Income Tax Assessment Act 1997

This Act is designed to help you identify accurately and quickly the provisions that are relevant to your purpose in reading the income tax law.

The Act contains tables, diagrams and signposts to help you navigate your way.

You can start at Division 3 (What this Act is about) and follow the signposts as far into the Act as you need to go. You may also encounter signposts to several areas of the law that are relevant to you. Each one should be followed.

Sometimes they will lead down through several levels of detail. At each successive level, the rules are structured in a similar way. They will often be preceded by a Guide to the rules at that level. The rules themselves will usually deal first with the general or most common case and then with the more particular or special cases.

This Act is arranged in a way that reflects the principle of moving from the general case to the particular.

In this respect, the conceptual structure of the Act is something like a pyramid. The pyramid shape illustrates the way the income tax law is organised, moving down from the central or core provisions at the top of the pyramid, to general rules of wide application and then to the more specialised topics.

Note: The Taxation Administration Act 1953 contains the provisions on collection and recovery of tax and provisions on administration.

Many of the terms used in the income tax law are defined.

Most defined terms in this Act are identified by an asterisk appearing at the start of the term: as in “business”. The footnote that goes with the asterisk contains a signpost to the Dictionary definitions starting at section 995-1.

(1) Once a defined term has been identified by an asterisk, later occurrences of the term in the same subsection are not usually asterisked.

(2) Terms are not asterisked in the non-operative material contained in this Act.

Note: The non-operative material is described in Subdivision 2-E.

(3) The following basic terms used throughout the Act are not identified with an asterisk. They fall into 2 groups:

Key participants in the income tax system

Core concepts

Within a definition, the defined term is identified by bold italics.

Two main purposes of the numbering system in this Act are:

To indicate the relationship between units at different levels.

For example, the number of Part 2-15 indicates that the Part is in Chapter 2. Similarly, the number of section 165-70 indicates that the section is in Division 165.

To allow for future expansion of the Act. The main technique here is leaving gaps between numbers.

There are gaps in the numbering system to allow for the insertion of new Divisions and sections.

In addition to the operative provisions themselves, this Act contains other material to help you identify accurately and quickly the provisions that are relevant to you and to help you understand them.

This other material falls into 2 main categories.

The first is the “Guides”. A Guide consists of sections under a heading indicating that what follows is a Guide to a particular Subdivision, Division etc.

Guides form part of this Act but are kept separate from the operative provisions. In interpreting an operative provision, a Guide may only be considered for limited purposes. These are set out in section 950-150.

The other category consists of material such as notes and examples. These also form part of the Act. They are distinguished by type size from the operative provisions, but are not kept separate from them.

Scope

This section tells you when income tax you must pay for a financial year is due and payable.

Note: The Commissioner may defer the time at which the income tax is due and payable: see section 255-10 in Schedule 1 to the Taxation Administration Act 1953.

The income tax is only due and payable if the Commissioner makes an *assessment of your income tax for the year.

However, if the Commissioner does make an *assessment of your income tax for the year, the tax may be taken to have been due and payable at a time before your assessment was made.

Note: This is to ensure that general interest charge begins to accrue from the same date for all like entities. General interest charge on unpaid income tax is calculated from when the tax is due and payable, not from when the assessment is made: see section 5-15.

Original assessments—self-assessment entities

If you are a self-assessment entity, the income tax is due and payable on the first day of the sixth month after the end of the income year.

Example: If your income year is the same as the financial year, your income tax would be due and payable on 1 December.

Original assessments—other entities

(5) If you are not a *self-assessment entity, the income tax is due and payable 21 days after the day (the return day) on or before which you are required to lodge your *income tax return with the Commissioner.

Note: For rules about income tax returns and when they are due, see Part IV of the Income Tax Assessment Act 1936.

(6) However, if you lodge your return on or before the return day and the Commissioner gives you a notice of *assessment (other than an amended assessment) after the return day, the income tax is due and payable 21 days after the Commissioner gives you the notice.

Amended assessments

If the Commissioner amends your *assessment, any extra income tax resulting from the amendment is due and payable 21 days after the day on which the Commissioner gives you notice of the amended assessment.

Note: Shortfall interest charge may be payable, on any amount of extra income tax payable as a result of the amended assessment, for each day in the period that:

starts at the time income tax was due and payable on your original assessment; and

ends the day before the day on which the Commissioner gives you notice of the amended assessment.

An amount of shortfall interest charge that you are liable to pay is due and payable 21 days after the day on which the Commissioner gives you notice of the charge.

Note: Shortfall interest charge is imposed if the Commissioner amends an assessment and the amended assessment results in an increase in some tax payable. For provisions about liability for shortfall interest charge, see Division 280 in Schedule 1 to the Taxation Administration Act 1953.

If an amount of income tax or shortfall interest charge that you are liable to pay remains unpaid after the time by which it is due to be paid, you are liable to pay the general interest charge on the unpaid amount for each day in the period that:

starts at the beginning of the day on which the amount was due to be paid; and

finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:

the income tax or shortfall interest charge;

general interest charge on any of the income tax or shortfall interest charge.

Note 1: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953.

Note 2: Shortfall interest charge is worked out under Division 280 in Schedule 1 to that Act.

This Subdivision is a Guide.

Ordinary income or statutory income which is exempt from income tax can be divided into 2 main classes:

ordinary or statutory income of entities that are exempt, no matter what kind of ordinary or statutory income they have (see table in section 11-5);

ordinary or statutory income of a kind that is exempt (see table in section 11-15).

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

Note: Special rules apply to entities that cease to be exempt. See Schedule 2D to the Income Tax Assessment Act 1936.

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

Note: The following provisions of the Income Tax Assessment Act 1936 give rise to notional exempt income and not exempt income. For this reason the provisions do not appear in the lists of kinds of exempt income.

The provisions are: paragraphs 384(1)(b) and 385(1)(b), subsection 402(2) and section 403.

This Subdivision is a Guide.

The provisions set out in the list make amounts non-assessable non-exempt income.

Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

Recoupment of expenses you incurred and can deduct

Your assessable income may include an amount that you receive by way of insurance, indemnity or other recoupment if:

it is for a deductible expense; and

it is not otherwise assessable income.

Recoupment of expenses you did not incur but can deduct

Your assessable income may include an amount that another entity receives by way of insurance, indemnity or other recoupment if:

it is for an expense that you can deduct; and

it is not otherwise your assessable income.

Table of sections

20-15 How to use this Subdivision

What is an assessable recoupment?

20-20 Assessable recoupments

20-25 What is recoupment?

20-30 Tables of deductions for which recoupments are assessable

How much is included in your assessable income?

20-35 If the expense is deductible in a single income year

20-40 If the expense is deductible over 2 or more income years

20-45 Effect of balancing charge

20-50 If the expense is only partially deductible

20-55 Meaning of previous recoupment law

What if you can deduct a loss or outgoing incurred by another entity?

20-60 If you are the only entity that can deduct an amount for the loss or outgoing

20-65 If 2 or more entities can deduct amounts for the loss or outgoing

If you incurred the deductible loss or outgoing

First, read sections 20-20 to 20-30 to work out whether you have received an assessable recoupment. If not, you do not need to read the rest of the Subdivision.

(2) If you have received one or more assessable recoupments, sections 20-35 to 20-55 tell you how much is included in your assessable income for an income year.

If another entity incurred a loss or outgoing you can deduct

Sections 20-60 and 20-65 tell you how to apply this Subdivision.

What is an assessable recoupment?

Exclusion

(1) An amount is not an assessable recoupment to the extent that it is *ordinary income, or it is *statutory income because of a provision outside this Subdivision.

Insurance or indemnity

(2) An amount you have received as *recoupment of a loss or outgoing is an assessable recoupment if:

you received the amount by way of insurance or indemnity; and

you can deduct an amount for the loss or outgoing for the current year, or you have deducted or can deduct an amount for it for an earlier income year, under any provision of this Act.

Other recoupment

(3) An amount you have received as *recoupment of a loss or outgoing (except by way of insurance or indemnity) is an assessable recoupment if:

you can deduct an amount for the loss or outgoing for the current year; or

you have deducted or can deduct an amount for the loss or outgoing for an earlier income year;

under a provision listed in section 20-30.

General

(1) Recoupment of a loss or outgoing includes:

any kind of recoupment, reimbursement, refund, insurance, indemnity or recovery, however described; and

a grant in respect of the loss or outgoing.

Amount paid for you

(2) If some other entity pays an amount for you in respect of a loss or outgoing that you incur, you are taken to receive the amount as recoupment of the loss or outgoing.

Remission of general interest charge or shortfall interest charge

If:

you have incurred expenditure that consists of general interest charge or shortfall interest charge; and

the Commissioner remits any of that charge;

then you are taken to receive the remitted amount as recoupment of that expenditure.

Amount for disposing of right to recoupment

(3) If you dispose of your right to receive an amount as *recoupment of a loss or outgoing you are taken to receive as recoupment of the loss or outgoing any amount you receive for disposing of that right. (The disposal need not be to another entity.)

Amount received that is recoupment to an unspecified extent

(4) If you receive an amount that is, to an unspecified extent, *recoupment of a loss or outgoing, the amount is taken to be recoupment of the loss or outgoing to whatever extent is reasonable.

Balancing adjustments not covered

(5) If a balancing adjustment is required for property on which you incurred a loss or outgoing, no part of the *termination value of the property is an amount you receive as recoupment of the loss or outgoing.

Note: The termination value is usually the amount you receive because of disposal, loss or destruction of the property.

(1) This table shows the deductions under the Income Tax Assessment Act 1997 for which recoupments are assessable.

Note: References are to section numbers except where otherwise indicated.

(2) This table shows the deductions under the Income Tax Assessment Act 1936 for which recoupments are assessable.

Note: References are to section numbers except where otherwise indicated.

How much is included in your assessable income?

Your assessable income includes an assessable recoupment of a loss or outgoing if:

you can deduct the whole of the loss or outgoing for the current year; or

you have deducted or can deduct the whole of the loss or outgoing for an earlier income year.

Note 1: The operation of this section may be affected if a balancing charge has been included in your assessable income because of a deduction for the loss or outgoing: see section 20-45.

Note 2: Recoupment of a loss or outgoing for which you can deduct amounts over more than one income year is covered by section 20-40.

Note 3: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50.

Total assessed not to exceed the loss or outgoing

The total of all amounts that subsection (1) includes in your assessable income for one or more income years in respect of a loss or outgoing cannot exceed the amount of the loss or outgoing.

Recoupment received before income year of the deduction

If:

you can deduct the whole of a loss or outgoing for the current year; and

before the current year you received an assessable recoupment of the loss or outgoing;

your assessable income for the current year includes so much of the recoupment as subsection (1) would have included if you had instead received the recoupment at the start of the current year.

This section includes an amount in your assessable income if:

you receive in the current year an assessable recoupment of a loss or outgoing for which you can deduct amounts over 2 or more income years; or

(b) you received in an earlier income year an *assessable recoupment of a loss or outgoing of that kind (unless all of the recoupment has already been included in your assessable income for one or more earlier income years by this section or a *previous recoupment law).

(This section applies even if the recoupment was received before the first of those income years.)

Note: Recoupment of a loss or outgoing that is only partially deductible is covered by section 20-50.

Work out as follows how much is included in your assessable income for the current year because of one or more *assessable recoupments of the loss or outgoing.

Note: The method statement ensures that assessable recoupments are included:

only so far as they have not already been included for an earlier income year; and

only to the extent of your total deductions to date for the loss or outgoing.

Method statement

Step 1. Add up all the *assessable recoupments of the loss or outgoing that you have received (in the *current year or earlier). The result is the total assessable recoupment.

Step 2. Add up the amounts (if any) included in your assessable income for earlier income years, in respect of the loss or outgoing, by this section or a *previous recoupment law. The result is the recoupment already assessed. (If no amount was included, the recoupment already assessed is nil.)

Step 3. Subtract the recoupment already assessed from the total assessable recoupment. The result is the unassessed recoupment.

Step 4. Add up each amount that you can deduct for the loss or outgoing for the *current year, or you have deducted or can deduct for the loss or outgoing for an earlier income year. The result is the total deductions for the loss or outgoing.

Step 5. Subtract the recoupment already assessed from the total deductions for the loss or outgoing. The result is the outstanding deductions.

Step 6. The unassessed recoupment is included in your assessable income, unless it is greater than the outstanding deductions. In that case, the amount of the outstanding deductions is included instead.

In the 2002-03 income year, the company receives $20,000 as recoupment. How much is assessable for the 2002-03 income year?

Applying the method statement:

After step 1: the total assessable recoupment is $20,000.

After step 2: the recoupment already assessed is nil.

After step 3: the unassessed recoupment is: total assessable recoupment minus recoupment already assessed, i.e. $20,000 minus 0 = $20,000.

After step 4: the total deductions for the loss or outgoing are $10,000.

After step 5: the outstanding deductions are: total deductions for the loss or outgoing minus recoupment already assessed, i.e. $10,000 minus 0 = $10,000.

After step 6: the unassessed recoupment (step 3) is greater than outstanding deductions (step 5), so the amount of the outstanding deductions is included in assessable income, i.e. $10,000.

Applying the method statement to the 2003-04 income year: a further $10,000 is included in the company’s assessable income.

Note: The total deductions may be reduced if an amount has been included in your assessable income because of a balancing adjustment: see section 20-45.

Example: At the start of the 2002-03 income year, a company incurs $100,000 to start to hold a depreciating asset. The company uses the prime cost method, and the effective life is 10 years. $10,000 is deductible for the 2002-03 income year and for each of the following 9 income years under section 40-25.

This section may affect the operation of section 20-35 or 20-40 (as appropriate) if:

a balancing adjustment is required for the current year (or for an earlier income year) because you have deducted or can deduct an amount for an income year for the loss or outgoing; and

(b) an amount (the balancing charge) is included in your assessable income for the *current year (or for the earlier income year) because of the balancing adjustment.

To find out about balancing adjustments, see Subdivision 40-D.

Effect on section 20-35

In applying section 20-35, treat each of the following as reduced by the balancing charge:

the amount of the loss or outgoing;

the total of what you can deduct for the loss or outgoing for the current year, or have deducted or can deduct for an earlier income year.

Effect on section 20-40

(3) In applying the method statement in subsection 20-40(2), reduce the total deductions for the loss or outgoing by the balancing charge.

Example: Continuing the example in subsection 20-40(2): at the start of the 2005-06 income year, the company:

receives a further $10,000 as recoupment; and

sells the depreciating asset for $75,000.

As a result of the sale, a balancing adjustment of $5,000 is included under section 40-285 in the company’s assessable income for that income year.

How much of the recoupment amount received in the 2005-06 income year is assessable for that income year?

Applying the method statement in subsection 20-40(2):

After step 1: the total assessable recoupment is $30,000 (received during 2002-03 and 2005-06).

After step 2: the recoupment already assessed is $20,000 (for 2002-03 and 2003-04).

After step 3: the unassessed recoupment is: total assessable recoupment minus recoupment already assessed, i.e. $30,000 minus $20,000 = $10,000.

After step 4: the total deductions for the loss or outgoing are $30,000 ($10,000 for each of 2002-03, 2004-04 and 2004-05), reduced by $5,000 (the amount included in assessable income for the balancing adjustment), i.e. $25,000.

After step 5: the outstanding deductions are: total deductions for the loss or outgoing minus recoupment already assessed, i.e. $25,000 minus $20,000 = $5,000.

After step 6: the unassessed recoupment (step 3) is greater than outstanding deductions (step 5), so the amount of the outstanding deductions is included in assessable income, i.e. $5,000.

(1) This section extends the operation of section 20-35 or 20-40 (as appropriate) to a case where the total of what you can deduct under a provision (the deduction provision) for a loss or outgoing is limited to a proportion of the loss or outgoing.

If you receive an assessable recoupment of the loss or outgoing, section 20-35 or 20-40 applies as if:

(a) you had incurred only that proportion of the loss or outgoing, but could deduct the whole of that proportion under the deduction provision; and

you had received only that proportion of the recoupment.

Example: You incur expenditure of $500. A provision listed in section 20-30 entitles you to deduct 10% of the expenditure ($50) over 5 years. This means you can deduct $10 in each of the 5 years.

You recoup $300 of the expenditure. This section treats you as receiving only 10% of the recoupment. Therefore, $30 is dealt with by section 20-40.

(1) Previous recoupment law means a provision of the Income Tax Assessment Act 1936 listed in this table.

(2) Former section 330-350 of this Act is also a previous recoupment law.

What if you can deduct a loss or outgoing incurred by another entity?

This Subdivision applies in a different way if:

an entity (other than you) incurs a loss or outgoing; and

you can deduct the whole of the loss or outgoing for an income year, or you can deduct amounts for the loss or outgoing over 2 or more income years; and

no other entity can deduct an amount for the loss or outgoing; and

the entity that incurred the loss or outgoing receives one or more amounts as recoupment of the loss or outgoing.

This Subdivision (except this section and section 20-65) applies as if you had incurred the loss or outgoing and had also received the recoupment.

Special rules apply if:

(a) an entity (the first entity) incurs a loss or outgoing; and

(b) 2 or more entities (the deducting entities, which may include the first entity) have deducted or can deduct amounts for the loss or outgoing (whether for the same income year or for different income years); and

the first entity receives one or more amounts as recoupment of the loss or outgoing.

(2) This Subdivision (except this section and section 20-60) applies as if the first entity and the deducting entities together constituted a single entity (the notional entity) that had:

incurred the loss or outgoing; and

received the amount or amounts as recoupment; and

included in its assessable income any amount included in the assessable income of any of the deducting entities under a previous recoupment law or this Subdivision (except this section).

(3) If because of subsection (2) the notional entity’s assessable income for an income year (the assessment year) would include an amount under this Subdivision (the assessable amount), the amount reverses in the assessment year the deductions for the loss or outgoing, in accordance with the rules in subsection (5).

The assessable income of each deducting entity for the assessment year includes the total amounts (if any) by which that entity’s actual deductions for the loss or outgoing are reversed in that income year.

Deductions for the loss or outgoing are reversed in the assessment year as follows:

the amounts by which deductions are reversed total the assessable amount (unless all the deductions have been reversed);

a deduction for an income year is not reversed until all deductions for earlier income years have been reversed;

a deduction is not reversed in the assessment year to the extent that it has already been reversed in an earlier year;

if each of 2 or more entities can deduct an amount for the loss or outgoing for the same income year, those deductions are reversed in the assessment year by amounts proportionate to the amounts of the deductions.

This Subdivision reverses the effect of deductions for lease payments for a car leased to you (or to your associate), but only if you make a profit by disposing of the car after acquiring it from the lessor. The smallest of these amounts is included in your assessable income:

your profit on the disposal;

the total deductible lease payments for the period of the lease;

the total amounts you could have deducted for the car’s decline in value if, instead of leasing it, you had owned it and used it solely for the purpose of producing assessable income.

Table of sections

20-105 Map of this Subdivision

The usual case

20-110 Disposal of a leased car for profit

20-115 Working out the profit on the disposal

20-120 Meaning of notional depreciation

The associate case

20-125 Disposal of a leased car for profit

Successive leases

20-130 Successive leases

Previous disposals of the car

20-135 No amount included if earlier disposal for market value

20-140 Reducing the amount to be included if there has been an earlier disposal

Miscellaneous rules

20-145 No amount included if you inherited the car

20-150 Reducing the amount to be included if another provision requires you to include an amount for the disposal

20-155 Exception for particular cars taken on hire

20-157 Exception for small business entities

Disposals of interests in a car: special rules apply

20-160 Disposal of an interest in a car

The usual case

Your assessable income includes the *profit you make on disposing of a car if:

the car was designed mainly for carrying passengers; and

the car was leased to you and has been leased to no-one else; and

you or another entity can deduct for the income year any of the lease payments paid or payable by you, or have deducted or can deduct any of them for an earlier income year, under this Act; and

you acquired the car from the lessor.

Note 1: Even if subsection (1) does not apply, an amount may still be included in your assessable income:

under section 20-125 (which deals with more complicated cases that may involve your associate); or

if you disposed of an interest in a car (rather than the car itself): see section 20-160.

Note 2: In some cases you do not include an amount in your assessable income:

if there has been an earlier disposal of the car for market value: see section 20-135; or

if you inherited the car: see section 20-145; or

if the car was let on hire in the circumstances set out in section 20-155.

However, the amount included cannot exceed the smaller of these limits:

the total lease payments for the lease that you or another entity have deducted or can deduct under this Act for an income year;

the amount of *notional depreciation for the lease period.

Note 1: If, because of more than one lease of the car, there is more than one way to work out the amount to be included, you only include the largest amount: see section 20-130.

Note 2: In some cases you reduce the amount to be included:

if there has been an earlier disposal of the car, or of an interest in it: see section 20-140; or

if another provision requires you to include an amount because of the disposal: see section 20-150.

You increase those limits if you have previously leased the car from the same lessor, or from an associate of that lessor.

You increase the first limit by the total lease payments for each previous lease of that kind that you or another entity have deducted or can deduct under this Act for an income year.

You increase the second limit by the amount of *notional depreciation for the period of each previous lease of that kind.

(1) The profit on the disposal is the amount by which the *consideration receivable for the disposal exceeds:

the amount it cost you to acquire the car;

plus:

any capital expenditure you incurred on the car after acquiring it.

(2) The consideration receivable is worked out using this table:

(3) However, if the disposal of the *car is a *taxable supply, the consideration receivable does not include an amount equal to the *GST payable on the supply.

This is how to work out the notional depreciation for a lease period:

Method statement

Step 1. Compare:

• the car’s *cost to the lessor for the purposes of Subdivision 40-C (which is about working out the cost of *depreciating assets);

with:

• the car’s termination value for the purposes of section 40-300 when the lessor disposed of it.

Step 2. If the car’s cost exceeds the car’s termination value, multiply the excess by:

• the number of days in the lease period;

divided by:

• the number of days the lessor owned the car.

