Tax Law Improvement Act 1997 (121 of 1997)

Schedule 6   Depreciation

Part 1   Amendment of the Income Tax (Transitional Provisions) Act 1997

2   Before Division 43

Insert:

Division 42 - Depreciation

Table of sections

42-1 Definitions

42-2 Application of Division 42 of the 1997 Act

42-6 General transitional provision

42-7 Special rules for plant used but not depreciated before the 1997-98 income year

42-8 Rules where Common rule 1 applies

42-9 Amounts deducted under old law taken to be amounts deducted under new law

42-18 Meaning of plant

42-45 Exclusions

42-48 Debt forgiveness: amounts deducted for depreciation

42-70 Adjustment: acquiring a car at a discount

42-80 Adjustment: car depreciation limit

42-90 Adjustment: previously depreciated plant limit

42-95 Application of Subdivision 42-C of the 1997 Act

42-110 Commissioner’s determination of effective life

42-120 Which rate do you use? (application of old transitional provision)

42-175 Meaning of undeducted cost

42-195 Deducting an amount

42-215 Adjustment: car depreciation limit

42-220 Plant used for research and development

42-235 Balancing adjustments for cars

42-255 Meaning of notional depreciation amount

42-280 Additional consequence of Common rule 1

42-290 Later year relief

42-310 Meaning of quasi-owner

42-355 Creating a pool

42-360 Allocating plant to a pool

42-365 What plant is eligible for allocation to a pool?

42-370 Removal of plant from a pool

42-375 Calculating depreciation deductions for pooled plant

42-380 Meaning of opening balance

42-400 Whether plant acquired or constructed after 26 February 1992

42-405 Modifying Common rule 1 so that it may apply to a disposal of plant under the new depreciation provisions

42-410 Application of Common rule 2 where amounts deducted only under the old depreciation provisions

42-415 Meaning of associate

42-1 Definitions

In this Division:

1997 Act means the Income Tax Assessment Act 1997.

1936 Act means the Income Tax Assessment Act 1936.

new depreciation provisions means the provisions of Division 42 of the 1997 Act.

old depreciation provisions means:

(a) sections 54 to 62AAV (inclusive) of the 1936 Act; and

(b) relevant transitional provisions in Acts that amended that Act.

42-2 Application of Division 42 of the 1997 Act

(1) The provisions of Division 42 of the 1997 Act apply to assessments for the 1997-98 income year and later income years.

(2) However, that Division does not apply to a ship for an income year if a deduction under, or a deduction calculated in accordance with, section 57AM of the 1936 Act is allowable for the ship for the income year.

Note: Deductions for these ships continue to be calculated under the 1936 Act. See subsection 53I(2) of the 1936 Act.

42-6 General transitional provision

(1) The following subsections have effect if you have deducted or can deduct an amount for depreciation of plant:

(a) under the old depreciation provisions; or

(b) using the “log book” method or the “one-third of actual expenses” method under section 82KUD or 82KW, or Schedule 2A, of the 1936 Act;

and you can deduct an amount for depreciation of it under the new depreciation provisions or Division 28 of the 1997 Act.

Method

(2) You use the same method of calculation that you were using for the plant under the old depreciation provisions.

Cost

(3) The cost of the plant is the cost you were using under the old depreciation provisions.

(4) However, if you are using the diminishing value method for the plant and section 58 of the 1936 Act applied to its acquisition by you, the cost is:

(a) the cost used by the transferor; or

(b) if there were earlier successive transferors - the cost used by the earliest successive transferor.

Rate

(5) Your rate is the annual depreciation percentage worked out under the old depreciation provisions.

(6) However, if you are using the diminishing value method and you acquired or constructed the plant before 27 February 1992, you multiply that percentage by 1.5.

(7) However, if you are using the prime cost method and you acquired or constructed the plant after 26 February 1992, you multiply that percentage by two thirds.

Note: Section 42-400 of this Act is relevant in working out whether plant was acquired or constructed after 26 February 1992.

