline in value for an income year of a depreciating asset that you held for any time during the year. You held the system in the 2012-13 financial year.

Share trading software used for the purpose of obtaining assessable income is considered deductible. However you will not be entitled to claim an outright deduction for the share trading software under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).  The reason is that expenditure on the purchase of software is considered to be of a capital nature.

Division 40 of the ITAA 1997 however allows a decline in value (depreciation) deduction on software used in gaining assessable income. The deduction is calculated using the prime cost method with an effective life of 4 years (a rate of 25%).  This rate and method is prescribed by subsection 40-95(7) of the ITAA 1997 is the only rate available for calculating decline in value for software expenditure.

Therefore, you will be entitled to claim a deduction for the decline in value of the share trading software under section 8-1 of the ITAA 1997 using the following formula:

Section 40-285 of the ITAA 1997 provides that if a balancing adjustment event occurs for a depreciating asset you held, you need to calculate a balancing adjustment amount to be included in your assessable income or to claim as a deduction.

Section 40-295 of the ITAA 1997 states that when you stop holding the asset, for example if the asset is sold, lost or destroyed, a balancing adjustment event occurs.

You work out the balancing adjustment amount by comparing the asset's termination value (such as the proceeds from the sale of an asset) and its adjustable value at the time of the balancing adjustment event.

If the termination value is greater than the adjustable value, you include the excess in your assessable income.

If the termination value is less than the adjustable value, you can deduct the difference.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).