Step 3. The result is the notional depreciation for the lease period.

Step 4. If the car’s cost does not exceed the car’s termination value, the notional depreciation for the lease period is zero.

Note 1: The notional depreciation for the lease period represents:

the amount you could have deducted for the car’s decline in value if, instead of leasing it, you had owned it and used it solely for the purpose of producing assessable income for that period;

adjusted by:

the balancing adjustment you would have made if you had disposed of the car at the end of that period.

Note 2: The car’s cost to the lessor is worked out differently if the lessor acquired it in the 1996-97 income year or an earlier income year: see section 20-105 of the Income Tax (Transitional Provisions) Act 1997.

Note 3: The car’s termination value is worked out differently if the lessor disposed of it in the 1996-97 income year or an earlier income year: see section 20-110 of the Income Tax (Transitional Provisions) Act 1997.

The associate case

Your assessable income includes the *profit you make on disposing of a car if:

(a) section 20-110 does not include an amount in your assessable income because of the disposal; and

the car was designed mainly for carrying passengers; and

the car was leased to you or your associate; and

you, your associate or another entity can deduct for the income year any of the lease payments paid or payable by the lessee, or have deducted or can deduct any of them for an earlier income year, under this Act; and

either:

you, your associate, or entities including you or your associate, acquired the car from the lessor; or

another entity acquired the car from the lessor under an arrangement that enabled you or your associate to acquire the car.

Note 1: Even if subsection (1) does not apply, an amount may be included in your assessable income if you disposed of an interest in a car (rather than the car itself): see section 20-160.

Note 2: In some cases you do not include an amount in your assessable income:

if there has been an earlier disposal of the car for market value: see section 20-135; or

if you inherited the car: see section 20-145; or

if the car was let on hire in the circumstances set out in section 20-155.

However, the amount included cannot exceed the smallest of these limits:

the total lease payments for the lease that you, your associate or another entity have deducted or can deduct under this Act for an income year;

the amount of *notional depreciation for the lease period;

if an entity other than you, or if entities including you, acquired the car from the lessor—the amount by which the *consideration receivable for the disposal of the car by you exceeds the total of:

the car’s cost to that entity, or those entities; and

any capital expenditure that entity, or any of those entities, incurred on the car after that acquisition and before you acquired it.

Note 1: If, because of more than one lease of the car, there is more than one way to work out the amount to be included, you only include the largest amount: see section 20-130.

Note 2: In some cases you reduce the amount to be included:

if there has been an earlier disposal of the car, or of an interest in it: see section 20-140; or

if another provision requires you to include an amount because of the disposal: see section 20-150.

Example: Your associate leases a car for 5 years and then acquires it from the lessor for $4,000. Your associate sells it to you for $3,000. You sell it for $10,000.

Your profit is $10,000 (the consideration receivable) less $3,000 (the car’s cost to you) = $7,000.

The first 2 limits on the amount to be included in your assessable income are $9,000 (total deductible lease payments for the lease) and $8,000 (notional depreciation for the lease period).

Since your associate acquired the car from the lessor, the third limit is $10,000 (the consideration receivable by you) less $4,000 (the car’s cost to the associate) = $6,000.

The amount you include in your assessable income cannot exceed the smallest of the limits. So, you do not include your profit of $7,000. Instead, you include $6,000 (the smallest of the limits).

You increase the first 2 limits if you, or your associate, have previously leased the car from the same lessor, or from an associate of that lessor.

You increase the first limit by the total lease payments for each previous lease of that kind that you, your associate or another entity have deducted or can deduct under this Act for an income year.

You increase the second limit by the amount of *notional depreciation for the period of each previous lease of that kind.

Successive leases

If, because of 2 or more leases of the car, there are different amounts that could be included in your assessable income because of the disposal, only the largest of those amounts is included.

Previous disposals of the car

You do not include an amount in your assessable income because of the disposal if, after the lessor disposed of the *car and before you disposed of it, an entity other than you disposed of the car and:

the *consideration receivable for that disposal was at least the *market value of the car at the time of that disposal; or

because of that disposal, that market value was included, or an amount worked out using that market value was included, in the entity’s assessable income under this Act.

Each limit on the amount to be included in your assessable income because of your disposal of the car is reduced if, after the lease period began and before your disposal, the car, or an interest in it, was disposed of in one of these situations:

Examples: Your associate leases a car for 5 years and then acquires it. Your associate disposes of it to you and section 20-110 includes $500 in your associate’s assessable income.

You later dispose of the car.

In working out the amount to include in your assessable income for your disposal, you can reduce each limit in subsection 20-125(2) by $500 because the disposal by your associate occurred after the lease period began.

Contrast this case:

You lease a car for 5 years and then acquire it. You dispose of it to another entity and section 20-110 includes $1,000 in your assessable income.

You lease the car from that entity for 2 years and then acquire it. You later dispose of it.

In working out the amount to include in your assessable income in respect of the second lease, you cannot reduce each limit in subsection 20-110(2) by $1,000 because the first disposal did not occur after the start of that lease.

Miscellaneous rules

Note: If the earlier disposal occurred in the 1996-97 income year or an earlier income year, each limit may be able to be reduced by a further amount: see section 20-115 of the Income Tax (Transitional Provisions) Act 1997.

You do not include an amount in your assessable income because of the disposal if you inherited the *car.

The amount to be included in your assessable income because of the disposal is reduced by any amount that another provision of this Act (except sections 40-285 and 40-370) requires you to include in your assessable income because of the disposal.

Note: sections 40-285 and 40-370 are about including an amount after making a balancing adjustment on the disposal of a car.

This Subdivision does not apply to these kinds of leases:

letting a car on hire under a *hire purchase agreement; or

letting a car on hire under an agreement of a kind ordinarily entered into by people who take cars on hire intermittently on an hourly, daily, weekly or monthly basis.

This Subdivision does not apply to you if, at any time in the income year in which you disposed of the car, it was allocated to a pool of yours under Division 328.

Disposals of interests in a car: special rules apply

This Subdivision applies to the disposal of an interest in a car in almost the same way as it does to the disposal of the car itself. The differences are set out below.

(2) Your assessable income includes so much of your *profit on the disposal as is reasonable. The limits in subsections 20-110(2) and 20-125(2) do not apply.

The cost of the interest to you is taken to be a reasonable amount.

(4) Sections 20-135 and 20-140 do not apply to the disposal.

Note 1: Section 20-135 says that you do not include an amount if there has been an earlier disposal of the car for market value.

Note 2: Section 20-140 allows you to reduce the amount to be included if there has been an earlier disposal of the car.

Section 20-145 applies to the disposal if you inherited either the interest or the car itself.

Note: Section 20-145 says that you do not include an amount if you inherited the car.

You cannot deduct under this Act a loss or outgoing you incur, to the extent that the loss or outgoing includes an amount relating to an input tax credit to which you are entitled or a decreasing adjustment that you have.

You can deduct an amount of an increasing adjustment that arises under Division 129 of the GST Act.

However, you cannot deduct the amount to the extent (if any) that the adjustment arises from an increase in the extent to which the activity giving rise to the adjustment is of a private or domestic nature.

If:

you have an increasing adjustment under Division 138 of the GST Act in respect of an asset as a result of the cancellation of your registration under Part 2-5 of the GST Act; and

immediately after the cancellation, you held the asset for the purpose of gaining or producing assessable income;

you can deduct the amount of the increasing adjustment.

However, you cannot deduct an amount under subsection (1) or (3) to the extent that, because it becomes a component of a *net input tax credit, a reduction is made under section 103-30 (reduction of cost base etc. by net input tax credits).

You cannot deduct under this Act a loss or outgoing consisting of a payment under Division 33 of the GST Act.

This section does not apply to the payment:

to the extent (if any) that the net amount to which the payment relates was increased under section 21-5 of the Wine Tax Act (which allows for such increases to take account of wine equalisation tax); and

to the extent (if any) that the net amount was increased under section 13-5 of the Luxury Car Tax Act (which allows for such increases to take account of luxury car tax); and

to the extent (if any) that the net amount was increased under paragraph 13-10(1)(a) of the Luxury Car Tax Act (which allows for such alterations to take account of increasing luxury car tax adjustments under that Act).

This section does not apply to the payment of assessed GST (under section 33-15 of the GST Act) on a taxable importation that:

was not a creditable importation; or

was *partly creditable;

but only to the extent that that payment of assessed GST exceeds the input tax credit (if any) to which you are entitled for that importation.

This section does not apply to the payment of an assessed net amount under section 33-3 or 33-5 of the GST Act to the extent that the assessed net amount includes GST on a taxable supply that:

exceeds the input tax credit (if any) to which you are entitled for a creditable acquisition that relates to that supply; and

is payable by you (and is not payable by the supplier of that supply) because of the operation of Division 83, 84 or 86 of the GST Act.

In calculating an amount that you may be able to deduct:

an element in the calculation that is an amount paid or payable is treated as not including an amount equal to any input tax credit for an *acquisition related to the amount paid or payable, or any decreasing adjustment related to that amount; and

an element in the calculation that is an amount received or receivable is treated as not including an amount equal to any GST payable on a taxable supply related to the amount received or receivable, or any increasing adjustment related to that amount.

A *member of a GST group is to be treated, for the purposes of this Division, as if Subdivision 48-B of the GST Act (other than subsections 48-45(3) and (4)) did not apply to that member.

A *participant in a GST joint venture is to be treated, for the purposes of this Division, as if Subdivision 51-B of the GST Act did not apply to that participant.

Sections 27-5, 27-10, 27-15 and 27-20 do not apply to assets, or to expenditure, for which you can deduct amounts under Division 40 or 328.

Note: See instead Subdivision 27-B.

A depreciating asset’s *cost is reduced if:

an entity’s acquisition or importation of the asset constitutes a creditable acquisition or creditable importation; and

the entity is or becomes entitled to an input tax credit for the acquisition or importation; and

the entity can deduct amounts for the asset under Division 40 or 328.

The reduction is the amount of the input tax credit.

A depreciating asset’s *cost is also reduced if:

the entity that *holds the asset incurs expenditure that is included in the second element of the asset’s cost for the income year in which the asset’s *start time occurs; and

the entity is or becomes entitled to an input tax credit for the creditable acquisition or creditable importation to which the expenditure relates; and

the entity can deduct amounts for the asset under Division 40 or 328.

The reduction is the amount of the input tax credit.

However, subsections (1) and (2) do not apply if the *cost of the depreciating asset is modified under Division 40 to be its *market value.

A depreciating asset’s *opening adjustable value for an income year and its *cost is reduced if:

an entity’s acquisition or importation of the asset constitutes a creditable acquisition or creditable importation; and

(b) the entity is or becomes entitled to an *input tax credit in an income year (the credit year) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred; and

the income year is after the one in which the asset’s *start time occurs; and

the entity can deduct amounts for the asset under Division 40 or 328.

The reduction is the amount of the input tax credit.

A depreciating asset’s *opening adjustable value for an income year and its *cost is reduced if:

the entity that *holds the asset incurs expenditure that is included in the second element of the asset’s cost for that income year; and

that income year is after the one in which the asset’s*start time occurs; and

the entity is or becomes entitled to an input tax credit for the creditable acquisition or creditable importation to which the expenditure relates for the income year in which the expenditure was incurred; and

the entity can deduct amounts for the asset under Division 40 or 328.

The reduction is the amount of the input tax credit.

If the reduction under subsection (2), (3A) or (4) is more than:

for a subsection (2) case—the depreciating asset’s *cost; or

for a subsection (3A) or (4) case—the depreciating asset’s *opening adjustable value;

the excess is included in the entity’s assessable income unless the entity is an *exempt entity.

Exception: pooling

This section does not apply to:

a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the current year; or

*in-house software if expenditure on the software is allocated to a software development pool for the current year; or

a project pool.

This section applies to an entity if:

the entity can deduct amounts for a depreciating asset under Division 40 or 328; and

the entity has a decreasing adjustment in an income year that relates directly or indirectly to the asset.

However, this section does not apply to a decreasing adjustment that arises under Division 129 or 132 of the GST Act.

Note: See instead section 27-87.

The asset’s *cost is reduced by an amount equal to the decreasing adjustment if the adjustment arises in the income year in which the asset’s *start time occurs.

The asset’s *opening adjustable value for an income year and its *cost is reduced by an amount equal to the decreasing adjustment if the adjustment arises in that year and that year is after the one in which the asset’s*start time occurs.

If the reduction under subsection (2) or (3) is more than:

for a subsection (2) case—the depreciating asset’s *cost; or

for a subsection (3) case—the depreciating asset’s *opening adjustable value;

the excess is included in the entity’s assessable income unless the entity is an *exempt entity.

Exception: pooling

This section does not apply to:

a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the current year; or

*in-house software if expenditure on the software is allocated to a software development pool for the current year; or

a project pool.

This section applies to an entity if:

the entity can deduct amounts for a depreciating asset under Division 40 or 328; and

the entity has a decreasing adjustment that arises under Division 129 or 132 of the GST Act in an income year that relates directly or indirectly to the asset; and

section 27-95 does not apply to the entity in relation to the asset.

The amount of the decreasing adjustment is included in the entity’s assessable income for the income year unless the entity is an *exempt entity.

This section applies to an entity if:

the entity can deduct amounts for a depreciating asset under Division 40 or 328; and

the entity has an increasing adjustment in an income year that relates directly or indirectly to the asset.

However, this section does not apply to an increasing adjustment that arises under Division 129 or 132 of the GST Act.

Note: See instead section 27-92.

The asset’s *cost is increased by an amount equal to the increasing adjustment if the adjustment arises in the income year in which the asset’s *start time occurs.

The asset’s *opening adjustable value for an income year and its *cost is increased by an amount equal to the increasing adjustment if the adjustment arises in that year and that year is after the one in which the asset’s *start time occurs.

Exception: pooling

This section does not apply to:

a depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the current year; or

*in-house software if expenditure on the software is allocated to a software development pool for the current year; or

a project pool.

This section applies to an entity if:

the entity can deduct amounts for a depreciating asset under Division 40 or 328; and

the entity has an increasing adjustment that arises under Division 129 or 132 of the GST Act in an income year that relates directly or indirectly to the asset.

The entity can deduct the amount of the increasing adjustment for the income year.

However, the entity cannot deduct the amount to the extent (if any) that the adjustment arises from an increase in the extent to which the activity giving rise to the adjustment is of a private or domestic nature.

The termination value of a depreciating asset is reduced if the relevant balancing adjustment event is a taxable supply. The reduction is an amount equal to the GST payable on the supply.

However, subsection (1) does not apply if the termination value of the depreciating asset is modified under Division 40 to be its *market value.

The termination value of a depreciating asset is increased if the entity that *held the asset has a decreasing adjustment that relates directly or indirectly to that taxable supply in the income year in which the balancing adjustment event occurred. The increase is the amount of the decreasing adjustment.

The termination value of a depreciating asset is decreased if the entity that *held the asset has an increasing adjustment that relates directly or indirectly to that taxable supply in the income year in which the balancing adjustment event occurred. The decrease is the amount of the increasing adjustment.

An amount is included in the assessable income of the entity that *held the asset if the entity has a decreasing adjustment that relates directly or indirectly to that taxable supply in a later income year. The amount included is the amount of the decreasing adjustment.

The entity that *held the asset can deduct an amount if the entity has an increasing adjustment that relates directly or indirectly to that taxable supply in a later income year. The amount it can deduct is the amount of the increasing adjustment.

(1) This section contains special rules for expenditure (the pooled expenditure) incurred by an entity:

on a depreciating asset allocated to a low-value pool; or

on a depreciating asset allocated to a pool under Division 328 for or in an income year; or

on *in-house software if the expenditure on the software is allocated to a software development pool; and

on *project amounts if the amounts are allocated to a project pool.

Reduction to pools etc.

There is a reduction under subsection (3) or (5) if:

the pooled expenditure relates directly or indirectly to a creditable acquisition or creditable importation; and

(b) the entity is or becomes entitled to an *input tax credit in an income year (the credit year) for the acquisition or importation and the credit year occurs after the income year in which the acquisition or importation occurred.

There is a reduction under subsection (4) if:

the pooled expenditure relates directly or indirectly to a creditable acquisition or creditable importation; and

(b) the entity is or becomes entitled to an *input tax credit in an income year (the credit year) for the acquisition or importation.

Reduced cost of assets allocated to a pool

A depreciating asset’s *cost is reduced if:

an entity’s acquisition or importation of the asset constitutes a creditable acquisition or creditable importation; and

the entity is or becomes entitled to an input tax credit for the acquisition or importation and the income year in which the acquisition or importation occurred is the same as the one in which the input tax credit arose; and

the asset is allocated to a low-value pool or a pool under Division 328 for or in that year.

The reduction is the amount of the input tax credit.

Low-value pools

For a low-value pool, the *closing pool balance of the pool for:

if the credit year is later than the first income year for which *depreciating assets were allocated to the pool—the income year before the credit year; or

if the credit year is the first income year for which *depreciating assets were allocated to the pool—the credit year;

is reduced by an amount equal to the input tax credit.

Software development pools and project pools

For a software development pool or a project pool, the expenditure in the pool for the credit year, or the *pool value for the credit year, is reduced by an amount equal to the input tax credit.

Small business pools

For a pool under Division 328, the opening pool balance of the pool for the credit year is reduced by an amount equal to the input tax credit.

No reduction if market value

However, there is no reduction to the *cost of a depreciating asset if its cost is modified under Division 40 to be its *market value.

Second element of cost

There is a reduction under subsection (7) if:

(a) the entity incurs expenditure in an income year (also the credit year) that is included in the second element of the *cost of a *depreciating asset allocated to a low-value pool or a pool under Division 328 for or in the credit year; and

the entity is or becomes entitled, after the credit year, to an input tax credit for the expenditure.

An amount equal to the amount of the input tax credit is applied in reduction of:

for a low-value pool:

if the credit year is later than the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the income year before the credit year; or

if the credit year is the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the credit year; or

for a pool under Division 328—the opening pool balance of the pool for the credit year.

There is a reduction to an amount of expenditure included in the second element of the *cost of a depreciating asset if:

the asset is allocated to a low-value pool or a pool under Division 328 for or in the income year in which the expenditure was incurred; and

the entity that incurred the expenditure is or becomes entitled to an input tax credit for the expenditure; and

the entitlement arises in the income year in which the expenditure was incurred.

The reduction is the amount of the input tax credit.

Increasing adjustments

(8) There is an increase under subsection (9) if the entity has an *increasing adjustment (except one that arises under Division 129 or 132 of the *GST Act) in an income year (the adjustment year) that relates directly or indirectly to a *creditable acquisition or *creditable importation to which the pooled expenditure relates.

Note: For an increasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-92.

An amount equal to the amount of that increasing adjustment is added to:

for a low-value pool:

if the adjustment year is later than the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the income year before the adjustment year; or

if the adjustment year is the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the adjustment year; or

for a pool under Division 328—the opening pool balance of the pool for the adjustment year; or

for *in-house software—the amount of expenditure allocated to the software development pool for the adjustment year; or

for a project pool—the *pool value for the adjustment year.

Decreasing adjustments

(10) There is a decrease under subsection (11) if the entity has a *decreasing adjustment (except one that arises under Division 129 or 132 of the *GST Act) in an income year (also the adjustment year) that relates directly or indirectly to a *creditable acquisition or *creditable importation to which the pooled expenditure relates.

Note: For a decreasing adjustment that arises under Division 129 or 132 of the GST Act, see section 27-87.

An amount equal to the amount of the decreasing adjustment is applied in reduction of:

for a low-value pool:

if the adjustment year is later than the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the income year before the adjustment year; or

if the adjustment year is the first income year for which *depreciating assets were allocated to the pool—the *closing pool balance of the pool for the adjustment year; or

for a pool under Division 328—the opening pool balance of the pool for the adjustment year; or

for *in-house software—the amount of expenditure allocated to the software development pool for the adjustment year; or

for a project pool—the *pool value for the adjustment year.

If the amount available for reduction under subsection (11) is more than the amount referred to in paragraph (11)(a), (b), (c) or (d) (whichever is applicable), the excess is included in the entity’s assessable income unless the entity is an *exempt entity.

This section applies to expenditure for which an entity can deduct amounts under Division 40 (but not under Subdivision 40-B or 40-E, or Subdivision 40-I to the extent that that Subdivision relates to project pools).

The amount of the expenditure is reduced if the entity is or becomes entitled to an input tax credit for a creditable acquisition or creditable importation to which the expenditure directly or indirectly relates. The reduction is the amount of the input tax credit that relates to that expenditure.

If the entity has a decreasing adjustment in an income year that relates directly or indirectly to the expenditure, an amount equal to the decreasing adjustment is included in the entity’s assessable income for that income year.

If the entity has an increasing adjustment in an income year that relates directly or indirectly to the expenditure, the entity can deduct an amount equal to the increasing adjustment for that income year.

If the entity is a partnership and partners in that partnership can deduct amounts under Division 40 because section 40-570 or 40-665 applies, an amount equal to the input tax credit, the decreasing adjustment or the increasing adjustment is apportioned to each of the partners as set out in subsection 40-570(2) or 40-665(2).

However, this section does not apply to an *exempt entity.

This Subdivision applies to an input tax credit, or an increasing adjustment or decreasing adjustment, that relates directly or indirectly to 2 or more things of which at least one is a depreciating asset as if a reasonable proportion of the input tax credit or adjustment related directly or indirectly to each of those depreciating assets and each of those other things.

This Division applies to an individual.

It also applies to a partnership that includes at least one individual, as if the partnership were an individual.

It does not apply to any other entity.

If you owned or leased a car, you can deduct for the car’s expenses an amount or amounts worked out using one of 2 methods.

Note 1: For particular types of cars taken on hire you cannot use one of the 2 methods: see section 28-165.

Note 2: In certain circumstances the lessee of a luxury car is taken to be its owner (see subsection 242-15(2)).