42-7 Special rules for plant used but not depreciated before the 1997-98 income year

(1) This section applies to you if:

(a) you can first deduct an amount for depreciation of plant for the 1997-98 income year or a later income year; and

(b) you owned and used it before that income year but:

(i) you did not use it for the purpose of producing assessable income; or

(ii) a provision of the 1936 Act denied a depreciation deduction for it.

Method

(2) If section 58 of the 1936 Act applied to your acquisition of the plant, you use the method of calculation that the transferor was using or would have been required to use.

Note: However, for other plant to which this section applies, you choose your method under the 1997 Act.

Cost

(3) The cost of the plant is the cost you would have been required to use if you had been deducting amounts for depreciation of it under the 1936 Act.

(4) However, if you are using the diminishing value method for the plant and section 58 of the 1936 Act applied to your acquisition of the plant, the cost is:

(a) the cost used by the transferor; or

(b) if there were earlier successive transferors - the cost used by the earliest successive transferor.

Rate

(5) You use the rate worked out under subsections 42-6(5), (6) and (7).

42-8 Rules where Common rule 1 applies

Effective life

(1) Subdivision 42-C of the 1997 Act does not apply to plant if:

(a) Common rule 1 in Subdivision 41-A of the 1997 Act applied to your acquisition of it; and

(b) the transferor, or an earlier successive transferor, acquired or constructed it before 13 March 1991.

Rate

(2) If:

(a) Common rule 1 applied to your acquisition of plant; and

(b) the rate for the transferor, or an earlier successive transferor, was an annual depreciation percentage worked out under the old depreciation provisions;

you use the rate worked out under subsections 42-6(5), (6) and (7).

(3) In working out that rate, you are taken to have acquired or constructed the plant at the time when:

(a) the transferor; or

(b) if there were earlier successive transferors - the earliest successive transferor;

acquired or constructed it for the purposes of the old depreciation provisions.

42-9 Amounts deducted under old law taken to be amounts deducted under new law

(1) This section applies to the various references in Division 42 of the 1997 Act to an amount you have deducted or can deduct for depreciation of plant. However, it does not apply for the purpose of working out the undeducted cost of the plant (see section 42-175 of this Act).

(2) Those references are taken to include:

(a) amounts you have deducted or can deduct for depreciation of the plant under the old depreciation provisions, other than an amount that is taken by subsection 59(2E) of the 1936 Act to be depreciation allowed for the plant because of paragraph 59(2A)(a) or (b) or subsection 59(2D) of that Act; and

(b) amounts you have deducted or can deduct for depreciation of the plant using the “log book” method or the “one-third of actual expenses” method under section 82KUD or 82KW, or Schedule 2A, of the 1936 Act; and

(c) if section 58 of the 1936 Act, or Common rule 1, applied to your acquisition of the plant - the sum of the amounts that would apply under paragraph (a) or (b) to the transferor and earlier successive transferors.

(3) Also, the references in sections 42-30, 42-190 and 42-240 of the 1997 Act to amounts you have deducted or can deduct for depreciation of the plant are taken to include an amount that is taken by subsection 59(2E) of the 1936 Act to be depreciation allowed for the plant because of paragraph 59(2A)(a) or (b) or subsection 59(2D) of that Act.

[The next section is section 42-18.]

42-18 Meaning of plant

(1) Paragraph 42-18(1)(d) of the 1997 Act applies to structural improvements completed after 30 June 1963.

(2) Paragraph 42-18(1)(e) of the 1997 Act applies to structural improvements completed after 30 June 1958.

[The next section is section 42-45.]

42-45 Exclusions

The reference in subsection 42-45(1) of the 1997 Act to an amount that has been or can be deducted for plant under Subdivision 387-A or 387-B of that Act includes a reference to an amount that:

(a) has been or can be deducted for the plant under section 75B or 75D of the 1936 Act; or

(b) would have been so deducted or deductible apart from subsection 75B(4) or 75D(4) of the 1936 Act.

42-48 Debt forgiveness: amounts deducted for depreciation

(1) Section 42-48 of the 1997 Act applies to debts forgiven after the beginning of your 1997-98 income year.

(2) An amount you applied in reduction of deductible expenditure (within the meaning of Division 245 of Schedule 2C to the Income Tax Assessment Act 1936) for plant under section 245-155 of that Schedule for a debt forgiven before the beginning of your 1997-98 income year is taken to be an amount you have deducted under the old depreciation provisions for depreciation of the plant.