Note 3: In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240-20(2)).

You must use one of the 2 methods unless an exception applies. If you can’t use either of the methods, you can’t deduct anything for the car expenses.

(1) A car expense is a loss or outgoing to do with a *car.

In addition, any of the following is a car expense:

a loss or outgoing to do with operating a car;

the decline in value of a car.

None of the following is a car expense:

a loss or outgoing incurred, or a payment made, in respect of travel outside Australia;

a taxi fare or similar loss or outgoing.

This Subdivision sets out the rules about choosing a method of calculating car expense deductions.

Table of sections

28-15 Choosing between the 2 methods

Operative provision

28-20 Rules governing choice of method

Below is a diagram giving information about the 2 methods of calculating car expense deductions.

The 2 methods give you the choice of which method best suits your situation and needs. For instance, one method may involve more paperwork than the other, but could give you bigger deductions.

Operative provision

You can choose only one method for all the car expenses for the car for the income year. Choosing one method precludes the other method.

However, you can change your choice for the income year.

Example: You choose the “log book” method and deduct $1,000. On audit, the Commissioner finds that your claim is too high and should be reduced to $500. You would have been able to deduct $700 if you had chosen the “cents per kilometre” method. This rule lets you change your choice and deduct the $700.

You can also choose different methods for the same car for different income years and different methods for different cars for the same year.

To calculate your deduction using the “cents per kilometre” method, use this formula:

But you can use this formula for the first 5,000 business kilometres only. If the car travelled more than 5,000 business kilometres, you must discard the kilometres in excess of 5,000.

Example: If the car travelled 5,085 business kilometres, you could claim for 5,000, and would lose the extra 85.

(3) Business kilometres are kilometres the *car travelled in the course of:

producing your assessable income; or

your travel between workplaces.

You calculate the number of business kilometres by making a reasonable estimate.

For the purposes of subsection (1), the Commissioner may, by legislative instrument, determine rates of cents per kilometre for cars for an income year.

In determining a rate, the Commissioner must have regard to the average operating costs for the cars to be covered by that rate.

Note: Examples of operating costs include fixed costs such as registration, insurance and depreciation, and variable costs such as fuel and maintenance.

If a balancing adjustment event occurs for the car, you will need to refer to the capital allowances rules in Division 40 to find out how using this method affects the operation of those rules. See section 40-370 (about balancing adjustments for some cars).

To use this method, you do not need to substantiate the *car expenses for the *car.

To use the “log book” method, you multiply the amount of each car expense by the business use percentage.

The expense

The expense must qualify as a deduction under some provision of this Act outside this Division (or would qualify if, while you *held the car, you had used it only in producing your assessable income). If only part of the expense would qualify, you multiply that part by the business use percentage.

Example: You borrow money to buy a car. You make repayments of principal and payments of interest.

You cannot deduct the repayments of principal because they are capital expenses.

The interest payments would be deductible in full if, throughout the income year, you had used the car only in producing your assessable income.

Using the “log book” method:

if you held the car for the whole income year—multiply the interest payments by the business use percentage;

if you held the car for only 6 months of the income year—multiply the interest payments for those 6 months by the business use percentage.

To find out whether an expense qualifies as a deduction under this Act, see Division 8 (Deductions).

The percentage

(3) The business use percentage is calculated by dividing:

the number of business kilometres that the car travelled in the period when you *held it during the income year;

by

the total number of kilometres that the car travelled in that period;

and expressing the result as a percentage.

(4) Business kilometres are kilometres the *car travelled in the course of:

producing your assessable income; or

your travel between workplaces.

You calculate the number of business kilometres by making a reasonable estimate. The estimate must take into account all relevant matters, including:

any log books, odometer records or other records you have; and

any variations in the pattern of use of the car; and

any changes in the number of cars you used in the course of producing your assessable income.

(6) You hold a *car while you own it, or it is leased to you, for use in the course of producing your assessable income, even if it is also used for some other purpose.

Note 1: In certain circumstances the lessee of a luxury car is taken to be its owner (see subsection 242-15(2)).

Note 2: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).

You can use this method only if you *held the car for some or all of the income year.

To use this method, you must substantiate the car expenses under Subdivision 900-C.

You must also keep a log book. Subdivision 28-G explains:

how often you need to keep a log book;

how to keep a log book.

The log book is relevant to estimating the number of business kilometres the car travelled in the period when you *held it during the income year.

You must keep odometer records for the period when you *held the car during the income year. Subdivision 28-H tells you about odometer records, which document the total number of kilometres the car travelled in that period.

You must record the following information, in writing, before you lodge your income tax return:

your estimate of the number of business kilometres; and

the business use percentage.

However, the Commissioner may allow you to record the information later.

You must retain the log book and the odometer records. Subdivision 28-I has the rules about this.

This Subdivision tells you how to keep a log book. A log book is relevant to estimating the number of business kilometres the car travelled in the period when you held it during the income year.

Table of sections

28-110 Steps for keeping a log book

Operative provisions

28-115 Income years for which you need to keep a log book

28-120 Choosing the 12 week period for a log book

28-125 How to keep a log book

28-130 Replacing one car with another

There are 3 steps you need to follow in keeping a log book:

identify an income year for which to keep a log book;

choose a period of at least 12 weeks for the log book to cover;

record journeys made in the car during the log book period in the course of producing your assessable income.

Operative provisions

You need to keep a log book for the first income year for which you use this method for the car.

Having kept a log book for one income year, you don’t need to keep a new one for the next 4 or more income years unless subsection (3) or (4) requires it. If you haven’t kept a new log book for 4 income years in a row, you must keep one for the next income year.

Example: If you keep a log book in 1997-98, you would need to keep the next one in 2002-2003, unless subsection (3) or (4) requires one sooner.

You must keep a log book for an income year if the Commissioner sends you a notice before the year directing you to keep a log book for the car for that year.

You must keep a log book for an income year if, during that year, you get one or more additional *cars for which you want to use the “log book” method for that year.

When you replace one car with another, you might have a period when you *hold both the new car and the old car, or a period when you no longer *hold the old car but do not yet hold the new car. In both these cases, you are treated for the purposes of subsection (4) as if you held the one car continuously.

You may choose to keep a log book for an income year even if you don’t need to; for example, because you want to establish a higher business use percentage.

The log book must cover a continuous period of at least 12 weeks throughout which you *held the car. If you hold the car for less than 12 weeks, the period must be the entire period for which you held the car.

The period may overlap the start or end of the income year, so long as it includes part of the year.

If you want to use the “log book” method for 2 or more *cars for the same income year, the log books for those cars must cover periods that are concurrent.

It is in your interests to record in the log book any journey made in the car during the log book period in the course of producing your assessable income. If a journey is not recorded, the log book will indicate a lower business use percentage than is actually the case.

A journey is recorded by making in the log book an entry specifying:

the day the journey began and the day it ended;

the car’s odometer readings at the start and end of the journey;

how many kilometres the car travelled on the journey;

why the journey was made.

The record must be made at the end of the journey or as soon as possible afterwards.

If 2 or more journeys in a row are made in the car on the same day in the course of producing your assessable income, they can be recorded as a single journey.

The following must be entered in the log book:

when the log book period begins and ends;

the car’s odometer readings at the start and the end of the period;

the total number of kilometres that the car travelled during the period;

the number of kilometres that the car travelled, in the course of producing your assessable income, on journeys recorded in the log book;

the number of kilometres referred to in paragraph (d), expressed as a percentage of the total number referred to in paragraph (c).

Each of the entries must be made at or as soon as possible after the start or end of the period, as appropriate.

Each entry in the log book must be in English.

For the purposes of using the “log book” method, you may nominate one car as having replaced another car with effect from a day specified in the nomination.

After the nomination takes effect, the replacement car is treated as the original car, and the original car is treated as a different car. This means that you do not need to repeat for the replacement car the steps you have already taken for the original car under this Subdivision.

You must record the nomination in writing before you lodge your income tax return for the income year in which the nomination takes effect. However, the Commissioner may allow you to do it later.

You must retain the nomination document until the end of the period for which you must retain the last log book that you began to keep for the original car before the day of effect of the nomination.

Section 28-150 (which is about retaining log books) applies to the nomination document in the same way as it applies to that last log book.

This Subdivision tells you how to keep odometer records for a car during a particular period. Odometer records document the total number of kilometres the car travelled during a particular period.

Table of sections

Operative provision

28-140 How to keep odometer records for a car for a period

Operative provision

Odometer records for a period are kept in the form of a document in which the following are entered:

the car’s odometer readings at the start and the end of the period;

if there is a nomination under section 28-130 to replace the car with another car with effect from a day in that period—the odometer readings, at the end of that day, of both cars affected by the nomination.

Each entry under subsection (1) must be in English and must be made at or as soon as possible after the start or end of the period, or the end of the specified day, as appropriate.

The following must also be entered in the document:

the car’s make, model and registration number (if any);

if the car has an internal combustion engine—its engine capacity expressed in cubic centimetres;

if there is a nomination under section 28-130 to replace the car with another car—the corresponding details for the other car affected by the nomination.

Each entry under subsection (3) must be made in English and must be made before you lodge your income tax return.

The Commissioner may allow you to make an entry under this section after you lodge your income tax return.

You must retain the log book:

first, until the end of the latest income year for which you rely on the log book to support your calculation of the business use percentage for the car; and

then for another 5 years.

The period for which you must retain the log book is called the retention period.

The 5 years start on the due day for lodging your income tax return for that latest income year. If you lodge your return later, the 5 years start on the day you lodge it.

However, the retention period is extended if, when the 5 years end, you are involved in a dispute with the Commissioner that relates to a deduction worked out using a business use percentage that you are relying on the log book to support. See section 900-170.

If you do not retain the log book for the retention period, you cannot deduct any amount worked out using a business use percentage that you are relying on the log book to support. If you have already deducted such an amount, your assessment may be amended to disallow the deduction.

For the purposes of the rules about retaining and producing records of expenses (see Subdivision 900-G), the log book is treated as a record of the car expenses for each year for which you use a business use percentage that you are relying on the log book to support.

If you lose the log book, there are rules that might help you in section 900-205. For the purposes of the rules about relief from the effects of failing to substantiate (see Subdivision 900-H), not doing something required by this Division is treated in the same way as not doing something necessary to follow the rules in Division 900.

You must retain your odometer records relating to the period when you *held the car in the income year.

If you keep a log book for the income year, you must retain the odometer records for the same period as the log book, and section 28-150 applies to them in the same way as it applies to the log book.

If you don’t keep a log book for the income year, you must retain the odometer records for the same period as written evidence of a car expense for the car for the income year, and section 900-75 applies to them in the same way as it applies to written evidence of an expense.

Note: Section 900-75 is about retaining written evidence of a car expense.

This Subdivision sets out the situations where you cannot use, or don’t need to use, either of the 2 methods. These situations involve either the nature of your car or the way you use it.

Table of sections

Operative provisions

28-165 Exception for particular cars taken on hire

28-170 Exception for particular cars used in particular ways

28-175 Further miscellaneous exceptions

28-185 Application of Subdivision 28-J to recipients and payers of certain withholding payments

Operative provisions

For particular types of *cars taken on hire you cannot use one of the 2 methods to calculate your deductions for car expenses.

Instead, you must calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income.

This section applies to a taxi taken on hire.

It also applies to a motor vehicle taken on hire under an agreement of a kind ordinarily entered into by people who take motor vehicles on hire intermittently, as the occasion requires, on an hourly, daily, weekly or short term basis, except if the motor vehicle:

has been taken on hire under successive agreements of a kind that result in substantial continuity of the motor vehicle being taken on hire; or

it is reasonable to expect that the motor vehicle will be taken on hire under successive agreements of a kind that will so result.

For particular types of *cars used in particular ways you don’t need to use one of the 2 methods to calculate your deductions for car expenses.

(2) You may use one of the 2 methods, or you may instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income.

This section applies if, whenever you used the car in the income year:

the car was covered by the description in column 2 of an item in the table below; and

you used the car as described in column 3 of that item.

This section lists some miscellaneous cases where you don’t need to use one of the 2 methods to calculate your deductions for car expenses.

(2) You may use one of the 2 methods, or you may instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income.

The cases are as follows:

the car was unregistered throughout the period when you *held it during the income year, and during that period you used it principally in the course of producing your assessable income; or

at some time during the income year the car was part of the trading stock of a business of selling cars that you carried on, and you didn’t use the car at any time during that year; or

the expense is to do with repairs to or other work on the car, and you incurred it in the course of a business that you carried on of doing repairs or other work on cars.

In applying paragraph (a), the car is taken to be registered in a particular place while it is lawful to drive the car on a public road there.

Application to recipients

If an individual receives, or is entitled to receive, *withholding payments covered by subsection (3), this Subdivision applies to him or her:

in the same way as it applies to an employee; and

(b) as if an entity (a notional employer) that makes (or is liable to make) such payments to him or her were his or her employer; and

as if any other individual who receives, or is entitled to receive, such payments from a notional employer were also an employee of the notional employer.

Application to payers

This Division applies to an entity that makes, or is liable to make, *withholding payments covered by subsection (3):

in the same way as it applies to an employer; and

as if an individual to whom the entity makes (or is liable to make) such payments were the entity’s employee.

Withholding payments covered

(3) This subsection covers a *withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table.

You can deduct a gift or contribution that you make in the situations set out in the following table. It tells you:

who the recipient of the gift or contribution can be; and

the type of gift or contribution that you can make; and

how much you can deduct for the gift or contribution; and

any special conditions that apply.

A testamentary gift or contribution is not deductible under this section.

Note: Subdivision 30-DA deals with the deductibility of contributions and gifts to political parties, independent candidates and members.

For the purposes of items 4, 5 and 6 of the table in subsection (2), the GST inclusive market values of the property or place in question are reduced by 1/11 if you would have been entitled to an input tax credit if:

you had *acquired the property or place at the time you made the gift; and

your acquisition had been for a creditable purpose.

For the purposes of item 7 of the table in subsection (2), in working out the GST inclusive market value of the right in question, disregard anything that would prevent or restrict conversion of the right to money.

For the purposes of item 8 of the table in subsection (2), in working out the GST inclusive market value of the goods or services in question, disregard anything that would prevent or restrict conversion of the goods or services to money.

This section sets out requirements to be met for you to be able to deduct a gift you make to a fund, authority or institution described in the column headed “Recipient” of item 1, 2 or 4 of the table in section 30-15. However, this section does not apply to:

a fund, authority or institution that is mentioned by name in an item of a table in Subdivision 30-B; or

the Australiana Fund.

The fund, authority or institution must:

be an entity or government entity that is endorsed under Subdivision 30-BA as a deductible gift recipient; or

in the case of a fund—either:

be owned legally by an entity that is endorsed under Subdivision 30-BA as a deductible gift recipient for the operation of the fund; or

be under the control of one or more persons who constitute a government entity that is endorsed under Subdivision 30-BA as a deductible gift recipient for the operation of the fund; or

in the case of an authority or institution—be part of an entity or government entity that is endorsed under Subdivision 30-BA as a deductible gift recipient for the operation of the authority or institution.

Example: A public fund that is established and maintained for constructing a building to be used by a State school and is controlled by the principal of the school would be an example of a fund under the control of one or more persons who constitute a government entity that is endorsed as a deductible gift recipient for the operation of the fund, if the school were so endorsed.

This table sets out general categories of health recipients.

This table sets out specific health recipients.

Education

This table sets out general categories of education recipients.

This table sets out specific education recipients.

You can deduct a gift that you make to:

a technical and further education institution covered by item 2.1.7 of the table in subsection 30-25(1); or

the Marcus Oldham Farm Management College;

only if the gift is for:

purposes of the institution, or of the College, that have been declared by the Student Assistance Minister to relate solely to tertiary education; or

the provision of facilities for the institution, or the College, if the Student Assistance Minister has declared that he or she is satisfied the facilities are to be used principally for such purposes.

A declaration under subsection (1) must be in writing, signed by the Minister.

For the purposes of item 2.1.11 of the table in subsection 30-25(1), a rural school hostel building is one to which this section applies if it meets the conditions in subsections (2), (3) and (4).

The rural school hostel building must be used, or going to be used, principally as residential accommodation for students:

whose usual place of residence is in a rural area; and

who are undertaking primary or secondary education, or special education programs for children with disabilities, at a school in the same area as the building.

The costs of the school must be solely or partly funded by the Commonwealth, a State or a Territory.

The residential accommodation must be provided by:

the Commonwealth, a State or a Territory; or

a public authority; or

a company that:

is not carried on for the purposes of profit or gain to its individual members; and

is prohibited by its *constitution from making any distribution of money or property to its members.

For the purposes of item 2.1.13 of the table in subsection 30-25(1), a scholarship, bursary or prize is one to which this section applies if:

(a) it may only be awarded to Australian citizens, or permanent residents of Australia, within the meaning of the Australian Citizenship Act 2007; and

it is open to individuals or groups of individuals throughout a region of at least 200,000 people, or throughout at least an entire State or Territory; and

it promotes recipients’ education in either or both of the following:

*pre-school courses, *primary courses, *secondary courses or *tertiary courses;

educational institutions overseas, by way of study of a component of a course covered by subparagraph (i); and

it is awarded on merit or for reasons of equity.

Research

This table sets out general categories of research recipients.

This table sets out specific research recipients.

Welfare and rights

This table sets out general categories of welfare and rights recipients.

This table sets out specific welfare and rights recipients.

For the purposes of item 4.1.5 of the table in subsection 30-45(1), an event is a disaster to which this subsection applies if the Minister has declared it to be a disaster. The Minister may do so if satisfied that:

the event developed rapidly and resulted in:

the death, serious injury or other physical suffering of a large number of people; or

widespread damage to property or the natural environment; or

(b) if a national emergency declaration (within the meaning of the National Emergency Declaration Act 2020) is in force—the event is the subject of the national emergency declaration.

The Minister’s declaration of an event as a disaster:

must be in writing; and

must specify the day (or the first day) of the event; and

must be published on the internet or by another method determined by the Minister.

The Minister’s declaration of an event as a disaster is not a legislative instrument.

You can deduct a gift that you make to a public fund covered by item 4.1.5 of the table in subsection 30-45(1), in relation to a disaster to which subsection (1) of this section applies, only within the 2 years beginning on the day specified in the declaration as the day (or the first day) of the event for which the fund is to provide relief.

Note: Public funds under item 4.1.5 of the table in subsection 30-45(1) are for disaster relief of people in Australia. Public funds may also be established for disaster relief of people in other countries. See items 9.1.1 (which is not limited to disaster relief) and 9.1.2 of the table in section 30-80.

For the purposes of item 4.1.5 of the table in subsection 30-45(1), a disaster is one to which this subsection applies if:

it is declared to be a disaster, or it gives rise to a declaration of a state of emergency, by or with the approval of a Minister of a State or Territory under the law of the State or Territory; and

it developed rapidly; and

it resulted in the death, serious injury or other physical suffering of a large number of people, or in widespread damage to property or the natural environment; and

subsection 30-45A(1) does not apply to it.

You can deduct a gift that you make to a public fund covered by item 4.1.5 of the table in subsection 30-45(1), in relation to a disaster to which subsection (1) of this section applies, only within the 2 years beginning:

if the day (or the first day) on which the event occurred is specified in the declaration mentioned in paragraph (1)(a)—on that day; or

otherwise—on the day of the declaration.

Note: Public funds under item 4.1.5 of the table in subsection 30-45(1) are for disaster relief of people in Australia. Public funds may also be established for disaster relief of people in other countries. See items 9.1.1 (which is not limited to disaster relief) and 9.1.2 of the table in section 30-80.

Defence

This table sets out general categories of defence recipients.

This table sets out specific defence recipients.

Environment

This table sets out general categories of environment recipients.

This table sets out specific environment recipients.

You can deduct a gift that you make to an environmental institution covered by any of table items 6.2.1 to 6.2.12 or 6.2.22 in subsection 30-55(2) only if, at the time of making the gift, the institution has a policy of not acting as a mere conduit for the donation of money or property to other entities.

Industry, trade and design

This table sets out specific industry, trade and design recipients.

The family

This table sets out general categories of family recipients.

This table sets out specific family recipients.

For the purposes of item 8.1.1 of the table in subsection 30-70(1), this section applies to a company if the company has been approved by the *Families Minister under section 9C of the Marriage Act 1961.

International affairs

This table sets out general categories of international affairs recipients.

This table sets out specific international affairs recipients.

For the purposes of item 9.1.1 of the table in subsection 30-80(1), a country is covered by this section if:

it is included in the list of official development assistance recipients published from time to time by the Organisation for Economic Co-operation and Development’s Development Assistance Committee; or

it is specified in a declaration under subsection (2) of this section.

For the purposes of paragraph (1)(b), the Foreign Affairs Minister may, by legislative instrument, make a declaration specifying a country as a developing country.

For the purposes of item 9.1.2 of the table in subsection 30-80(1), a disaster is one to which this subsection applies if the Minister has recognised it as a disaster. The Minister may do so if satisfied that:

it developed rapidly; and

it resulted in the death, serious injury or other physical suffering of a large number of people, or in widespread damage to property or the natural environment.

The Minister’s recognition of an event as a disaster:

must be by notifiable instrument; and

must specify the day (or the first day) of the event.

You can deduct a gift that you make to a public fund covered by item 9.1.2 of the table in subsection 30-80(1) only within the 2 years beginning on the day specified in the recognition as the day (or the first day) of the event for which the fund is to provide relief.

Note: A public fund may also be established for disaster relief of people in Australia (see item 4.1.5 of the table in section 30-45).

Sports and recreation

This table sets out specific sports and recreation recipients.

Philanthropic trusts

This table sets out specific philanthropic trusts.

Cultural organisations

This table sets out general categories of cultural recipients.

This table sets out specific cultural recipients.

Fire and emergency services

This table sets out general categories of fire and emergency services recipients.

Other recipients

This table sets out general categories of other recipients.

This table sets out specific other recipients.

For the purposes of item 13.1.1 of the table in subsection 30-105(1), this section applies to a community charity trust if the trust is established and maintained under a will or instrument of trust:

for the purposes covered by:

subsections (3) and (4) of this section; or

subsections (3), (4) and (5) of this section; and

for no other purposes.

For the purposes of item 13.1.2 of the table in subsection 30-105(1), this section applies to a community charity corporation if the corporation is operated:

for the purposes covered by:

subsections (3) and (4) of this section; or

subsections (3), (4) and (5) of this section; and

for no other purposes.

Mandatory purposes

This subsection covers the purpose of providing money, property or benefits to a fund, authority or institution if:

gifts to the fund, authority or institution are deductible under item 1 of the table in section 30-15; and

the fund, authority or institution is described (whether or not by name) in an item of a table in this Subdivision (other than item 13.1.1 or 13.1.2 of the table in subsection 30-105(1)); and

the money, property or benefits are so provided to the fund, authority or institution for any purposes set out in the item of that table in which the fund, authority or institution is described.

This subsection covers the purpose of engaging in an activity that:

is the principal activity of a fund, authority or institution described (but not by name) in an item of a table in this Subdivision (other than item 13.1.1 or 13.1.2 of the table in subsection 30-105(1)); or

involves pursuing the principal purpose of a fund, authority or institution described (but not by name) in an item of a table in this Subdivision (other than item 13.1.1 or 13.1.2 of the table in subsection 30-105(1)).

Permitted purpose

This subsection covers the purpose of establishing a fund, authority or institution described (whether or not by name) in an item of a table in this Subdivision (other than item 13.1.1 or 13.1.2 of the table in subsection 30-105(1)).

This Subdivision sets out rules about endorsement of entities and government entities as deductible gift recipients. Endorsement of an entity described (except by name) in Subdivision 30-A or 30-B lets you deduct a gift you make to a fund, authority or institution that is, or is operated by, the entity.

Table of sections

Endorsement as a deductible gift recipient

30-120 Endorsement by Commissioner

30-125 Entitlement to endorsement

30-130 Maintaining a gift fund

Government entities treated like entities

30-180 How this Subdivision applies to government entities

Endorsement as a deductible gift recipient

If an entity applies for endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953, the Commissioner must endorse the entity:

as a deductible gift recipient, if the entity is entitled to be endorsed as a deductible gift recipient; or

as a deductible gift recipient for the operation of a fund, authority or institution, if the entity is entitled to be endorsed as a deductible gift recipient for the operation of the fund, authority or institution.

Note: For procedural rules relating to endorsement, see Division 426 in Schedule 1 to the Taxation Administration Act 1953.

Endorsement of an entity that is a fund, authority or institution

An entity is entitled to be endorsed as a deductible gift recipient if:

the entity has an ABN; and

the entity is a fund, authority or institution that:

is described (but not by name) in item 1, 2 or 4 of the table in section 30-15; and

is not described by name in Subdivision 30-B if it is described in item 1 of that table; and

meets the relevant conditions (if any) identified in the column headed “Special conditions” of the item of that table in which it is described; and

the entity meets the requirements of subsection (6), unless:

the entity is established by an Act; and

the Act (or another Act) does not provide for the winding up or termination of the entity; and

in the case of an *ancillary or community charity trust fund—the fund and all of its trustees comply with the rules in the *applicable trust fund guidelines; and

in the case of a community charity corporation—the corporation and all of its directors comply with the rules in the community charity corporation guidelines.

Endorsement of an entity for operating a fund, authority etc.

An entity is entitled to be endorsed as a deductible gift recipient for the operation of a fund, authority or institution that is described (but not by name) in item 1, 2 or 4 of the table in section 30-15 and is not described by name in Subdivision 30-B if:

the entity has an ABN; and

the entity:

legally owns the fund; or

includes the authority or institution; and

the fund, authority or institution meets the relevant conditions (if any) identified in the column headed “Special conditions” of that item; and

the entity meets the requirements of subsection (6), unless:

the entity is established by an Act; and

the Act (or another Act) does not provide for the winding up or termination of the entity; and

the entity meets the requirements of section 30-130, unless the entity is endorsed as a deductible gift recipient under paragraph 30-120(a).

Relevant special conditions in table in section 30-15

To avoid doubt:

a condition requiring the fund, authority or institution to meet the requirements of section 30-17 is not a relevant condition for the purposes of subparagraph (1)(b)(iii) or paragraph (2)(c) of this section; and

Note: Section 30-17 requires the entity to be endorsed under this Subdivision as a deductible gift recipient.

in the case of a fund, authority or institution that is described in item 1 of the table in section 30-15—a condition set out in the relevant table item in Subdivision 30-B, including a condition identified in the column headed “Special conditions—fund, authority or institution” of that item (if any), is a relevant condition for the purposes of subparagraph (1)(b)(iii) or paragraph (2)(c) of this section.

Note: Paragraph (c) of the column headed “Special conditions” of item 1 of the table in section 30-15 requires any conditions set out in the relevant table item in Subdivision 30-B to be satisfied.

Transfer of assets from fund, authority or institution

A law (outside this Subdivision), a document constituting the entity or rules governing the entity’s activities must require the entity, at the first occurrence of an event described in subsection (7), to transfer to a fund, authority or institution gifts to which can be deducted under this Division:

any surplus assets of the gift fund (see section 30-130); or

if the entity is not required by this section to meet the requirements of section 30-130—any surplus:

gifts of money or property for the principal purpose of the fund, authority or institution; and

contributions described in item 7 or 8 of the table in section 30-15 in relation to a fund-raising event held for that purpose; and

money received by the entity because of such gifts or contributions.

Events requiring transfer

The events are:

the winding up of the fund, authority or institution; and

if the entity is endorsed because of a fund, authority or institution—the revocation of the entity’s endorsement under this Subdivision relating to the fund, authority or institution.

Note 1: There are 2 ways an entity can be endorsed because of a fund, authority or institution. An entity can be endorsed either because it is a fund, authority or institution or because it operates a fund, authority or institution.

Note 2: Section 426-55 in Schedule 1 to the Taxation Administration Act 1953 deals with revocation of endorsement.

Note 3: The entity is also required to keep appropriate records: see section 382-15 of the Taxation Administration Act 1953.

(1) The entity must maintain for the principal purpose of the fund, authority or institution a fund (the gift fund):

to which gifts of money or property for that purpose are to be made; and

to which contributions described in item 7 or 8 of the table in section 30-15 in relation to a fund-raising event held for that purpose are to be made; and

to which any money received by the entity because of such gifts or contributions is to be credited; and

that does not receive any other money or property.

The entity must use the gift fund only for the principal purpose of the fund, authority or institution.

Exception—only one gift fund required per entity

An entity that operates 2 or more funds, authorities or institutions also meets the requirements of this section for 2 or more of those funds, authorities or institutions by maintaining a single gift fund if:

the gift fund meets the requirements in paragraphs (1)(a), (b) and (c) in respect of each of the funds, authorities or institutions for which the gift fund is maintained; and

the gift fund does not receive any other money or property.

The entity must use a gift or contribution made to the fund and any money credited to the fund only for the principal purpose of the fund, authority or institution to which the gift, contribution or money relates.

Note: The entity is also required to keep appropriate records for each of the funds, authorities or institutions: see section 382-15 of the Taxation Administration Act 1953.

Government entities treated like entities

The other sections of this Subdivision apply in relation to a government entity in the same way as they apply in relation to an entity.

Subparagraph 30-125(2)(b)(i) (as applied by this section) operates as if it referred to the government entity consisting of persons, one or more of whom controlled the fund (instead of referring to the entity legally owning the fund).

You satisfy the valuation requirements if you get 2 or more written valuations of the gift you made.

Note 1: In most cases, you need to get these written valuations to be able to deduct a gift of property that you make to a recipient covered by item 4, 5 or 6 of the table in section 30-15.

Note 2: You do not need to get written valuations in the circumstances set out in section 30-205.

The valuations must be by different individuals, each of whom is an approved valuer of the kind of property you are giving away.

Note: Section 30-210 deals with how an individual becomes an approved valuer.

Each valuation must state the amount that, in the opinion of the valuer, was:

the GST inclusive market value of the property on the day you made the gift; or

the GST inclusive market value of the property on the day the valuation was made.

If a valuation states the GST inclusive market value of the property on the day the valuation was made, it must have been made within 90 days before or after the gift was made. However, the Commissioner may allow a longer period than this.

(1) You do not need to get written valuations of the gift you made if:

no amount is included in your assessable income in respect of the gift you made; but

(b) an amount would have been included in your assessable income if you had sold the property instead of making the gift.

However, this section does not apply if, apart from the operation of subsection 118-60(2), an amount would have been included in your assessable income in respect of the gift you made.

The Arts Secretary may approve an individual as a valuer of a particular kind of property. The approval must be in writing, signed by the Secretary.

The Secretary must, in deciding whether to approve an individual, have regard to:

the individual’s qualifications, experience and knowledge in valuing that kind of property; and

the individual’s knowledge of the current GST inclusive market value of that kind of property; and

the individual’s standing in the professional community.

If you make a gift or contribution that is covered by a provision of this Division that refers to the value of property as determined by the Commissioner, you must seek the valuation from the Commissioner.

The Commissioner may charge you the amount worked out in accordance with the regulations for making the valuation.

Working out the amount you can deduct for a gift of property

This section contains the rules for working out how much you can deduct for a gift of property that you make to a recipient covered by item 4, 5 or 6 of the table in section 30-15.

The general rule is that the amount you can deduct for a gift of this kind is the average of the GST inclusive market values (as reduced under subsection 30-15(3) if that subsection applies) specified in the written valuations you got from the approved valuers.

Note: In some situations you must reduce the amount you can deduct: see section 30-220.

The exceptions to the general rule are set out in this table:

For the purposes of items 3 and 4 of the table in subsection (3), the GST inclusive market values of the property in question are reduced by 1/11 if you would have been entitled to an input tax credit if:

you had *acquired the property at the time you made the gift; and

your acquisition had been for a creditable purpose.

The amount you can deduct is reduced by a reasonable amount if:

the terms and conditions on which the gift is made are such that the recipient:

does not receive immediate custody and control of the property; or

does not have the unconditional right to retain custody and control of the property in perpetuity; or

does not obtain an immediate, indefeasible and unencumbered legal and equitable title to the property; or

the custody, control or use of the property by the recipient is affected by an arrangement entered into in respect of the making of the gift.

In deciding what is a reasonable amount, have regard to the effect of those terms and conditions, or that arrangement, on the GST inclusive market value of the gift.

Joint ownership of property

If:

you own property jointly with one or more other entities; and

you and the other entities make a gift of the property; and

you would have been able to deduct the gift under section 30-15 because of item 4, 5 or 6 of the table in that section if you had made a gift of the property as sole owner of it;

you can deduct so much of the gift as is reasonable, having regard to your interest in the property.

An entity must ensure certain details must appear on a receipt it issues for a gift that:

is made to the entity or a fund, authority or institution it operates; and

is of a kind that the giver can deduct under Subdivision 30-A.

If the entity has an ABN, the Australian Business Registrar must state in the Australian Business Register that the entity is a deductible gift recipient.

Table of sections

Requirements

30-227 Entities to which this Subdivision applies

30-228 Content of receipt for gift or contribution

30-229 Australian Business Register must show deductibility of gifts to deductible gift recipient

Requirements

This Subdivision sets out requirements relating to a deductible gift recipient.

(2) A deductible gift recipient is an entity or *government entity that:

is a fund, authority or institution described in item 1, 2, 4, 5 or 6 of the table in section 30-15 and is:

endorsed under Subdivision 30-BA as a deductible gift recipient; or

mentioned by name in that table or in Subdivision 30-B; or

is endorsed as a deductible gift recipient for the operation of a fund, authority or institution described in item 1, 2 or 4 of the table in section 30-15.

If a deductible gift recipient issues a receipt for a gift described in the relevant item of the table in section 30-15 to the fund, authority or institution, the deductible gift recipient must ensure that the receipt states:

the name of the fund, authority or institution; and

the ABN (if any) of the deductible gift recipient; and

the fact that the receipt is for a gift.

Note: If the deductible gift recipient is endorsed as a deductible gift recipient and it contravenes this section, the Commissioner may revoke its endorsement: see section 426-55 in Schedule 1 to the Taxation Administration Act 1953.

If a deductible gift recipient issues a receipt for a contribution described in item 7 of the table in section 30-15, the deductible gift recipient must ensure that the receipt states:

the name of the deductible gift recipient; and

the ABN (if any) of the deductible gift recipient; and

the fact that the receipt is for a contribution made in return for a right to attend, or participate in, a specified fund-raising event; and

if the contribution is money—the amount of the contribution; and

the amount of the GST inclusive market value, on the day the contribution was made, of the right to attend, or participate in, the fund-raising event.

For the purposes of paragraph (2)(e), in working out the GST inclusive market value of the right in question, disregard anything that would prevent or restrict conversion of the right to money.

If a deductible gift recipient issues a receipt for a contribution described in item 8 of the table in section 30-15, the deductible gift recipient must ensure that the receipt states:

the name of the deductible gift recipient; and

the ABN (if any) of the deductible gift recipient; and

the fact that the receipt is for a contribution made by way of consideration for the supply of goods or services; and

the fact that the contribution was made because the contributor was the successful bidder at an auction that:

was a specified fund-raising event; or

was held at a specified fund-raising event; and

if the contribution is money—the amount of the contribution; and

the GST inclusive market value, on the day the contribution was made, of the goods or services.

For the purposes of paragraph (4)(f), in working out the GST inclusive market value of the goods or services in question, disregard anything that would prevent or restrict conversion of the goods or services to money.

If a deductible gift recipient has an ABN, the Australian Business Registrar must enter in the Australian Business Register in relation to the deductible gift recipient a statement that it is a deductible gift recipient for a specified period.

Note 1: An entry (or lack of entry) of a statement required by this section does not affect whether you can deduct a gift to the fund, authority or institution.

Note 2: This section will apply to all entities and government entities that are endorsed as deductible gift recipients under Subdivision 30-BA, because they must have ABNs to be endorsed. It will also apply to other entities described or named in Subdivision 30-A if they have ABNs.

If the deductible gift recipient is a deductible gift recipient only because it is endorsed under Subdivision 30-BA as a deductible gift recipient for the operation of a fund, authority or institution, the statement must name the fund, authority or institution.

If:

the deductible gift recipient is:

a fund, authority or institution; or

a deductible gift recipient only because it is endorsed under Subdivision 30-BA as a deductible gift recipient for the operation of a fund, authority or institution; and

the fund, authority or institution is covered by item 1, 2 or 4 of the table in section 30-15;

the statement must specify that the fund, authority or institution is covered by that item.

The Australian Business Registrar may remove the statement from the Australian Business Register after the end of the period.

The Australian Business Registrar must take reasonable steps to ensure that a statement appearing in the Australian Business Register under this section is true. For this purpose, the Registrar may:

change the statement; or

remove the statement from the Register if the statement is not true; or

remove the statement from the Register and enter another statement in the Register under this section.

Generally, you can deduct certain contributions and gifts to political parties, independent candidates and members.

Contributions and gifts must be at least $2 and there is a limit on the total amount that you can deduct.

Table of sections

Operative provisions

30-242 Deduction for political contributions and gifts

30-243 Amount of the deduction

30-244 When an individual is an independent candidate

30-245 When an individual is an independent member

Operative provisions

You can deduct any of the following for the income year in which they are made:

(a) a contribution or gift to a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation;

a contribution or gift to an individual when the individual is an independent candidate for a Commonwealth, State, Northern Territory or Australian Capital Territory election;

a contribution or gift to an individual who is, or was, an independent member of the Commonwealth Parliament, a State Parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory.

The contribution or gift must be of:

money; or

property that you purchased during the 12 months before making the contribution or gift.

The value of the contribution or gift must be at least $2.

You can deduct the contribution or gift only if:

you are an individual; and

(b) you do not make the gift or contribution in the course of carrying on a *business.

You cannot deduct a testamentary contribution or gift under this Subdivision.

A contribution or gift to an individual who is, or was, an independent member must be made:

when the individual is an independent member; or

if the individual ceases to be an independent member because:

a Parliament, a House of a Parliament or a Legislative Assembly is dissolved or has reached its maximum duration; or

the individual comes up for election;

after the individual ceases to be a member but before candidates for the resulting election are declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation.

If the contribution or gift is money, the amount of the deduction is the amount of money.

If the contribution or gift is property, the amount of the deduction is the lesser of:

the market value of the property on the day that you made the contribution or gift; and

the amount that you paid for the property.

$1,500 limit on deductions

You cannot deduct more than $1,500 under this Subdivision for an income year for contributions and gifts to political parties.

You cannot deduct more than $1,500 under this Subdivision for an income year for contributions and gifts to *independent candidates or *independent members.

(1) An individual is an independent candidate if:

the individual is a candidate in an election (including an election that is later declared void) for members of the Commonwealth Parliament, a State Parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory; and

(b) the individual’s candidature is not endorsed by a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation.

However, an individual does not start being an independent candidate until the candidates for the election are declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation.

An individual stops being an independent candidate when the result of the election is declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation.

If:

the election is taken to have wholly failed under the relevant electoral legislation; and

the result of the election has not been declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation;

the individual stops being an independent candidate in that election when candidates for the replacement election are declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation.

(1) An individual is an independent member of the Commonwealth Parliament, a State Parliament, the Legislative Assembly of the Northern Territory or the Legislative Assembly for the Australian Capital Territory if the individual:

is a member of that Parliament or Legislative Assembly; and

(b) the individual is not a member of a political party that is registered under Part XI of the Commonwealth Electoral Act 1918 or under corresponding State or Territory legislation.

An individual who becomes a member as a result of an election (including an election that is later declared void) is taken to start being a member of the Parliament or Legislative Assembly when the individual’s election as a member is declared or otherwise publicly announced by an entity authorised under the relevant electoral legislation.

This Subdivision allows you to elect to spread deductions for certain gifts and covenants over up to 5 income years. There are some different requirements for environmental, heritage and cultural property gifts and conservation covenants.

Table of sections

Operative provisions

30-247 Gifts and covenants for which elections can be made

30-248 Making an election

30-249 Effect of election

30-249A Requirements—environmental property gifts

30-249B Requirements—heritage property gifts

30-249D Requirements—conservation covenants

Operative provisions

An election under this Subdivision may be made for a gift, made on or after 1 July 2003, that is:

a gift of:

money; or

property valued by the Commissioner at more than $5,000;

made to a fund, authority or institution covered by item 1 or 2 of the table in section 30-15; or

a gift that is covered by item 4, 5 or 6 of the table in section 30-15.

An election under this Subdivision may also be made for entering into a conservation covenant, under Division 31, on or after 1 July 2003.

If you can deduct an amount:

under this Division for a gift covered by subsection 30-247(1); or

under Division 31 for entering into a conservation covenant covered by subsection 30-247(2);

you may make a written election to spread that deduction over the current income year and up to 4 of the immediately following income years.

In the election, you must specify the percentage (if any) of the deduction that you will deduct in each of the income years.

You must make the election before you lodge your income tax return for the income year in which you made the gift or entered into the covenant.

You may vary an election at any time. However, the variation can only change the percentage that you will deduct in respect of income years for which you have not yet lodged an income tax return.

Unless section 30-249A or 30-249B applies, the election and any variation must be in the approved form.

Note: Sections 30-249A and 30-249B provide for the form of elections and variations for gifts covered by those sections.

In each of the income years you specified in the election, you can deduct the amount corresponding to the percentage you specified for that year.

You cannot deduct the amount that you otherwise would have been able to deduct for the gift in the income year in which you made the gift or entered into the covenant.

This section applies if you make an election for a gift of property made to a fund, authority or institution covered by section 30-55.

You must give a copy of the election to the Environment Secretary before you lodge your income tax return for the income year in which you made the gift.

If you vary the election, you must give a copy of the variation to the Environment Secretary before you lodge your income tax return for the first income year to which the variation applies.

The election and any variation must be in a form approved in writing by the Environment Secretary.

This section applies if you make an election for a gift of property made to a fund, authority or institution covered by item 6 of the table in section 30-15.

You must give a copy of the election to the Heritage Secretary before you lodge your income tax return for the income year in which you made the gift.

If you vary the election, you must give a copy of the variation to the Heritage Secretary before you lodge your income tax return for the first income year to which the variation applies.

The election and any variation must be in a form approved in writing by the Heritage Secretary.

This section applies if you make an election for a conservation covenant.

You must give a copy of the election to the Environment Secretary before you lodge your income tax return for the income year in which you entered the covenant.

If you vary the election, you must give a copy of the variation to the Environment Secretary before you lodge your income tax return for the first income year to which the variation applies.

The table in this section gives you an index to this Division.

It tells you:

 each topic covered by this Division; and

 where in this Division you can find the detail about each topic.

Note: In the last column there are many references in this form: item 2.2.1. These refer to items in the tables in Subdivision 30-B.

This Subdivision is a Guide.

Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150.

To the extent that you incur a loss or outgoing in respect of providing entertainment, you cannot deduct it under section 8-1. However, there are exceptions, which are set out in Subdivision 32-B.

Note 1: Under section 8-1 you can deduct a loss or outgoing that you incur for the purpose of producing assessable income.

Note 2: If you have used your property in providing entertainment, you may not be able to deduct an amount for the property: see section 32-15.

Note 3: Section 32-75 deals with arrangements to avoid the operation of this section.

(1) Entertainment means:

entertainment by way of food, drink or recreation; or

accommodation or travel to do with providing entertainment by way of food, drink or recreation.

(2) You are taken to provide entertainment even if business discussions or transactions occur.

Note: These are some examples of what is entertainment:

business lunches

social functions.

These are some examples of what is not entertainment:

meals on business travel overnight

theatre attendance by a critic

a restaurant meal of a food writer.