[The next section is section 42-70.]

42-70 Adjustment: acquiring a car at a discount

The reference in paragraph 42-70(1)(c) of the 1997 Act to section 42-345 of that Act includes a reference to section 57AF of the 1936 Act.

[The next section is section 42-80.]

42-80 Adjustment: car depreciation limit

If you:

(a) have a substituted accounting period; and

(b) acquire a car designed mainly for carrying passengers in your 1997-98 income year but before 1 July 1997;

you must use the car depreciation limit for the car that is fixed for the 1996-97 financial year under section 57AF of the 1936 Act.

[The next section is section 42-90.]

42-90 Adjustment: previously depreciated plant limit

(1) The reference in subsection 42-90(1) of the 1997 Act to an amount that has been deducted or can be deducted for depreciation of plant includes a reference to an amount that has been deducted or can be deducted for it under the old depreciation provisions.

(2) The reference in subsection 42-90(2) of the 1997 Act to the written down value of plant includes, for plant for which an amount has been or can be deducted for depreciation under the old depreciation provisions, a reference to its depreciated value under those provisions.

(3) A reference in subsection 42-90(2) or (3) of the 1997 Act to a balancing adjustment event for plant includes a reference to a disposal of the plant under the old depreciation provisions.

(4) In working out the cost of plant under section 42-90 of the 1997 Act, the sum of the amounts that:

(a) were included in a person’s assessable income for the plant under section 59 or 62AAT of the 1936 Act; and

(b) would have been so included if balancing adjustment relief under subsection 59(2A) or (2D) of the 1936 Act had not applied;

is taken to be a balancing adjustment included in the person’s assessable income under section 42-190, 42-240 or 42-390.

42-95 Application of Subdivision 42-C of the 1997 Act

Subdivision 42-C of the 1997 Act does not apply to plant that you acquired or constructed before 13 March 1991.

[The next section is section 42-110.]

42-110 Commissioner’s determination of effective life

The Commissioner’s determination of effective lives of units of property in Taxation Ruling IT2685 is taken to be a determination made under section 42-110 of the 1997 Act.

[The next section is section 42-120.]

42-120 Which rate do you use? (application of old transitional provision)

(1) This section applies to you if:

(a) you acquire plant after the beginning of the 1997-98 income year; and

(b) if the 1997 Act had not been enacted, you would be taken to have acquired the plant under a contract entered into before 27 February 1992 by section 66 of the Taxation Laws Amendment Act (No. 2) 1992.

(2) Your rate is the annual depreciation percentage worked out under the old depreciation provisions.

(3) If you are using the diminishing value method, you multiply that percentage by 1.5.

[The next section is section 42-175.]

42-175 Meaning of undeducted cost

(1) In working out the undeducted cost of plant under section 42-175 of the 1997 Act, the amounts that you deduct from the cost of the plant include:

(a) for plant that is not a car - any amounts that you have deducted or can deduct for the plant under the old depreciation provisions, other than an amount that is taken by subsection 59(2E) of the 1936 Act to be depreciation allowed for the plant because of paragraph 59(2A)(a) or (b) or subsection 59(2D) of that Act; and

(b) for plant that is not a car - any further amount you could have deducted for depreciation of the plant under the old depreciation provisions for any period you owned and used it, or had it installed ready for use, assuming that:

(i) you used it wholly for the purpose of producing assessable income during that period; and

(ii) you used the same rate and method during that period as you used for the income year in which a depreciation deduction was first allowable to you for the plant; and

(iii) no provision of the 1936 Act or the 1997 Act denied a depreciation deduction for it; and

(c) if the plant is a car - the amount you could have deducted under the old depreciation provisions during any period you were its owner and used it, or had it installed ready for use, assuming that:

(i) you used it wholly for the purpose of producing assessable income during that period; and

(ii) you used the same rate and method during that period as you used for the income year in which a depreciation deduction was first allowable to you for the car; and

(iii) no provision of the 1936 Act denied a depreciation deduction for it; and

(iv) Subdivision F of Division 3 of Part III, or Schedules 2A and 2B, of the 1936 Act did not apply; and

(d) if section 58 of the 1936 Act, or Common rule 1, applied to your acquisition of the plant - the sum of the amounts that would apply under paragraphs (a), (b) and (c) to the transferor and earlier successive transferors.