To the extent that you use property in providing *entertainment, your use of the property is taken not to be for the *purpose of producing assessable income if section 32-5 would stop you deducting a loss or outgoing if you incurred it in the income year in providing the entertainment.

Note: Under some provisions of this Act, in order to deduct an amount for your property, you must have used the property for the purpose of producing assessable income.

Section 32-5 does not stop you deducting a loss or outgoing to the extent that you incur it in respect of providing entertainment by way of *providing a *fringe benefit.

But this exception does not apply to the extent that the taxable value of the *fringe benefit is reduced under section 63A of the Fringe Benefits Tax Assessment Act 1986.

Note 1: You may be able to deduct losses or outgoings that are fringe benefits under section 51AEA, 51AEB or 51AEC of the Income Tax Assessment Act 1936. If you do, then you cannot deduct them under section 8-1 (about general deductions) and so this section is not relevant.

Note 2: There are other exceptions for a loss or outgoing you incur in providing a benefit that would be a fringe benefit if it were not an exempt benefit: see items 1.6 and 1.7 of the table in section 32-30.

Section 32-5 does not stop you deducting a loss or outgoing to the extent that you incur it in respect of providing entertainment as described in column 2 of an item of a table in this Subdivision.

However, if column 3 of that item applies, the exception in column 2 of that item does not.

Note 1: In the case of a company, items 1.1, 1.2, 1.3, 1.5 and 1.8 cover directors of the company as if they were employees: see section 32-80.

Note 2: In the case of a company, items 1.1, 1.2, 1.3 and 1.5 cover directors, employees and property of another company that is a member of the same wholly-owned group: see section 32-85.

Note 3: Item 1.8 has a special operation for partnerships: see section 32-90.

An in-house dining facility is a canteen, dining room or similar facility that:

is on property you occupy; and

is operated mainly for providing food and drink to your employees; and

is not open to the public.

Note 1: In the case of a company, this definition also covers directors of the company as if they were employees: see section 32-80.

Note 2: In the case of a company, this definition also covers directors, employees and property of another company that is a member of the same wholly-owned group: see section 32-85.

A dining facility is:

a canteen, dining room or similar facility; or

a cafe, restaurant or similar facility;

that is on property you occupy.

Note: In the case of a company, this definition also covers property of another company that is a member of the same wholly-owned group: see section 32-85.

(1) Seminar includes a conference, convention, lecture, meeting (including a meeting for the presentation of awards), speech, “question and answer session”, training session or educational course.

(2) In working out whether a *seminar goes for at least 4 hours the following are taken not to affect the seminar’s continuity, nor to form part of it:

any part of the seminar that occurs during a meal;

any break during the seminar for the purpose of a meal, rest or recreation.

(3) A *seminar is a business meeting if its main purpose is for individuals who are (or will be) associated with the carrying on of a particular *business to give or receive information, or discuss matters, relating to the business.

However, the *seminar is not a business meeting if it:

is organised by (or on behalf of) an employer solely for either or both of these purposes:

training the employer and the employer’s employees (or just those employees) in matters relevant to the employer’s business (or prospective business);

enabling the employer and the employer’s employees (or just those employees) to discuss general policy issues relevant to the internal management of the employer’s business; and

is conducted on property that is occupied by a person (other than the employer) whose business includes organising seminars or making property available for conducting seminars.

Note 1: In the case of a company, subsection (3) covers directors of the company as if they were employees: see section 32-80.

Note 2: In the case of a company, paragraph (3)(b) also covers property of another company that is a member of the same wholly-owned group: see section 32-85.

Note 3: Subsection (3) has a special operation for partnerships: see section 32-90.

Your assessable income includes $30 for a meal you provide in an in-house dining facility in the income year to an individual other than your employee, but only if:

you incur a loss or outgoing in respect of providing the meal; and

because of item 1.2 of the table in section 32-30, section 32-5 does not stop you deducting the loss or outgoing under section 8-1 (which deals with general deductions); and

the loss or outgoing is one that you can deduct under section 8-1 for the income year or some other income year.

(2) However, you can choose not to include in your assessable income $30 for each meal you provide in the *in-house dining facility in the income year to an individual other than your employee.

Note: If you do choose, you cannot rely on item 1.2 of the table in section 32-30 as a basis for deducting a loss or outgoing you incur in respect of providing a meal.

You must choose by the day you lodge your income tax return for the income year, or within a further time allowed by the Commissioner.

If:

you incur a loss or outgoing under an arrangement; and

someone provides entertainment under the arrangement to you or someone else; and

section 32-5 would have stopped you deducting the loss or outgoing under section 8-1 (which deals with general deductions) if you had incurred it in respect of providing that entertainment;

this Division applies to you as if you had incurred the loss or outgoing in providing that entertainment, to the extent (if any) that the Commissioner thinks reasonable.

Note: This means that section 32-5 will prevent you from deducting the loss or outgoing under section 8-1 unless an exception applies.

Example: A company pays $1,000 to sponsor a football game. Under the same arrangement, the company is given a viewing box at the game. To the extent the Commissioner thinks reasonable, he or she can treat the company as having incurred the $1,000 in providing entertainment.

In the case of a company, these provisions cover directors of the company as if they were the company’s employees:

item 1.1 (exception for *in-house dining facilities) of the table in section 32-30;

item 1.2 (exception for *in-house dining facilities) of the table in section 32-30;

item 1.3 (exception for *dining facilities) of the table in section 32-30;

item 1.5 (exception for recreational facilities) of the table in section 32-30;

item 1.8 (exception for providing your employee with an allowance) of the table in section 32-30;

section 32-55 (which defines in-house dining facility);

subsection 32-65(3) (which defines business meeting).

Employees and directors of group company

In the case of a company, these provisions cover directors and employees of another company that is a member of the same wholly-owned group as if they were the company’s own directors and employees:

item 1.1 (exception for *in-house dining facilities) of the table in section 32-30;

item 1.2 (exception for *in-house dining facilities) of the table in section 32-30;

item 1.3 (exception for *dining facilities) of the table in section 32-30;

item 1.5 (exception for recreational facilities) of the table in section 32-30;

section 32-55 (which defines in-house dining facility);

subsection 32-60(1) (which defines dining facility);

paragraph 32-65(3)(b).

Property occupied by group company

Those provisions also cover property occupied by that other company as if the company occupied that property.

In the case of a partnership:

item 1.8 (exception for providing employee with an allowance) of the table in section 32-30; and

subsection 32-65(3) (which defines business meeting);

apply to a partner in the same way as they apply to an employee of the partnership, but only for the purposes of calculating, in accordance with section 90 of the Income Tax Assessment Act 1936, the partnership’s net income or partnership loss.

(1) This Division applies not only to an individual who is an employee. It also applies to an individual who is not an employee, but who receives, or is entitled to receive, *withholding payments covered by subsection (3).

(2) If an individual is not an employee, but is covered by subsection (1), this Division applies to the individual as if:

he or she were an employee; and

the entity, who pays (or is liable to pay) *withholding payments covered by subsection (3) that result in the individual being in receipt of, or entitled to receive, such payments, were the individual’s employer; and

any other individual who receives (or is entitled to receive) *withholding payments covered by subsection (3):

that result in that other individual being in receipt of, or entitled to receive, such payments; and

that the entity pays (or is liable to pay) to that other individual;

were an employee of the entity.

(3) This subsection covers a *withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table.

If an entity is not an employer, but pays (or is liable to pay) *withholding payments covered by subsection 34-5(3), this Division applies to the entity as if:

it were an employer; and

an individual to whom the entity pays (or is liable to pay) such withholding payments were the entity’s employee.

If you are an employee, you can deduct expenditure you incur in respect of your *non-compulsory uniform if:

you can deduct the expenditure under another provision of this Act; and

the *design of the uniform is registered under this Division when you incur the expenditure.

Note 1: This Division also applies to individuals who are not employees: see Subdivision 34-A.

Note 2: Employers apply to register designs of uniforms: see Subdivision 34-C.

(2) You cannot deduct the expenditure under this Act if the *design is not registered at the time you incur the expenditure.

However, this Division does not stop you deducting expenditure you incur in respect of your occupation specific clothing or protective clothing.

What is a uniform?

(1) A uniform is one or more items of clothing (including accessories) which, when considered as a set, distinctively identify you as a person associated (directly or indirectly) with:

your employer; or

a group consisting of your employer and one or more of your employer’s *associates.

When is a uniform non-compulsory?

(2) Your uniform is non-compulsory unless your employer consistently enforces a policy that requires you and the other employees (except temporary or relief employees) who do the same type of work as you:

to wear the uniform when working for your employer; and

(b) not to substitute an item of clothing not included in the uniform for an item of clothing included in the uniform when working for your employer;

except in special circumstances.

(1) Occupation specific clothing is clothing that distinctively identifies you as belonging to a particular profession, trade, vocation, occupation or calling. To determine this, disregard any feature of the clothing that distinctively identifies you as a person associated (directly or indirectly) with:

your employer; or

a group consisting of your employer and one or more of your employer’s *associates.

Example: Occupation specific clothing includes a nurse’s uniform, a chef’s checked pants and a religious cleric’s ceremonial robes.

(2) Protective clothing is clothing of a kind that you mainly use to protect yourself, or someone else, from risk of:

death; or

disease (including the contraction, aggravation, acceleration or recurrence of a disease); or

injury (including the aggravation, acceleration or recurrence of an injury); or

damage to clothing; or

damage to an artificial limb or other artificial substitute, or to a medical, surgical or other similar aid or appliance.

Example: Protective clothing includes overalls, aprons, goggles, hard hats and safety boots, when worn to protect the wearer.

Meaning of disease

(3) Disease includes any mental or physical ailment, disorder, defect or morbid condition, whether of sudden onset or gradual development and whether of genetic or other origin.

The employer of an employee who has, or will have, a *non-compulsory uniform can apply to the Industry Secretary for the *design of the uniform to be registered.

Note: This Division also applies to entities that are not employers: see Subdivision 34-A.

Meaning of design of a uniform

(2) The design of a *uniform includes features such as its colouring, construction, durability, ornamentation, pattern and shape.

Form of application

The application must be:

in writing; and

in a form approved in writing by the Industry Secretary; and

accompanied by such information as the Industry Secretary requires.

Industry Secretary must decide to grant or refuse application

After considering the application, the Industry Secretary must decide to either grant or refuse the application.

Criteria for grant of application

The Industry Secretary must not decide to grant an application unless he or she is satisfied that the design meets the criteria set out in the approved occupational clothing guidelines.

Note: The approved occupational clothing guidelines are created under section 34-55.

When Industry Secretary taken to have refused application

(3) The *Industry Secretary is taken to have refused an application if he or she does not make a decision by the later of the following times (the deadline):

(a) the end of 90 days (the 90-day period) after the day the Industry Secretary receives the application;

if the Industry Secretary, by written notice given to the applicant within the 90-day period, requests the applicant to give further information about the application—the end of 90 days after the Industry Secretary receives the further information.

If the Industry Secretary makes a decision to grant or refuse an application under subsection 34-30(1) before the *deadline, the Industry Secretary must give the applicant written notice of the decision.

Reasons for refusal

If the notice is a notice of a decision to refuse the application, it must also set out the reasons for the refusal.

Statements to accompany notice of decision

The notice of the decision is to include the statements set out in subsections (4) and (5).

(4) There must be a statement to the effect that, subject to the Administrative Review Tribunal Act 2024, an application may be made to the *ART, by (or on behalf of) any entity whose interests are affected by the decision, for review of the decision.

There must also be a statement to the effect that a request may be made under section 268 of that Act by (or on behalf of) such an entity for a statement of reasons.

Failure does not affect validity

If the Industry Secretary fails to comply with subsection (4) or (5), that failure does not affect the validity of his or her decision.

If the Industry Secretary decides to grant the application, the *design of the uniform becomes registered on:

the day the decision is made; or

if the applicant requests—such earlier day as the Industry Secretary specifies.

Note: When the design becomes registered, an entry for the design is made on the Register of Approved Occupational Clothing. Subdivision 34-E is about the Register.

Applications may be made to the ART for review of a decision made by the Industry Secretary under subsection 34-30(1).

The Industry Secretary must keep the Register of Approved Occupational Clothing, listing the designs that are required to be entered on the Register because of this Division.

Register to be open for inspection

The Industry Secretary must arrange for the Register to be available for inspection at any reasonable time by any person on request.

Removal of registration

The Industry Secretary must remove an entry for a *design from the Register of Approved Occupational Clothing if requested to do so by the employer who applied for the design to be registered.

Correcting errors and mistakes

The Industry Secretary may correct a clerical error or an obvious mistake in an entry for a design in the Register and, if the Industry Secretary does so, the correction takes effect on the day on which the design to which the entry relates was registered.

(1) The Minister must, by legislative instrument, formulate written guidelines (the approved occupational clothing guidelines) setting out criteria that *designs of uniforms must meet if the designs are to be registered.

Matters to be taken into account in making guidelines

In making approved occupational clothing guidelines, the matters to which the Minister is to have regard include:

how distinctively a uniform’s *design identifies the wearer as a person associated (directly or indirectly) with:

the applicant for registering the uniform’s design; or

a group consisting of the applicant and one or more of the applicant’s *associates; and

the nature of the business or activities the applicant carries on.

The Industry Secretary must give the Commissioner information about entries of *designs on the Register of Approved Occupational Clothing if the Commissioner requests him or her to do so.

The Industry Secretary may, by writing, delegate any or all of his or her functions and powers under this Division to a person in the Industry Department:

who holds or performs the duties of a Senior Executive Service office; or

(b) whose classification level appears in Group 7 or 8 of Schedule 1 to the Classification Rules under the Public Service Act 1999; or

who is acting in a position usually occupied by a person with a classification level of the kind mentioned in paragraph (b).

Add up the amounts you can deduct for an income year (except *tax losses for earlier income years).

Subtract your total assessable income.

(3) If you *derived *exempt income, also subtract your *net exempt income (worked out under section 36-20).

(4) Any amount remaining is your tax loss for the income year, which is called a loss year.

Note 1: Some deductions are limited so that they cannot contribute to a tax loss. See section 26-55 (Limit on certain deductions).

Note 2: The meanings of tax loss and loss year are modified by section 36-55 for a corporate tax entity that has an amount of excess franking offsets.

For subsection (3), if you have exempt income under section 51-100 (about shipping), disregard 90% of so much of your net exempt income as directly relates to that exempt income.

Your *tax loss for a loss year is deducted in a later income year as follows if you are not a corporate tax entity at any time during the later income year.

Note 1: See section 36-17 for the deduction of a tax loss of an entity that is a corporate tax entity at any time during the later income year.

Note 2: A tax loss can be deducted only to the extent that it has not already been utilised: see subsection 960-20(1).

If you have no net exempt income

If your total assessable income for the later income year exceeds your total deductions (other than *tax losses), you deduct the tax loss from that excess.

If you have net exempt income

If you have net exempt income for the later income year and your total assessable income (if any) for the later income year exceeds your total deductions (except *tax losses), you deduct the tax loss:

first, from your net exempt income; and

secondly, from the part of your total assessable income that exceeds those deductions.

However, if you have net exempt income for the later income year and those deductions exceed your total assessable income, then:

subtract that excess from your net exempt income; and

deduct the tax loss from any net exempt income that remains.

To work out your net exempt income: see section 36-20.

General

If you have 2 or more *tax losses, you deduct them in the order in which you incurred them.

A *tax loss of an entity for a loss year is deducted in a later income year as follows if the entity is a corporate tax entity at any time during the later income year.

Note 1: A tax loss can be deducted under this section only to the extent that it has not already been utilised: see subsection 960-20(1).

Note 2: A corporate tax entity may also, in the 2020-21, 2021-22 or 2022-23 income year, be able to carry a loss back to the 2018-19, 2019-20, 2020-21 or 2021-2022 income year: see Division 160.

If the entity has no net exempt income

If the entity’s total assessable income for the later income year exceeds the entity’s total deductions (except *tax losses), the entity is to deduct from that excess so much of the tax loss as the entity chooses. The entity may choose a nil amount.

If the entity has net exempt income

If the entity has net exempt income for the later income year and the entity’s total assessable income (if any) for that year exceeds the entity’s total deductions (except *tax losses), the entity is to:

first, deduct the tax loss from the net exempt income; and

secondly, deduct from the part of the total assessable income that exceeds those deductions so much of the undeducted amount of the tax loss (if any) as the entity chooses.

The entity may choose a nil amount under paragraph (b).

Note: To work out the corporate tax entity’s net exempt income: see section 36-20.

However, if the entity has net exempt income for the later income year and those deductions exceed the entity’s total assessable income, the entity is to:

subtract that excess from the net exempt income; and

deduct the *tax loss from any net exempt income that remains.

Note: This means there is no choice available under this subsection.

For subsection (3) or (4), if the entity has exempt income under section 51-100 (about shipping) for the later income year, disregard 90% of so much of the entity’s net exempt income for the later income year as directly relates to that exempt income.

Limit to how much the entity can choose

The choice that the entity has under subsection (2) or (3) for the later income year is subject to both of the following:

the entity must choose a nil amount if, disregarding the *tax loss and other tax losses of the entity, the entity would have an amount of excess franking offsets for that year;

(b) if, disregarding the tax loss and other tax losses of the entity, the entity would not have an amount of excess franking offsets for that year—the entity must not choose an amount that would result in the entity having an amount of excess franking offsets for that year.

Example: For the 2017-18 income year, Company A (which is not a base rate entity) has:

a tax loss of $150 from a previous income year; and

assessable income of $200 (franked distribution of $70, franking credit of $30 and $100 of income from other sources); and

no deductions; and

no net exempt income.

The tax offset of $30 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules.

Company A would not have an amount of excess franking offsets for that year if the tax loss were disregarded (see section 36-55). This is because the tax offset of $30 is less than $60, the amount of income tax that Company A would have to pay if it did not have the tax offset and the tax loss. Paragraph (a) therefore does not apply.

If Company A chooses to deduct the full amount of the tax loss, it would have an amount of excess franking offsets of $15:

Company A therefore cannot make this choice because of paragraph (b).

However, if Company A chooses to deduct $100 of the tax loss, it would not have an amount of excess franking offsets:

Company A therefore can choose to deduct $100 of the tax loss.

The entity must state its choice under subsection (2) or (3) in its income tax return for the later income year.

General

If the entity has 2 or more *tax losses, the entity is to deduct them in the order in which the entity incurred them.

Recalculation of amounts resulting in a choice or a change of a choice

Subsection (11) or (12) applies if at least one of the following amounts is recalculated after an entity has lodged its income tax return for an income year:

the amount of a *tax loss that the entity can *utilise in that year;

the amount of the difference between the entity’s total assessable income for that year and the entity’s total deductions (other than *tax losses) for that year;

the amount of the entity’s net exempt income for that year;

whether or not the amount is recalculated in an amendment of the entity’s assessment for that year, and whether or not the amount was a nil amount before the recalculation (or has become a nil amount after the recalculation).

If:

before the recalculation, a choice under subsection (2) or (3) for the income year was not available to the entity; but

as a result of the recalculation, the choice has (apart from subsection (6)) become available to the entity;

the entity can make that choice by written notice given to the Commissioner.

If:

the entity made a choice under subsection (2) or (3) for the income year; but

as a result of the recalculation, the entity wishes to change that choice;

the entity can do so by written notice given to the Commissioner.

(13) Subsections (10) to (12) have effect subject to section 170 of the Income Tax Assessment Act 1936 (about amendment of assessments).

(1) If you are an Australian resident, your net exempt income is the amount by which your total *exempt income from all sources exceeds the total of:

the losses and outgoings (except capital losses and outgoings) you incurred in deriving that exempt income; and

any taxes payable outside Australia on that exempt income.

(2) If you are a foreign resident, your net exempt income is the amount (if any) by which the total of:

your exempt income *derived from sources in Australia; and

(b) your exempt income to which section 26AG (Certain film proceeds included in assessable income) of the Income Tax Assessment Act 1936 applies;

exceeds the total of:

the losses and outgoings (except capital losses and outgoings) you incurred in deriving exempt income covered by paragraph (a) or (b); and

any taxes payable outside Australia on income covered by paragraph (b).

Tax losses of individuals

Tax losses of companies

Tax losses of corporate tax entities

Tax losses of entities generally

Tax losses of pooled development funds (PDFs)

Tax losses of VCLPs, ESVCLPs, AFOFs and VCMPs

Tax losses of entities that become foreign hybrids

Tax losses of trusts

Tax losses of greenfields minerals explorers

After you become bankrupt, you cannot deduct a tax loss that you incurred beforehand. However, you may be able to deduct repayments of debts you incurred in the loss year.

Table of sections

Operative provisions

36-35 No deduction for tax loss incurred before bankruptcy

36-40 Deduction for amounts paid for debts incurred before bankruptcy

36-45 Limit on deductions for amounts paid

Operative provisions

If:

you became bankrupt; or

you were released from a debt by the operation of an Act relating to bankruptcy;

before the income year, you cannot deduct a *tax loss that you incurred before the day on which you either became bankrupt or were released.

If:

you became bankrupt before the income year; and

(b) the bankruptcy is later annulled under section 74 of the Bankruptcy Act 1966 because your creditors have accepted your proposal for a composition or scheme of arrangement; and

under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy;

you cannot deduct a *tax loss that you incurred before the day on which you became bankrupt.

Tax losses generally

If:

you pay an amount in the income year for a debt that you incurred in an earlier income year; and

you have a *tax loss covered by section 36-35 for that earlier income year;

you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the tax loss.

Film losses

If:

you pay an amount in the income year for a debt that you incurred in an earlier income year; and

you incurred the debt in the course of deriving or gaining *assessable film income or *exempt film income; and

you also incurred a film loss covered by section 36-35 in that earlier income year;

you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the film loss.

(3) A film loss is the *film component (if any) of a *tax loss.

(4) Your *tax loss for an income year has a film component if your *film deductions for the year exceed the sum of:

your *assessable film income for the year; and

your *net exempt film income for the year.

The amount of the film component is the excess or the tax loss, whichever is lesser.

(5) However, if your *tax loss worked out under a provision listed in the table, the film component is what that tax loss would have been if:

your film deductions for the loss year had been your only deductions; and

your *assessable film income for the loss year had been your only assessable income; and

your *net exempt film income for the loss year had been your only net exempt income.

However, the film component cannot exceed the actual tax loss.

Tax losses generally

The total of your deductions under subsection 36-40(1) for amounts paid in the income year for debts incurred in the loss year cannot exceed the amount of the *tax loss reduced by the sum of:

your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and

any amounts of the tax loss *utilised in earlier income years; and

any amounts of the tax loss that, apart from section 36-35, would have been deductible from your net exempt income for the income year or earlier income years.

Film losses

The total of your deductions under subsection 36-40(2) for amounts paid in the income year for debts incurred in the loss year cannot exceed the amount of the film loss reduced by the sum of:

your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and

any amounts of the film loss deducted in earlier income years; and

any amounts of the film loss that, apart from section 36-35, would have been deductible from your *net exempt film income for the income year or earlier income years.

Amounts of tax offsets to which a corporate tax entity is entitled under Division 207 and Subdivision 210-H may in some circumstances be converted into an amount of a tax loss for the entity.

Table of sections

Operative provision

36-55 Converting excess franking offsets into tax loss

Operative provision

Excess franking offsets

(1) An entity that is a *corporate tax entity at any time during an income year has an amount of excess franking offsets for that year if:

the total amount of *tax offsets to which the entity is entitled for that year under Division 207 and Subdivision 210-H (except those that are subject to the refundable tax offset rules because of section 67-25);

exceeds:

the amount of income tax that the entity would have to pay on its taxable income for that year if:

it did not have those tax offsets; and

it did not have any tax offsets that are subject to the tax offset carry forward rules or the refundable tax offset rules; and

it did not have any tax offset under section 205-70;

but had all its other tax offsets.

The excess is the amount of excess franking offsets.

Note: Division 65 sets out the tax offset carry forward rules. Division 67 sets out which tax offsets are subject to the refundable tax offset rules.

Example: For the 2017-18 income year, Company E (which is not a base rate entity) has:

assessable income of $200 (franked distribution of $140 and franking credit of $60); and

$100 of deductions that are allowable.

The tax offset of $60 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules.

Disregarding the tax offset of $60 from the franking credit, the amount of income tax that Company E would have to pay is $30:

This amount is $30 less than the tax offset of $60. Company E therefore has an amount of excess franking offsets of $30 for that year.

How to work out the amount of the tax loss

For the purposes of this Act, if:

an entity has an amount of excess franking offsets for an income year; and

the result of applying the following method statement is a positive amount;

then:

the entity is taken to have a *tax loss for that year equal to that positive amount (instead of an amount of tax loss worked out under section 36-10, 165-70, 175-35 or 701-30); and

that year is taken to be a loss year for the entity if the entity would not otherwise have a tax loss for that year.

Method statement

Step 1. Work out the amount (if any) that would have been the entity’s *tax loss for that year under section 36-10, 165-70, 175-35 or 701-30 if the entity’s net exempt income for that year (if any) were disregarded.

Step 2. Divide the amount of excess franking offsets by the entity’s *corporate tax rate for imputation purposes for that year.

Step 3. Add the results of steps 1 and 2.

Step 4. Reduce the result of step 3 by the entity’s net exempt income for that year (if any).

The result of this step is taken to be the entity’s *tax loss for that year. However, if the result of this step is nil or a negative amount, the company does not have any tax loss for that year.

Applying the method statement, the amount of excess franking offsets of $30 generates a tax loss of $100 for that year, which can be deducted in a later income year under section 36-15 or 36-17.

Income Tax Assessment Act 1997

No. 38, 1997

Compilation No.   266

Compilation date: 1 July 2026

Includes amendments: Act No. 17, 2025, Act No. 57, 2025, Act No. 49, 2026 and Act No. 58, 2026

This compilation is in 12 volumes

Note: See section 36-20 for the calculation of net exempt income.

Example: Assume that company E did not derive any exempt income for the 2017-2018 income year and that it would not otherwise have any tax loss for that year under section 36-10, 165-70, 175-35 or 701-30.

Each volume has its own contents

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 1 July 2026 (the compilation date).

The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of provisions of the compiled law.

Uncommenced amendments

The effect of uncommenced amendments is not shown in the text of the compiled law. The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. Any uncommenced amendments affecting the law are accessible on the Register (www.legislation.gov.au).

Application, saving and transitional provisions

If the operation of a provision or amendment of the compiled law is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.

Editorial changes

For more information about any editorial changes made in this compilation, see the endnotes.

Presentational changes

The Legislation Act 2003 provides for First Parliamentary Counsel to make presentational changes to a compilation. Presentational changes are applied to give a more consistent look and feel to legislation published on the Register, and enable the user to more easily navigate those documents.

Modifications

If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. Any modifications affecting the law are accessible on the Register.

Self - repealing provisions

If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.

Contents

Chapter 2—Liability rules of general application 1

Part 2-10—Capital allowances: rules about deductibility of capital expenditure 1

Division 40—Capital allowances 1

Guide to Division 40 2

40-1 What this Division is about 2

40-10 Simplified outline of this Division 2

Subdivision 40-A—Objects of Division 5

40-15 Objects of Division 5

Subdivision 40-B—Core provisions 5

Guide to Subdivision 40-B 5

40-20 What this Subdivision is about 5

Operative provisions 7

40-25 Deducting amounts for depreciating assets 7

40-27 Further reduction of deduction for second-hand assets in residential property 9

40-30 What a depreciating asset is 11

40-35 Jointly held depreciating assets 13

40-40 Meaning of hold a depreciating asset 13

40-42 When mining, quarrying or prospecting rights are used 16

40-45 Assets to which this Division does not apply 17

40-50 Assets for which you deduct under another Subdivision 18

40-53 Alterations etc. to certain depreciating assets 18

40-55 Use of the “cents per kilometre” car expense deduction method 18

40-60 When a depreciating asset starts to decline in value 19

40-65 Choice of methods to work out the decline in value 19

40-70 Diminishing value method 21

40-72 Diminishing value method for post-9 May 2006 assets 22

40-75 Prime cost method 23

40-80 When you can deduct the asset’s cost 26

40-82 Assets costing less than $150,000—medium sized businesses—assets first acquired between 2 April 2019 and 31 December 2020 28

40-85 Meaning of adjustable value and opening adjustable value of a depreciating asset 33

40-90 Debt forgiveness 34

40-95 Choice of determining effective life 34

40-100 Commissioner’s determination of effective life 43

40-102 Capped life of certain depreciating assets 44

40-103 Effective life and remaining effective life of certain vessels 46

40-105 Self-assessing effective life 48

40-110 Recalculating effective life 49

40-115 Splitting a depreciating asset 51

40-120 Replacement spectrum licences 52

40-122 Partial conversions of mining, quarrying or prospecting rights 52

40-125 Merging depreciating assets 53

40-130 Choices 53

40-135 Certain anti-avoidance provisions 54

40-140 Getting tax information from associates 54

Subdivision 40-C—Cost 56

Guide to Subdivision 40-C 56

40-170 What this Subdivision is about 56

Operative provisions 56

40-175 Cost 56

40-180 First element of cost 57

40-185 Amount you are taken to have paid to hold a depreciating asset or to receive a benefit 60

40-190 Second element of cost 62

40-195 Apportionment of cost 63

40-200 Exclusion from cost 63

40-205 Cost of a split depreciating asset 64

40-210 Cost of merged depreciating assets 64

40-215 Adjustment: double deduction 64

40-217 Cost of partial continuations of mining, quarrying or prospecting rights 65

40-220 Cost reduced by amounts not of a capital nature 65

40-222 Cost reduced by water infrastructure improvement expenditure 65

40-225 Adjustment: acquiring a car at a discount 65

40-230 Adjustment: car limit 66

40-235 Adjustment: National Disability Insurance Scheme costs 67

Subdivision 40-D—Balancing adjustments 67

Guide to Subdivision 40-D 67

40-280 What this Subdivision is about 67

Operative provisions 68

40-285 Balancing adjustments 68

40-290 Reduction for non-taxable use 70

40-291 Reduction for second-hand assets used in residential property 71

40-291A Fixed reduction for certain assets used to produce assessable labour income 73

40-292 Adjustments—assets used for both general tax purposes and R&D activities 73

40-293 Adjustments—partnership assets used for both general tax purposes and R&D activities 74

40-295 Meaning of balancing adjustment event 75

40-300 Meaning of termination value 77

40-305 Amount you are taken to have received under a balancing adjustment event 79

40-310 Apportionment of termination value 81

40-320 Car to which section 40-225 applies 81

40-325 Adjustment: car limit 81

40-335 Deduction for in-house software where you will never use it 81

40-340 Roll-over relief 82

40-345 What the roll-over relief is 85

40-350 Additional consequences 85

40-360 Notice to allow transferee to work out how this Division applies 86

40-362 Roll-over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012 87

40-363 Roll-over relief for interest realignment arrangements 88

40-364 Interest realignment adjustments 91

40-365 Involuntary disposals 93

40-370 Balancing adjustments where there has been use of different car expense methods 95

Subdivision 40-E—Low-value and software development pools 97

Guide to Subdivision 40-E 97

40-420 What this Subdivision is about 97

Operative provisions 97

40-425 Allocating assets to a low-value pool 97

40-430 Rules for assets in low-value pools 99

40-435 Private or exempt use of assets 100

40-440 How you work out the decline in value of assets in low-value pools 100

40-445 Balancing adjustment events 102

40-450 Software development pools 102

40-455 How to work out your deduction 103

40-460 Your assessable income includes consideration for pooled software 103

Subdivision 40-F—Primary production depreciating assets 104

Guide to Subdivision 40-F 104

40-510 What this Subdivision is about 104

Operative provisions 105

40-515 Water facilities, horticultural plants, fodder storage assets and fencing assets 105

40-520 Meaning of water facility, horticultural plant, fodder storage asset and fencing asset 106

40-525 Conditions 107

40-530 When declines in value start 109

40-535 Meaning of horticulture and commercial horticulture 109

40-540 How you work out the decline in value for water facilities 110

40-545 How you work out the decline in value for horticultural plants 110

40-548 How you work out the decline in value for fodder storage assets 112

40-551 How you work out the decline in value for fencing assets 112

40-555 Amounts you cannot deduct 112

40-560 Non-arm’s length transactions 114

40-565 Extra deduction for destruction of a horticultural plant 114

40-570 How this Subdivision applies to partners and partnerships 115

40-575 Getting tax information if you acquire a horticultural plant 115

Subdivision 40-G—Capital expenditure of primary producers and other landholders 117

Guide to Subdivision 40-G 117

40-625 What this Subdivision is about 117

Operative provisions 117

40-630 Landcare operations 117

40-635 Meaning of landcare operation 120

40-640 Meaning of approved management plan 121

40-645 Electricity and telephone lines 121

40-650 Amounts you cannot deduct under this Subdivision 122

40-655 Meaning of connecting power to land or upgrading the connection and metering point 124

40-660 Non-arm’s length transactions 125

40-665 How this Subdivision applies to partners and partnerships 125

40-670 Approval of persons as farm consultants 126

40-675 Review of decisions relating to approvals 126

Subdivision 40-H—Capital expenditure that is immediately deductible 127

Guide to Subdivision 40-H 127

40-725 What this Subdivision is about 127

Operative provisions 127

40-730 Deduction for expenditure on exploration or prospecting 127

40-735 Deduction for expenditure on mining site rehabilitation 130

40-740 Meaning of ancillary mining activities and mining building site 131

40-745 No deduction for certain expenditure 131

40-750 Deduction for payments of petroleum resource rent tax 132

40-755 Environmental protection activities 132

40-760 Limits on deductions from environmental protection activities 134

40-765 Non-arm’s length transactions 134

Subdivision 40-I—Capital expenditure that is deductible over time 135

Guide to Subdivision 40-I 135

40-825 What this Subdivision is about 135

Operative provisions 136

40-830 Project pools 136

40-832 Project pools for post-9 May 2006 projects 137

40-835 Reduction of deduction 138

40-840 Meaning of project amount 138

40-845 Project life 140

40-855 When you start to deduct amounts for a project pool 140

40-860 Meaning of mining capital expenditure 140

40-865 Meaning of transport capital expenditure 142

40-870 Meaning of transport facility 143

40-875 Meaning of processed minerals and minerals treatment 143

40-880 Business related costs 144

40-885 Non-arm’s length transactions 148

Subdivision 40-J—Capital expenditure for the establishment of trees in carbon sink forests 148

Guide to Subdivision 40-J 148

40-1000 What this Subdivision is about 148

Operative provisions 149

40-1005 Deduction for expenditure for establishing trees in carbon sink forests 149

40-1010 Expenditure for establishing trees in carbon sink forests 151

40-1015 Carbon sequestration by trees 153

40-1020 Certain expenditure disregarded 153

40-1025 Non-arm’s length transactions 153

40-1030 Extra deduction for destruction of trees in carbon sink forest 154

40-1035 Getting information if you acquire a carbon sink forest 155

Subdivision 40-K—Farm-in farm-out arrangements 156

Guide to Subdivision 40-K 156

40-1095 What this Subdivision is about 156

Farm-in farm-out arrangements and exploration benefits 157

40-1100 Meaning of farm-in farm-out arrangement and exploration benefit 157

Consequences for transferors 159

40-1105 Treatment of certain exploration benefits received under farm-in farm-out arrangements 159

40-1110 Cost of split interests resulting from farm-in farm-out arrangements 159

40-1115 Deductions relating to receipt of exploration benefits 160

40-1120 Cost base and reduced cost base of exploration benefits etc. 161

40-1125 Effect of exploration benefits on the cost of mining, quarrying or prospecting information 161

Consequences for transferees 161

40-1130 Consequences of certain exploration benefits provided under farm-in farm-out arrangements 161

Division 41—Additional deduction for certain new business investment 163

Guide to Division 41 163

41-1 What this Division is about 163

Operative provisions 164

41-5 Object of Division 164

41-10 Entitlement to deduction for investment 164

41-15 Amount of deduction 165

41-20 Recognised new investment amount 167

41-25 Investment commitment time 168

41-30 First use time 170

41-35 New investment threshold 170

Division 43—Deductions for capital works 171

Guide to Division 43 171

43-1 What this Division is about 171

43-2 Key concepts used in this Division 171

Subdivision 43-A—Key operative provisions 173

Guide to Subdivision 43-A 173

43-5 What this Subdivision is about 173

Operative provisions 173

43-10 Deductions for capital works 173

43-15 Amount you can deduct 174

43-20 Capital works to which this Division applies 174

43-25 Rate of deduction 176

43-30 No deduction until construction is complete 176

43-35 Requirement for registration under the Industry Research and Development Act 177

43-40 Deduction for destruction of capital works 177

43-45 Certain anti-avoidance provisions 178

43-50 Links and signposts to other parts of the Act 178

43-55 Anti-avoidance—arrangement etc. with tax-exempt entity 179

Subdivision 43-B—Establishing the deduction base 180

Guide to Subdivision 43-B 180

43-60 What this Subdivision is about 180

43-65 Explanatory material 181

Operative provisions 181

43-70 What is construction expenditure? 181

43-72 Meaning of forestry road, timber operation and timber mill building 183

43-75 Construction expenditure area 184

43-80 When capital works begin 186

43-85 Pools of construction expenditure 186

43-90 Table of intended use at time of completion of construction 187

43-95 Meaning of hotel building and apartment building 190

43-100 Certificates by Industry Innovation and Science Australia 191

Subdivision 43-C—Your area and your construction expenditure 191

Guide to Subdivision 43-C 191

43-105 What this Subdivision is about 191

43-110 Explanatory material 192

Operative provisions 192

43-115 Your area and your construction expenditure—owners 192

43-120 Your area and your construction expenditure—lessees and quasi-ownership right holders 192

43-125 Lessees’ or right holders’ pools can revert to owner 193

43-130 Identifying your area on acquisition or disposal 194

Subdivision 43-D—Deductible uses of capital works 194

Guide to Subdivision 43-D 194

43-135 What this Subdivision is about 194

Using your area 195

43-140 Using your area in a deductible way 195

43-145 Using your area in the 4% manner 197

Industrial activities 202

43-150 Meaning of industrial activities 202

Build to rent developments 204

43-151 Meaning of active build to rent development area 204

43-152 Build to rent developments 204

43-153 Build to rent developments—eligibility 207

43-154 Notice of events 210

43-154A References to buildings 211

Subdivision 43-E—Special rules about uses 211

Guide to Subdivision 43-E 211

43-155 What this Subdivision is about 211

Operative provisions 212

43-160 Your area is used for a purpose if it is maintained ready for use for the purpose 212

43-165 Temporary cessation of use 212

43-170 Own use—capital works other than hotel and apartment buildings 212

43-175 Own use—hotel and apartment buildings 213

43-180 Special rules for hotel and apartment buildings 214

43-185 Residential or display use 215

43-190 Use of facilities not commonly provided, and of certain buildings used to operate a hotel, motel or guest house 216

43-195 Use for R&D activities must be in connection with a business 217

Subdivision 43-F—Calculation of deduction 217

Guide to Subdivision 43-F 217

43-200 What this Subdivision is about 217

43-205 Explanatory material 218

Operative provisions 219

43-210 Deduction for capital works begun after 26 February 1992 219

43-215 Deduction for capital works begun before 27 February 1992 221

43-220 Capital works taken to have begun earlier for certain purposes 222

Subdivision 43-G—Undeducted construction expenditure 223

Guide to Subdivision 43-G 223

43-225 What this Subdivision is about 223

Operative provisions 224

43-230 Calculating undeducted construction expenditure—common step 224

43-235 Post-26 February 1992 undeducted construction expenditure 224

43-237 Post-26 February 1992 undeducted construction expenditure—modification for active build to rent developments that have ceased 225

43-240 Pre-27 February 1992 undeducted construction expenditure 226

Subdivision 43-H—Balancing deduction on destruction of capital works 226

Guide to Subdivision 43-H 226

43-245 What this Subdivision is about 226

Operative provisions 227

43-250 The amount of the balancing deduction 227

43-255 Amounts received or receivable 228

43-260 Apportioning amounts received for destruction 228

Division 44—Build to rent development misuse tax 229

Guide to Division 44 229

44-1 What this Division is about 229

Subdivision 44-A—Object of this Division 229

Operative provisions 229

44-5 Object of this Division 229

Subdivision 44-B—Build to rent development misuse tax 230

Guide to Subdivision 44-B 230

44-10 What this Subdivision is about 230

Liability for tax 230

44-15 Liability for tax 230

Build to rent misuse amounts 231

44-20 Build to rent misuse amounts 231

44-25 Your build to rent capital works deduction amount 231

44-30 Your build to rent withholding amount 234

Subdivision 44-C—When tax is payable 235

Guide to Subdivision 44-C 235

44-35 What this Subdivision is about 235

44-40 When tax is payable—original assessments 235

44-45 When tax is payable—amended assessments 235

44-50 General interest charge 235

Division 45—Disposal of leases and leased plant 237

Guide to Division 45 237

45-1 What this Division is about 237

Operative provisions 238

45-5 Disposal of leased plant or lease 238

45-10 Disposal of interest in partnership 240

45-15 Disposal of shares in 100% subsidiary that leases plant 242

45-20 Disposal of shares in 100% subsidiary that leases plant in partnership 243

45-25 Group members liable to pay outstanding tax 244

45-30 Reduction for certain plant acquired before 21.9.99 245

45-35 Limit on amount included for plant for which there is a CGT exemption 246

45-40 Meaning of plant and written down value 246

Part 2-15—Non-assessable income 249

Division 50—Exempt entities 249

Subdivision 50-A—Various exempt entities 249

50-1 Entities whose ordinary income and statutory income is exempt 250

50-5 Charity, education and science 250

50-10 Community service 251

50-15 Employees and employers 251

50-25 Government 252

50-30 Health 253

50-35 Mining 253

50-40 Primary and secondary resources, and tourism 253

50-45 Sports, culture and recreation 255

50-47 Special condition for all items 261

50-50 Special conditions for item 1.1 261

50-52 Special condition for item 1.1 262

50-55 Special conditions for items 1.3, 1.4, 6.1 and 6.2 262

50-65 Special conditions for item 1.6 262

50-70 Special conditions for items 1.7, 2.1, 9.1 and 9.2 263

50-72 Special condition for item 4.1 264

50-75 Certain distributions may be made overseas 264

Subdivision 50-B—Endorsing charitable entities as exempt from income tax 265

Guide to Subdivision 50-B 265

50-100 What this Subdivision is about 265

Endorsing charitable entities as exempt from income tax 265

50-105 Endorsement by Commissioner 265

50-110 Entitlement to endorsement 266

Division 51—Exempt amounts 267

51-1 Amounts of ordinary income and statutory income that are exempt 267

51-5 Defence 268

51-10 Education and training 270

51-30 Welfare 273

51-32 Compensation payments for loss of tax exempt payments 275

51-33 Compensation payments for loss of pay and/or allowances as a Defence reservist 276

51-35 Payments to a full-time student at a school, college or university 277

51-40 Payments to a secondary student 278

51-42 Bonuses for early completion of an apprenticeship 278

51-43 Income collected or derived by copyright collecting society 278

51-45 Income collected or derived by resale royalty collecting society 279

51-50 Maintenance payments to a spouse or child 280

51-52 Income derived from eligible venture capital investments by ESVCLPs 281

51-54 Gain or profit from disposal of eligible venture capital investments 283

51-55 Gain or profit from disposal of venture capital equity 284

51-57 Interest on judgment debt relating to personal injury 284

51-60 Prime Minister’s Prizes 285

51-100 Shipping 286

51-105 Shipping activities 286

51-110 Core shipping activities 287

51-115 Incidental shipping activities 288

51-120 Interest on unclaimed money and property 288

51-125 2018 storms—relief payments 289

Division 52—Certain pensions, benefits and allowances are exempt from income tax 290