(2) If paragraph 38(3)(e) of the Taxation Laws Amendment Act (No. 3) 1992 applied to you for the plant, the amount referred to in that paragraph as being an amount that would have been allowable to you for depreciation of the plant is to be taken into account under paragraph (1)(a) of this section as an amount that you have deducted under the old depreciation provisions.

Note: Subsection (2) applies to pre-27 February 1992 plant that was attached to a Crown Lease if you were using the prime cost method.

(3) In working out your undeducted cost, you can apply a different rate to the rate required by subparagraphs (1)(b)(ii) and (1)(c)(ii) of this section and subparagraphs 42-175(b)(ii) and 42-175(c)(ii) of the 1997 Act for an income year for plant you acquired or constructed before 27 February 1992 if subsection (4) applies to you.

(4) This subsection applies to you if subsection 55(5) or 55(8) of the 1936 Act (as it applied immediately before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1992) applied in working out your rate for the income year in which a depreciation deduction was first allowable to you for the plant or a later income year.

(5) For an income year in which you did not deduct an amount for depreciation of the plant, that different rate must be one you could have used in calculating the depreciation that would have been an allowable deduction for the plant had you used it for the purpose of producing assessable income.

(6) For any other income year, that different rate is the rate you used to deduct an amount for depreciation of the plant for that year.

[The next section is section 42-195.]

42-195 Deducting an amount

For the purpose of applying subsection 42-195(3) of the 1997 Act, you are taken to be the quasi-owner of plant during any period before the commencement of the new depreciation provisions when you were deemed to be its owner by section 54AA of the 1936 Act.

[The next section is section 42-215.]

42-215 Adjustment: car depreciation limit

(1) This section applies for the purpose of applying section 42-215 of the 1997 Act to a car that you first used for any purpose before
1 July 1997.

(2) The reference in section 42-215 of the 1997 Act to section 42-80 of that Act includes a reference to section 57AF of the 1936 Act.

(3) For the component “CDL” in the fraction, use the car depreciation limit applicable under section 57AF of the 1936 Act.

(4) Unless you first used the car for any purpose in your 1997-98 income year, for the component “original cost” in the fraction, use the component “C” in the formula in subsection 59(6) of the 1936 Act.

42-220 Plant used for research and development

The references in subsection 42-220(3) of the 1997 Act to Common rule 1 include references to section 58 of the 1936 Act.

[The next section is section 42-235.]

42-235 Balancing adjustments for cars

(1) References in Subdivision 42-G of the 1997 Act to the “cents per kilometre” method include references to that method under
section 82KX, and Division 3 of Schedule 2A, of the 1936 Act.

(2) References in Subdivision 42-G of the 1997 Act to the “12% of original value” method include references to that method under subsection 82KW(3), and Division 4 of Schedule 2A, of the
1936 Act.

[The next section is section 42-255.]

42-255 Meaning of notional depreciation amount

The reference in section 42-255 of the 1997 Act to Division 28 of that Act includes a reference to Subdivision F of Division 3 of
Part III, and Schedule 2A, of the 1936 Act.

[The next section is section 42-280.]

42-280 Additional consequence of Common rule 1

The reference in subsection 42-280(4) of the 1997 Act to Subdivision 42-C of that Act includes a reference to section 54A of the 1936 Act.

[The next section is section 42-290.]

42-290 Later year relief

(1) The reference in subsection 42-290(1) of the 1997 Act to an amount that has been included in your assessable income for plant as a result of a balancing adjustment calculation includes a reference to an amount that has been included in your assessable income for the plant under subsection 59(2) or 62AAT(1) of the 1936 Act.

(2) The reference in paragraph 42-290(2)(a) of the 1997 Act to a balancing adjustment event for plant includes a reference to a disposal, loss or destruction of the plant under the old depreciation provisions before the 1997-98 income year.