Guide to Division 52 290

52-1 What this Division is about 290

Subdivision 52-A—Exempt payments under the Social Security Act 1991 291

Guide to Subdivision 52-A 291

52-5 What this Subdivision is about 291

Operative provisions 291

52-10 How much of a social security payment is exempt? 291

52-15 Supplementary amounts of payments 306

52-20 Tax-free amount of an ordinary payment after the death of your partner 309

52-25 Tax-free amount of certain bereavement lump sum payments 311

52-30 Tax-free amount of certain other bereavement lump sum payments 313

52-35 Tax-free amount of a lump sum payment made because of the death of a person you are caring for 314

52-40 Provisions of the Social Security Act 1991 under which payments are made 315

Subdivision 52-B—Exempt payments under the Veterans’ Entitlements Act 1986 319

Guide to Subdivision 52-B 319

52-60 What this Subdivision is about 319

Operative provisions 319

52-65 How much of a veterans’ affairs payment is exempt? 319

52-70 Supplementary amounts of payments 324

52-75 Provisions of the Veterans’ Entitlements Act 1986 under which payments are made 325

Subdivision 52-C—Exempt payments made because of the Veterans’ Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 327

Guide to Subdivision 52-C 327

52-100 What this Subdivision is about 327

Operative provisions 327

52-105 Supplementary amount of a payment made under the Repatriation Act 1920 is exempt 327

52-110 Other exempt payments 329

Subdivision 52-CA—Exempt payments under the Military Rehabilitation and Compensation Act 2004 329

Guide to Subdivision 52-CA 329

52-112 What this Subdivision is about 329

Operative provisions 329

52-114 How much of a payment under the Military Rehabilitation and Compensation Act is exempt? 329

Subdivision 52-CB—Exempt payments under the Australian Participants in British Nuclear Tests and British Commonwealth Occupation Force (Treatment) Act 2006 334

52-117 Payments of travelling expenses and pharmaceutical supplement are exempt 334

Subdivision 52-CC—Exempt payments under the Treatment Benefits (Special Access) Act 2019 334

52-120 Payments of travelling expenses and pharmaceutical supplement are exempt 334

Subdivision 52-E—Exempt payments under the ABSTUDY scheme 335

Guide to Subdivision 52-E 335

52-130 What this Subdivision is about 335

Operative provisions 335

52-131 Payments under ABSTUDY scheme 335

52-132 Supplementary amount of payment 338

52-133 Tax-free amount of ordinary payment on death of partner if no bereavement payment payable 339

52-134 Tax-free amount if you receive a bereavement lump sum payment 340

Subdivision 52-F—Exemption of Commonwealth education or training payments 340

52-140 Supplementary amount of a Commonwealth education or training payment is exempt 341

52-145 Meaning of Commonwealth education or training payment 342

Subdivision 52-G—Exempt payments under the A New Tax System (Family Assistance) (Administration) Act 1999 343

52-150 Family assistance payments are exempt 343

Subdivision 52-H—Other exempt payments 343

52-160 Economic security strategy payments are exempt 343

52-162 ETR payments are exempt 343

52-165 Household stimulus payments are exempt 344

52-170 Outer Regional and Remote payments under the Helping Children with Autism package are exempt 344

52-172 Outer Regional and Remote payments under the Better Start for Children with Disability initiative are exempt 344

52-175 Continence aids payments are exempt 344

52-180 National Disability Insurance Scheme amounts are exempt 344

52-185 Acute support packages are exempt 345

Division 53—Various exempt payments 346

Guide to Division 53 346

53-1 What this Division is about 346

Operative provisions 346

53-10 Exemption of various types of payments 346

53-20 Exemption of similar Australian and United Kingdom veterans’ payments 348

53-25 Coronavirus economic response payment 348

53-30 Territories Stolen Generations Redress Scheme payments are exempt 348

Division 54—Exemption for certain payments made under structured settlements and structured orders 349

Guide to Division 54 349

54-1 What this Division is about 349

Subdivision 54-A—Definitions 349

Operative provisions 350

54-5 Definitions 350

54-10 Meaning of structured settlement and structured order 350

Subdivision 54-B—Tax exemption for personal injury annuities 353

Operative provisions 353

54-15 Personal injury annuity exemption for injured person 353

54-20 Lump sum compensation etc. would not have been assessable 353

54-25 Requirements of the annuity instrument 354

54-30 Requirements for payments of the annuity 354

54-35 Payments during the guarantee period on the death of the injured person 355

54-40 Requirement for minimum monthly level of support 357

Subdivision 54-C—Tax exemption for personal injury lump sums 359

Operative provisions 359

54-45 Personal injury lump sum exemption for injured person 359

54-50 Lump sum compensation would not have been assessable 360

54-55 Requirements of the instrument under which the lump sum is paid 360

54-60 Requirements for payments of the lump sum 360

Subdivision 54-D—Miscellaneous 361

Operative provisions 362

54-65 Exemption for certain payments to reversionary beneficiaries 362

54-70 Special provisions about trusts 362

54-75 Minister to arrange for review and report 363

Division 55—Payments that are not exempt from income tax 365

Guide to Division 55 365

55-1 What this Division is about 365

Operative provisions 365

55-5 Occupational superannuation payments 365

55-10 Education entry payments 366

Division 58—Capital allowances for depreciating assets previously owned by an exempt entity 367

Guide to Division 58 367

58-1 What this Division is about 367

Subdivision 58-A—Application 368

58-5 Application of Division 368

58-10 When an asset is acquired in connection with the acquisition of a business 369

Subdivision 58-B—Calculating decline in value of privatised assets under Division 40 371

58-60 Purpose of rules in this Subdivision 371

58-65 Choice of method to work out cost of privatised asset 371

58-70 Application of Division 40 372

58-75 Meaning of notional written down value 373

58-80 Meaning of undeducted pre-existing audited book value 375

58-85 Pre-existing audited book value of depreciating asset 376

58-90 Method and effective life for transition entity 377

Division 59—Particular amounts of non-assessable non-exempt income 378

Guide to Division 59 378

59-1 What this Division is about 378

Operative provisions 379

59-10 Compensation under firearms surrender arrangements 379

59-15 Mining payments 379

59-20 Taxable amounts relating to franchise fees windfall tax 380

59-25 Taxable amounts relating to Commonwealth places windfall tax 380

59-30 Amounts you must repay 380

59-35 Amounts that would be mutual receipts but for prohibition on distributions to members or issue of MCIs 381

59-40 Issue of rights 381

59-50 Native title benefits 382

59-55 2019-20 bushfires—payments for volunteer work with fire services 384

59-60 2019-20 bushfires—disaster relief payments and non-cash benefits 384

59-65 Water infrastructure improvement payments 385

59-67 Meaning of SRWUIP program, SRWUIP payment, direct SRWUIP payment and indirect SRWUIP payment 387

59-70 List of SRWUIP programs 388

59-75 Commissioner to be kept informed 389

59-80 Amending assessments 389

59-85 2019 floods—recovery grants for small businesses, primary producers and non-profit organisations 390

59-86 2019 floods—on-farm grant program for primary producers 390

59-90 Cash flow boost 391

59-95 Coronavirus economic response payment 391

59-96 COVID-19 disaster payment 391

59-97 State and Territory grants to small business relating to the recovery from the coronavirus known as COVID-19 391

59-98 Commonwealth small business support payments relating to the coronavirus known as COVID-19 393

59-99 2021 floods and storms—recovery grants 394

59-100 Refund of large-scale generation shortfall charge 394

59-105 Cyclone Seroja—recovery grants 394

59-110 Payment to victim following perpetrator contributions release order 395

Part 2-20—Tax offsets 396

Division 61—Generally applicable tax offsets 396

Subdivision 61-A—Dependant (invalid and carer) tax offset 396

Guide to Subdivision 61-A 396

61-1 What this Subdivision is about 396

Object of this Subdivision 397

61-5 Object of this Subdivision 397

Entitlement to the dependant (invalid and carer) tax offset 397

61-10 Who is entitled to the tax offset 397

61-15 Cases involving more than one spouse 399

61-20 Exceeding the income limit for family tax benefit (Part B) 399

61-25 Eligibility for family tax benefit (Part B) without shared care 400

Amount of the dependant (invalid and carer) tax offset 401

61-30 Amount of the dependant (invalid and carer) tax offset 401

61-35 Families with shared care percentages 401

61-40 Reduced amounts of dependant (invalid and carer) tax offset 402

61-45 Reductions to take account of the other individual’s income 403

Subdivision 61-D—Low Income tax offset 404

Guide to Subdivision 61-D 404

61-100 What this Subdivision is about 404

Operative provisions 404

61-110 Entitlement to the Low Income tax offset 404

61-115 Amount of the Low Income tax offset 405

Subdivision 61-E—Working Australians tax offset 407

Guide to Subdivision 61-E 407

61-150 What this Subdivision is about 407

Operative provisions 407

61-155 Entitlement to the working Australians tax offset 407

61-160 Amount of the working Australians tax offset 409

Subdivision 61-G—Private health insurance offset complementary to Part 2-2 of the Private Health Insurance Act 2007 409

Guide to Subdivision 61-G 409

61-200 What this Subdivision is about 409

Operative provisions 410

61-205 Entitlement to the private health insurance tax offset 410

61-210 Amount of the private health insurance tax offset 411

61-215 Reallocation of the private health insurance tax offset between spouses 411

Subdivision 61-L—Tax offset for Medicare levy surcharge (lump sum payments in arrears) 412

Guide to Subdivision 61-L 412

61-575 What this Subdivision is about 412

Operative provisions 413

61-580 Entitlement to a tax offset 413

61-585 The amount of a tax offset 415

61-590 Definition of MLS lump sums 416

Subdivision 61-N—Seafarer tax offset 416

Guide to Subdivision 61-N 416

61-695 What this Subdivision is about 416

Operative provisions 417

61-700 Object of this Subdivision 417

61-705 Who is entitled to the seafarer tax offset 417

61-710 Amount of the seafarer tax offset 419

Subdivision 61-P—ESVCLP tax offset 420

Guide to Subdivision 61-P 420

61-750 What this Subdivision is about 420

Operative provisions 420

61-755 Object of this Subdivision 420

61-760 Who is entitled to the ESVCLP tax offset 421

61-765 Amount of the ESVCLP tax offset—general case 421

61-770 Amount of the ESVCLP tax offset—members of trusts or partnerships 423

61-775 Amount of the ESVCLP tax offset—trustees 424

Division 63—Common rules for tax offsets 425

Guide to Division 63 425

63-1 What this Division is about 425

63-10 Priority rules 425

Division 65—Tax offset carry forward rules 429

Guide to Division 65 429

65-10 What this Division is about 429

Operative provisions 429

65-30 Amount carried forward 429

65-35 How to apply carried forward tax offsets 430

65-40 When a company cannot apply a tax offset 431

65-50 Effect of bankruptcy 431

65-55 Deduction for amounts paid for debts incurred before bankruptcy 432

Division 67—Refundable tax offset rules 434

Guide to Division 67 434

67-10 What this Division is about 434

Operative provisions 434

67-20 Which tax offsets this Division applies to 434

67-23 Refundable tax offsets 434

67-25 Refundable tax offsets—franked distributions 436

67-30 Refundable tax offsets—R&D 438

The objects of this Division are:

to allow you to deduct the *cost of a depreciating asset; and

to spread the deduction over a period that reflects the time for which the asset can be used to obtain benefits; and

to provide deductions for certain other capital expenditure that is not otherwise deductible.

Note 1: This Division does not apply to some depreciating assets: see section 40-45.

Note 2: The application of this Division to a life insurance company is affected by sections 320-200 and 320-255.

The rules that apply to most depreciating assets are in this Subdivision. It explains:

• what a depreciating asset is; and

• when you start deducting amounts for depreciating assets; and

• how to work out your deductions.

It also contains rules for splitting and merging depreciating assets.

Table of sections

Operative provisions

40-25 Deducting amounts for depreciating assets

40-27 Further reduction of deduction for second-hand assets in residential property

40-30 What a depreciating asset is

40-35 Jointly held depreciating assets

40-40 Meaning of hold a depreciating asset

40-42 When mining, quarrying or prospecting rights are used

40-45 Assets to which this Division does not apply

40-50 Assets for which you deduct under another Subdivision

40-53 Alterations etc. to certain depreciating assets

40-55 Use of the “cents per kilometre” car expense deduction method

40-60 When a depreciating asset starts to decline in value

40-65 Choice of methods to work out the decline in value

40-70 Diminishing value method

40-72 Diminishing value method for post-9 May 2006 assets

40-75 Prime cost method

40-80 When you can deduct the asset’s cost

40-82 Assets costing less than $150,000—medium sized businesses—assets first acquired between 2 April 2019 and 31 December 2020

40-85 Meaning of adjustable value and opening adjustable value of a depreciating asset

40-90 Debt forgiveness

40-95 Choice of determining effective life

40-100 Commissioner’s determination of effective life

40-102 Capped life of certain depreciating assets

40-103 Effective life and remaining effective life of certain vessels

40-105 Self-assessing effective life

40-110 Recalculating effective life

40-115 Splitting a depreciating asset

40-120 Replacement spectrum licences

40-122 Partial conversions of mining, quarrying or prospecting rights

40-125 Merging depreciating assets

40-130 Choices

40-135 Certain anti-avoidance provisions

40-140 Getting tax information from associates

Operative provisions

You deduct the decline in value

You can deduct an amount equal to the decline in value for an income year (as worked out under this Division) of a depreciating asset that you *held for any time during the year.

Note 1: Sections 40-70, 40-72 and 40-75 show you how to work out the decline for most depreciating assets. There is a limit on the decline: see subsections 40-70(3), 40-72(3) and 40-75(7).

Note 2: Small business entities can choose to both deduct and work out the amount they can deduct under Division 328.

Note 3: Generally, only one taxpayer can deduct amounts for a depreciating asset. However, if you and another taxpayer jointly hold the asset, each of you deduct amounts for it: see section 40-35.

Reduction of deduction

You must reduce your deduction by the part of the asset’s decline in value that is attributable to your use of the asset, or your having it installed ready for use, for a purpose other than a taxable purpose.

Example: Ben holds a depreciating asset that he uses for private purposes for 30% of his total use in the income year.

If the asset declines by $1,000 for the year, Ben would have to reduce his deduction by $300 (30% of $1,000).

Further reduction: leisure facilities

Note: You may have to make a further reduction under subsections (3) and (4) or section 40-27.

You may have to make a further reduction for a depreciating asset that is a leisure facility attributable to your use of it, or your having it installed ready for use, for a taxable purpose.

That reduction is the part of the leisure facility’s decline in value that is attributable to your use of it, or your having it installed ready for use, at a time when:

its use did not constitute a *fringe benefit; or

you did not use it or *hold it for use as mentioned in paragraph 26-50(3)(b) (about using it in the course of your business or for your employees).

Exception: low-value pools

Subsections (2), (3) and (4) do not apply to *depreciating assets allocated to a low-value pool.

Despite subsection (1), you can continue to deduct an amount equal to the decline in value for an income year (as worked out under this Division) of such an asset even though you do not continue to *hold that asset.

Meaning of taxable purpose

Note: See Subdivision 40-E for low-value pools.

(7) Subject to subsection (8), a taxable purpose is:

the *purpose of producing assessable income; or

the purpose of *exploration or prospecting; or

the purpose of mining site rehabilitation; or

environmental protection activities.

Note 1: Where you have had a deduction under this Division an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.

Note 2: When this Division notionally applies under section 355-310 (about depreciating assets used for R&D activities), the taxable purpose is sometimes only the purpose of conducting R&D activities.

If Division 250 applies to you and an asset that is a depreciating asset:

if section 250-150 applies—you are taken not to be using the asset for a taxable purpose to the extent of the disallowed capital allowance percentage; or

otherwise—you are taken not to be using the asset for such a purpose.

In addition to subsections 40-25(2) to (4), you may have to further reduce your deduction for a depreciating asset for the income year.

Reduce your deduction by any part of the asset’s decline in value that is attributable to your use of it, or your having it installed ready for use, for the *purpose of producing assessable income:

from the use of residential premises to provide residential accommodation; but

not in the course of carrying on a business;

if:

you did not *hold the asset when it was first used, or first installed ready for use, (other than as trading stock) by any entity; or

at any time during the income year or an earlier income year, the asset was used, or installed ready for use, either:

in residential premises that were one of your residences at that time; or

for a purpose that was not a taxable purpose, and in a way that was not occasional.

Note: Your deduction could be reduced to nil if the purpose to which paragraphs (a) and (b) relate is your only taxable purpose for using the asset or having the asset installed ready for use.

Exception—kind of entity

Subsection (2) does not apply to you for the asset if, at any time during the income year, you are:

a corporate tax entity; or

a *superannuation plan that is not a self managed superannuation fund; or

a managed investment trust; or

(d) a public unit trust (within the meaning of section 102P of the Income Tax Assessment Act 1936); or

a unit trust or partnership, if each *member of the trust or partnership is covered by a paragraph of this subsection at that time during the income year.

Exception—certain assets in new residential premises

Paragraph (2)(c) does not apply to you for the asset if:

(a) the *residential premises referred to in paragraph (2)(a) (the current premises) are supplied to you as new residential premises on a particular day (the current supply day); and

the asset is supplied to you as part of that supply of the current premises; and

at the time you first *hold the asset as a result of that supply, the asset is used, or installed ready for use, in:

the current premises; or

any other real property in which an interest was supplied to you as part of that supply of the current premises; and

at any earlier time, no entity was residing in any residential premises in which the asset was used, or installed ready for use, at that earlier time; and

no amount can be deducted under this Division, or under Subdivision 328-D, for the asset for any income year by any previous holder of the asset.

Note: An entity residing at an earlier time in other residential premises in the same complex will not cause paragraph (d) to prevent this subsection from applying.

However, disregard paragraph (4)(d) for an earlier time if:

the asset was used, or installed ready for use, in the current premises at that time; and

both that time, and the current supply, happen during the 6-month period starting on the day the current premises became new residential premises.

Exception—low-value pools

Subsection (2) does not apply to *depreciating assets allocated to a low-value pool.

Note: See Subdivision 40-E for low-value pools.

(1) A depreciating asset is an asset that has a limited *effective life and can reasonably be expected to decline in value over the time it is used, except:

land; or

an item of trading stock; or

an intangible asset, unless it is mentioned in subsection (2).

(2) These intangible assets are depreciating assets if they are not *trading stock:

*mining, quarrying or prospecting rights;

*mining, quarrying or prospecting information;

items of *intellectual property;

*in-house software;

*IRUs;

spectrum licences;

*telecommunications site access rights.

This Division applies to an improvement to land, or a fixture on land, whether the improvement or fixture is removable or not, as if it were an asset separate from the land.

Note 1: Whether such an asset is a depreciating asset depends on whether it falls within the definition in subsection (1).

Note 2: This Division does not apply to capital works for which you can deduct amounts under Division 43: see subsection 40-45(2).

(4) Whether a particular composite item is itself a depreciating asset or whether its components are separate depreciating assets is a question of fact and degree which can only be determined in the light of all the circumstances of the particular case.

Example 1: A car is made up of many separate components, but usually the car is a depreciating asset rather than each component.

Example 2: A floating restaurant consists of many separate components (like the ship itself, stoves, fridges, furniture, crockery and cutlery), but usually these components are treated as separate depreciating assets.

This Division applies to a renewal or extension of a depreciating asset that is a right as if the renewal or extension were a continuation of the original right.

(6) This Division applies to a *mining, quarrying or prospecting right (the new right) as if it were a continuation of another mining, quarrying or prospecting right you *held if:

the other right ends; and

any of the following conditions are satisfied:

the new right and the other right relate to the same area, or any difference in area is not significant;

the new right relates to an area that is a part of the area that the other right relates to.

Note: If the other right does not end, it may be taken to be split into 2 assets: see section 40-122.

For the purposes of subsection (6), it does not matter whether the new right begins immediately after the other right ends or later (including in a later income year).

(1) This Division and the provisions referred to in subsection (3) apply to a *depreciating asset (the underlying asset) that you *hold, and that is also held by one or more other entities, as if your interest in the underlying asset were itself the underlying asset.

Note: Partners do not hold partnership assets: see section 40-40.

As a result, the decline in value of the underlying asset is not itself taken into account.

Example: Buford Corp owns an office block that it leases to 2 companies, Smokey Pty Ltd and Bandit Pty Ltd. Smokey and Bandit decide to install a fountain in front of the building.

They discuss it with Buford who agrees to pay half the cost (because the fountain won’t be removable at the end of the lease). Smokey and Bandit split the rest of the cost between them.

Smokey and Bandit would each hold the asset under item 3 of the table in section 40-40 and Buford would hold it under item 10. They would be joint holders, so each would write-off its interest in the fountain.

The provisions are:

Divisions 41, 328 and 775 of this Act; and

(b) Divisions 40 and 328 of the Income Tax (Transitional Provisions) Act 1997.

Use this table to work out who holds a *depreciating asset. An entity identified in column 3 of an item in the table as not holding a depreciating asset cannot hold the asset under another item.

Example 1: Power Finance leases a luxury car to Kris who subleases it to Rachael. As lessee, item 1 makes Rachael the holder of the car. Power, as the legal owner, would normally hold the car under item 10.

However, item 1 makes it clear that Power, as lessor, does not hold the car. As the lessee, item 1 would normally mean that Kris held the car but, again, she is also a lessor and so is not the holder (she also doesn’t have the right to use the car during the sublease).

Jenny is reasonably expected to exercise that option because the final payment will be well below the expected market value of the machine at the end of the agreement. Sandra, as the machine’s legal owner, would normally be its holder under item 10 but item 6 makes it clear that the legal owner is not the holder.