(3) The reference in paragraph 42-290(2)(d) of the 1997 Act to a choice under section 42-285 of that Act for plant includes a reference to an election under subsection 59(2A) of the 1936 Act for the plant.

[The next section is section 42-310.]

42-310 Meaning of quasi-owner

(1) You cannot be the quasi-owner of plant that is attached to land you hold under a quasi-ownership right granted by an exempt Australian government agency or an exempt foreign government agency if, before the 1997-98 income year, section 54AA of the 1936 Act did not apply to you for the plant because of subparagraph 54AA(1)(d)(ii) or 54AA(1)(e)(iii).

(2) The references in subsection 42-310(2) of the 1997 Act to the effective life of plant include references to its effective life worked out or adopted under section 54A of the 1936 Act.

(3) For plant that an entity acquired or constructed before 13 March 1991, references in subsection 42-310(2) of the 1997 Act to the effective life of plant include references to the period that would have been worked out or adopted as its effective life if the contract was entered into or the construction commenced on or after that date.

[The next section is section 42-355.]

42-355 Creating a pool

A pool created under the 1936 Act continues in existence for the 1997-98 income year and later income years as if it had been created under section 42-355 of the 1997 Act.

42-360 Allocating plant to a pool

Plant that was allocated to such a pool immediately before the 1997-98 income year remains allocated to it, but may be removed under section 42-370 of the 1997 Act.

42-365 What plant is eligible for allocation to a pool?

(1) In applying paragraph 42-365(b) of the 1997 Act to work out whether you can allocate plant that you acquired or constructed before 27 February 1992 to a pool, use the annual depreciation percentage worked out under the old depreciation provisions rather than the diminishing value rate.

(2) You cannot allocate plant you acquired before that date and plant you acquired on or after that date to the same pool.

42-370 Removal of plant from a pool

In applying paragraph 42-370(2)(b) of the 1997 Act to work out whether plant that you acquired or constructed before 27 February 1992 is automatically removed from a pool, you also use the annual depreciation percentage worked out under the old depreciation provisions rather than the diminishing value rate.

42-375 Calculating depreciation deductions for pooled plant

In calculating depreciation deductions for pooled plant that you acquired or constructed before 27 February 1992, multiply the result you get by using the formula in section 42-375 of the 1997 Act by 1.5.

42-380 Meaning of opening balance

The component “closing balance for last year” in the formula in section 42-380 is, for the 1997-98 income year, the closing balance of the pool for the preceding year worked out under section 62AAO of the 1936 Act.

[The next section is section 42-400.]

42-400 Whether plant acquired or constructed after 26 February 1992

The rules in section 66 of the Taxation Laws Amendment Act (No. 2) 1992 apply for the purpose of working out whether plant was acquired or constructed after 26 February 1992.

42-405 Modifying Common rule 1 so that it may apply to a disposal of plant under the new depreciation provisions

If:

(a) you have deducted or can deduct an amount for depreciation of plant under the old depreciation provisions; and

(b) in the 1997-98 income year or a later income year, a roll-over event occurs for the plant;

Subdivision 41-A of the 1997 Act (Common rule 1) applies as if:

(c) you had deducted or could deduct an amount for depreciation of the plant under the new depreciation provisions; and

(d) if in the 1996-97 income year or an earlier income year there was a disposal of the plant where roll-over relief was available under section 58 of the 1936 Act - that Common rule had applied to the disposal.

42-410 Application of Common rule 2 where amounts deducted only under the old depreciation provisions

If:

(a) you have deducted or can deduct an amount for depreciation of plant under the old depreciation provisions; and

(b) you have not deducted and cannot deduct an amount for depreciation of the plant under the new depreciation provisions; and

(c) in the 1997-98 income year or a later income year, you dispose of the plant;

subsection 41-65(2) of the 1997 Act applies as if you had deducted or could deduct an amount for depreciation of the plant under the new depreciation provisions.

42-415 Meaning of associate

The definition of associate in section 318 of the 1936 Act applies for the purposes of Division 42 of the 1997 Act as if paragraphs (1)(b) and (2)(a) also applied to a partnership in which the primary entity referred to in those paragraphs is or was a partner (whether or not the partnership still exists).