Example 2: Sandra sells a packing machine to Jenny under a hire purchase agreement. Jenny holds the machine under item 6 because, although she is not the legal owner until she exercises her option to purchase, she possesses the machine now and can exercise an option to become its legal owner.

Note 1: Some assets may have holders under more than one item in the table.

Note 2: As well as hire purchase agreements, items 5 and 6 cover cases like assets subject to chattel mortgages, sales subject to retention of title clauses and assets subject to bare trusts.

This Division and Subdivision 328-D (capital allowances for small business entities) apply to a depreciating asset you *hold that is a *mining, quarrying or prospecting right as if a reference to using the asset were a reference to engaging in activity that involves exercising rights conferred on you by the asset.

(2) If the asset is an interest covered by paragraph (c) of the definition of mining, quarrying or prospecting right in subsection 995-1(1), the reference in subsection (1) of this section to rights conferred on you by the asset is taken to be a reference to rights conferred on you by the authority, licence, permit, right or lease referred to in paragraph (c) of that definition.

Eligible work related items

(1) This Division does not apply to an asset that is an eligible work related item for the purposes of section 58X of the Fringe Benefits Tax Assessment Act 1986 where the relevant benefit provided by the employer is an expense payment benefit or a property benefit (within the meaning of that Act).

Capital works

This Division does not apply to capital works for which you can deduct amounts under Division 43, or for which you could deduct amounts under that Division:

but for expenditure being incurred, or capital works being started, before a particular day; or

had you used the capital works for a purpose relevant to those capital works under section 43-140.

Note: Section 43-20 lists the capital works to which that Division applies.

Films

This Division does not apply to a depreciating asset if you or another taxpayer has deducted or can deduct amounts for it under:

(a) former Division 10BA of Part III of the Income Tax Assessment Act 1936 (about Australian films); or

former Division 10B of Part III of that Act if the depreciating asset relates to a copyright in an Australian film within the meaning of that Division.

This Division applies to a depreciating asset that is copyright in a film where a company is entitled to a tax offset under section 376-55 in respect of the film as if the asset’s *cost were reduced by the amount of that offset.

You cannot deduct an amount, or work out a decline in value, for a depreciating asset under this Subdivision if you or another taxpayer has deducted or can deduct amounts for it under Subdivision 40-F (about primary production depreciating assets), 40-G (about capital expenditure of primary producers and other landholders) or 40-J (about capital expenditure for the establishment of trees in carbon sink forests).

You cannot deduct an amount, or work out a decline in value, for *in-house software under this Subdivision if you have allocated expenditure on the software to a software development pool under Subdivision 40-E.

These things are not the same depreciating asset for the purposes of section 40-50 and Subdivision 40-F:

a depreciating asset; and

a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a water facility, fodder storage asset or fencing asset.

These things are not the same depreciating asset for the purposes of section 40-50 and Subdivision 40-G:

a depreciating asset; and

a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a landcare operation.

You cannot deduct any amount for the decline in value of a car for an income year if you use the “cents per kilometre” method for the car for that year.

Note: See Subdivision 28-C for that method.

A depreciating asset you *hold starts to decline in value from when its *start time occurs.

(2) The start time of a *depreciating asset is when you first use it, or have it *installed ready for use, for any purpose.

Note: Previous use by a transition entity is ignored: see section 58-70.

(3) However, there is another start time for a *depreciating asset you *hold if a *balancing adjustment event referred to in paragraph 40-295(1)(b) occurs for the asset and you start to use the asset again. Its second start time is when you start using it again.

You have a choice of 2 methods to work out the decline in value of a depreciating asset. You must choose to use either the diminishing value method or the prime cost method.

Note 1: Once you make the choice for an asset, you cannot change it: see section 40-130.

Note 2: For the diminishing value method, see sections 40-70 and 40-72. For the prime cost method, see section 40-75.

Note 3: In some cases you do not have to make the choice because you can deduct the asset’s cost: see sections 40-80 and 40-82.

Note 4: Subdivisions 40-BA and 40-BB of the Income Tax (Transitional Provisions) Act 1997 may affect the operation of this section.

Exception: asset acquired from associate

For a depreciating asset that you acquire from an associate of yours where the associate has deducted or can deduct an amount for the asset under this Division, you must use the same method that the associate was using.

Note: You can require the associate to tell you which method the associate was using: see section 40-140.

Exception: holder changes but user same or associate of former user

For a depreciating asset that you acquire from a former *holder of the asset, you must use the same method that the former holder was using for the asset if:

(a) the former holder or another entity (each of which is the former user) was using the asset at a time before you became the holder; and

while you hold the asset, the former user or an associate of the former user uses the asset.

However, you must use the diminishing value method if:

you do not know, and cannot readily find out, which method the former holder was using; or

the former holder did not use a method.

Exception: low-value pools

You work out the decline in value of a depreciating asset in a low-value pool under Subdivision 40-E rather than under this Subdivision.

Exception: also notionally deductible under R&D provisions

If:

only one of the following events has happened:

you have deducted one or more amounts under this Division for an asset;

you have been entitled under section 355-100 (about R&D) to one or more *tax offsets because you can deduct one or more amounts under section 355-305 for an asset; but

later, the other event happens for the asset;

then, for the purposes of working out the deduction for the later event, you must choose the same method that you chose for the first event.

Note 1: Deductions under section 355-305 (about decline in value of tangible depreciating assets used for R&D activities) are worked out using a notional application of this Division.

Note 2: This subsection applies with changes if you have or could have deducted an amount under former section 73BA of the Income Tax Assessment Act 1936 for the asset (see section 40-67 of the Income Tax (Transitional Provisions) Act 1997).

If:

the events in paragraph (6)(a) could both arise for the same period for an asset; and

neither event has already arisen for the asset;

then you must choose the same method for the purposes of working out the deduction for each event.

(1) You work out the decline in value of a *depreciating asset for an income year using the diminishing value method in this way:

where:

base value is:

for the income year in which the asset’s *start time occurs—its *cost; or

for a later year—the sum of its *opening adjustable value for that year and any amount included in the second element of its cost for that year.

days held is the number of days you *held the asset in the income year from its *start time, ignoring any days in that year when you did not use the asset, or have it *installed ready for use, for any purpose.

You can choose to recalculate effective life because of changed circumstances: see section 40-110. That section also requires you to recalculate effective life in some cases.

Exception: intangibles

Note 1: If you recalculate the effective life of a depreciating asset, you use that recalculated life in working out your deduction.

Note 2: The effective life of a vessel can change in some cases: see subsection 40-103(2).

You cannot use the diminishing value method to work out the decline in value of:

*in-house software; or

an item of *intellectual property (except copyright in a film); or

a spectrum licence; or

a telecommunications site access right.

Limit on decline

The decline in value of a depreciating asset under this section for an income year cannot be more than the amount that is the asset’s *base value for that income year.

(1) You work out the decline in value of a *depreciating asset for an income year using the diminishing value method in this way if you started to *hold the asset on or after 10 May 2006:

where:

days held has the same meaning as in subsection 40-70(1).

You can choose to recalculate effective life because of changed circumstances: see section 40-110. That section also requires you to recalculate effective life in some cases.

Exception: intangibles

Note: If you recalculate the effective life of a depreciating asset, you use that recalculated life in working out your deduction.

You cannot use the diminishing value method to work out the decline in value of:

*in-house software; or

an item of *intellectual property (except copyright in a film); or

a spectrum licence; or

a telecommunications site access right.

Limit on decline

The decline in value of a depreciating asset under this section for an income year cannot be more than the amount that is the asset’s *base value for that income year.

(1) You work out the decline in value of a *depreciating asset for an income year using the prime cost method in this way:

where:

where:

days held has the same meaning as in subsection 40-70(1).

Example: Greg acquires an asset for $3,500 and first uses it on the 26th day of the income year. If the effective life of the asset is 31/3 years, the asset would decline in value in that year by:

The asset’s adjustable value at the end of the income year is:

(2) However, you must adjust the formula in subsection (1) for an income year (the change year):

for which you recalculate the depreciating asset’s *effective life; or

after the year in which the asset’s start time occurs and in which an amount is included in the second element of the asset’s *cost; or

for which the asset’s *opening adjustable value is reduced under section 40-90 (about debt forgiveness); or

in which the *remaining effective life of the asset is calculated under section 40-103; or

for which there is a reduction to the asset’s opening adjustable value under paragraph 40-365(5)(b) (about involuntary disposals) where you are using the prime cost method; or

for which the opening adjustable value of the asset is modified under subsection 27-80(3A) or (4), 27-85(3) or 27-90(3); or

for which there is a reduction in the asset’s opening adjustable value under section 775-70; or

for which there is an increase in the asset’s opening adjustable value under section 775-75.

The adjustments apply for the change year and later years.

Note 1: For recalculating a depreciating asset’s effective life: see section 40-110.

Note 2: You may also adjust the formula for an income year if you had undeducted core technology expenditure for the asset at the end of your last income year commencing before 1 July 2011 (see section 355-605 of the Income Tax (Transitional Provisions) Act 1997).

Note 3: Subdivision 40-BA or 40-BB of the Income Tax (Transitional Provisions) Act 1997 may also require you to adjust the formula: see subsections 40-135(3) and 40-180(2) of that Act.

The adjustments are:

instead of the asset’s *cost, you use its *opening adjustable value for the change year plus the amounts (if any) included in the second element of its cost for that year; and

instead of the asset’s *effective life, you use its *remaining effective life.

(4) The remaining effective life of a *depreciating asset is any period of its *effective life that is yet to elapse as at:

the start of the change year; or

in the case of a roll-over under section 40-340—the time when the balancing adjustment event occurs for the transferor.

Note: Effective life is worked out in years and fractions of years.

You must also adjust the formula in subsection (1) for an intangible depreciating asset that:

is mentioned in an item in the table in subsection 40-95(7) (except item 5, 7 or 8); and

you acquire from a former *holder of the asset.

The adjustment applies for the income year in which you acquire the asset and later income years.

Instead of the asset’s *effective life under the table in subsection 40-95(7), you use the number of years remaining in that effective life as at the start of the income year in which you acquire the asset.

Limit on decline

The decline in value of a depreciating asset under this section for an income year cannot be more than:

for the income year in which the asset’s *start time occurs—its *cost; or

for a later year—the sum of its *opening adjustable value for that year and any amount included in the second element of its cost for that year.

Exploration or prospecting

The decline in value of a depreciating asset you *hold is the asset’s *cost if:

you first use the asset for *exploration or prospecting for *minerals, or quarry materials, obtainable by mining and quarrying operations; and

when you first use the asset, you do not use it for:

development drilling for petroleum; or

operations in the course of working a mining property, quarrying property or petroleum field; and

you satisfy one or more of these subparagraphs at the asset’s *start time:

you carry on mining and quarrying operations;

it would be reasonable to conclude you proposed to carry on such operations;

you carry on a business of, or a business that included, exploration or prospecting for minerals or quarry materials obtainable by such operations, and expenditure on the asset was necessarily incurred in carrying on that business; and

in a case where the asset is a *mining, quarrying or prospecting right—you acquired the asset from an *Australian government agency or a government entity; and

in a case where the asset is *mining, quarrying or prospecting information:

you acquired the asset from an Australian government agency or a government entity; or

the asset is a geophysical or geological data package you acquired from an entity to which subsection (1AA) applies; or

you created the asset, or contributed to the cost of its creation; or

you caused the asset to be created, or contributed to the cost of it being created, by an entity to which subsection (1AA) applies.

(1AA) This subsection applies to an entity if, at the time of the acquisition referred to in subparagraph (1)(e)(ii) or the creation referred to in subparagraph (1)(e)(iv), the entity predominantly carries on a business of providing *mining, quarrying or prospecting information to other entities that:

carry on mining and quarrying operations; or

it would be reasonable to conclude propose to carry on such operations; or

carry on a business of, or a business that included, *exploration or prospecting for *minerals or quarry materials obtainable by such operations.

(1AB) If an amount is included in the second element of the *cost of a depreciating asset, subsection (1) applies in relation to that amount only if:

your first use of the asset, after the inclusion of the amount in the second element, is for *exploration or prospecting for *minerals, or quarry materials, obtainable by mining and quarrying operations; and

at the time of that first use:

you satisfy paragraph (1)(b) as if that first use was your first use of the asset; and

you satisfy paragraph (1)(c) as if the time of that first use was the asset’s *start time; and

if the amount relates to a *mining, quarrying or prospecting right—after the inclusion of the amount in the second element, you satisfy paragraph (1)(d) in relation to the right; and

if the amount relates to *mining, quarrying or prospecting information—after the inclusion of the amount in the second element:

you satisfy paragraph (1)(e) in relation to the information; or

you would satisfy that paragraph, in relation to the economic benefit that resulted in the inclusion of the amount in the second element, if that economic benefit were the asset referred to in that paragraph.

(1AC) If subsection (1) does not apply to a depreciating asset:

the fact that subsection (1) does not apply to the asset does not prevent the application of subsection (1AB) to an amount included in the second element of the *cost of the asset; but

subsection (1) only affects the asset’s decline in value to the extent that the asset’s cost consists of that amount.

Depreciating assets used for certain purposes

The decline in value of a depreciating asset you start to *hold in an income year is the asset’s *cost if:

that cost does not exceed $300; and

you use the asset predominantly for the *purpose of producing assessable income that is not income from carrying on a business; and

the asset is not one that is part of a set of assets that you started to hold in that income year where the total cost of the set of assets exceeds $300; and

the total cost of the asset and any other identical, or substantially identical, asset that you start to hold in that income year does not exceed $300.

Year in which asset first used, or installed ready for use, for a taxable purpose

(1) The decline in value of a *depreciating asset you *hold for the income year (the current year) in which you start to use the asset, or have it *installed ready for use, for a *taxable purpose is the amount worked out under subsection (2) if:

you are an entity covered by subsection (4) (about medium sized businesses) for:

the current year; and

the income year in which you started to hold the asset; and

you first acquired the asset:

at or after 7.30 pm, by legal time in the Australian Capital Territory, on 2 April 2019; and

before 12 March 2020; and

the current year ends on or after 2 April 2019; and

you start to use the asset, or have it installed ready for use, for a taxable purpose before 12 March 2020; and

the asset is a depreciating asset whose *cost as at the end of the current year is less than $30,000.

Note: The amount you can deduct may be reduced by other provisions, such as subsection 40-25(2) (about taxable purpose) and section 40-215 (about double deductions).

The amount is:

unless paragraph (b) applies—the asset’s *cost as at the end of the current year; or

if the asset’s *start time occurred in an earlier income year—the sum of the asset’s *opening adjustable value for the current year and any amount included in the second element of its cost for the current year.

(2A) The decline in value of a *depreciating asset you *hold for the income year (the current year) in which you start to use the asset, or have it *installed ready for use, for a *taxable purpose is the amount worked out under subsection (2B) if:

you are an entity covered by subsection (4) (about medium sized businesses), or by subsection (4A) (about medium sized businesses and certain assets) in relation to the asset, for:

the current year; and

the income year in which you started to hold the asset; and

you first acquired the asset:

at or after 7.30 pm, by legal time in the Australian Capital Territory, on 2 April 2019; and

on or before 31 December 2020; and

the current year ends on or after 12 March 2020; and

you start to use the asset, or have it installed ready for use, for a taxable purpose:

on or after 12 March 2020; and

on or before 30 June 2021; and

the asset is a depreciating asset whose *cost as at the end of the earlier of:

the end of the current year; and

31 December 2020;

is less than $150,000.

Note 1: The amount you can deduct may be reduced by other provisions, such as subsection 40-25(2) (about taxable purpose) and section 40-215 (about double deductions).

Note 2: This subsection does not apply if Subdivision 40-BB of the Income Tax (Transitional Provisions) Act 1997 applies: see section 40-145 of that Act.

The amount is:

unless paragraph (b) applies—the asset’s *cost as at the earlier of:

the end of the current year; and

31 December 2020; or

if the asset’s *start time occurred in an earlier income year—the sum of:

the asset’s *opening adjustable value for the current year; and

any amount included in the second element of the asset’s cost for the current year, other than an amount included after 31 December 2020.

Later year

(3) The decline in value of a *depreciating asset you *hold for an income year (the later year) is the first amount included in the second element of the asset’s *cost for the later year if:

you are an entity covered by subsection (4) (about medium sized businesses) for the later year; and

the amount is included before 12 March 2020; and

the amount included is less than $30,000; and

you worked out the decline in value of the asset for an earlier income year under subsection (1); and

the later year ends on or after 2 April 2019.

Note: The amount you can deduct may be reduced by other provisions, such as subsection 40-25(2) (about taxable purpose) and section 40-215 (about double deductions).

(3A) The decline in value of a *depreciating asset you *hold for an income year (the later year) is the first amount included in the second element of the asset’s *cost for the later year if:

you are an entity covered by subsection (4) (about medium sized businesses), or by subsection (4B) (about medium sized businesses and certain amounts) in relation to the amount, for the later year; and

the amount is included:

on or after 12 March 2020; and

on or before 31 December 2020; and

the amount included is less than $150,000; and

you worked out the decline in value of the asset for an earlier income year under subsection (1) or (2A); and

the later year ends on or after 12 March 2020.

Note 1: The amount you can deduct may be reduced by other provisions, such as subsection 40-25(2) (about taxable purpose) and section 40-215 (about double deductions).

Note 2: This subsection does not apply if Subdivision 40-BB of the Income Tax (Transitional Provisions) Act 1997 applies: see section 40-145 of that Act.

Medium sized business

An entity is covered by this subsection for an income year if:

the entity is not a small business entity for the income year; and

the entity would be a small business entity for the income year if:

each reference in Subdivision 328-C (about what is a small business entity) to $10 million were instead a reference to $50 million; and

the reference in paragraph 328-110(5)(b) to a small business entity were instead a reference to an entity covered by this subsection.

An entity is covered by this subsection for an income year in relation to an asset mentioned in subsection (2A) if:

the entity starts to use the asset, or has the asset installed ready for use, for a taxable purpose in the period beginning on 12 March 2020 and ending on 30 June 2021; and

the entity is not a small business entity for the income year; and

the entity would be a small business entity for the income year if:

each reference in Subdivision 328-C (about what is a small business entity) to $10 million were instead a reference to $500 million; and

the reference in paragraph 328-110(5)(b) to a small business entity were instead a reference to an entity covered by this subsection in relation to the asset.

An entity is covered by this subsection for an income year in relation to an amount included as mentioned in subsection (3A) if:

the amount is so included in the period beginning on 12 March 2020 and ending on 31 December 2020; and

the entity is not a small business entity for the income year; and

the entity would be a small business entity for the income year if:

each reference in Subdivision 328-C (about what is a small business entity) to $10 million were instead a reference to $500 million; and

the reference in paragraph 328-110(5)(b) to a small business entity were instead a reference to an entity covered by this subsection in relation to the amount.

Assets you start to use, or have installed ready for use, after 30 June 2021

The decline in value of a depreciating asset you start to use, or have installed ready for use, for a taxable purpose after 30 June 2021 is worked out under the other provisions of this Division.

Amounts included in second element of cost after 31 December 2020

The effect on the value of a depreciating asset of an amount included in the second element of the asset’s *cost after 31 December 2020 is worked out under the other provisions of this Division.

(1) The adjustable value of a *depreciating asset at a particular time is:

if you have not yet used it or had it installed ready for use for any purpose—its *cost; or

for a time in the income year in which you first use it, or have it installed ready for use, for any purpose—its cost less its decline in value up to that time; or

for a time in a later income year—the sum of its *opening adjustable value for that year and any amount included in the second element of its cost for that year up to that time, less its decline in value for that year up to that time.

Note: The adjustable value of a depreciating asset may be modified by section 250-285.

(2) The opening adjustable value of a *depreciating asset for an income year is its *adjustable value to you at the end of the previous income year.

Note: The opening adjustable value of a depreciating asset may be modified by one of these provisions:

Subdivision 27-B;

subsection 40-90(3);

subsection 40-285(4);

paragraph 40-365(5)(b);

section 775-70;

section 775-75;

(g) section 355-605 of the Income Tax (Transitional Provisions) Act 1997.

(1) This section applies if an amount (the debt forgiveness amount) is applied in reduction of expenditure for a *depreciating asset in an income year under section 245-155 or 245-157.

The asset’s *cost is reduced for that income year by the debt forgiveness amount.

The asset’s *opening adjustable value for that income year is reduced by the debt forgiveness amount if that income year is later than the one in which its *start time occurs.

You must choose either:

to use an *effective life determined by the Commissioner for a depreciating asset under section 40-100; or

to work out the effective life of the asset yourself under section 40-105.

Note: If you choose to use an effective life determined by the Commissioner for a depreciating asset, a capped life may apply to the asset under section 40-102.

Your choice of an *effective life determined by the Commissioner for a depreciating asset is limited to one in force as at:

the time when you entered into a contract to acquire the asset, you otherwise acquired it or you started to construct it if its *start time occurs within 5 years of that time; or

for plant that you entered into a contract to acquire, you otherwise acquired or you started to construct before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999—the time when you entered into the contract to acquire it, otherwise acquired it or started to construct it; or

otherwise—its *start time.

You must make the choice for the income year in which the asset’s *start time occurs.

Note: For rules about choices: see section 40-130.

Exception: asset acquired from associate

For a depreciating asset that you start to *hold where the former holder is an associate of yours and the associate has deducted or can deduct an amount for the asset under this Division, you must use:

if the associate was using the diminishing value method for the asset—the same *effective life that the associate was using; or

if the associate was using the prime cost method—an effective life equal to any period of the asset’s effective life the associate was using that is yet to elapse at the time you started to hold it.

Note: You can require the associate to tell you which effective life the associate was using: see section 40-140.

Subsection (4) does not apply to a depreciating asset if subsection (4B) or (4C) applies to the asset.

For a depreciating asset that you start to *hold if:

the former holder is an associate of yours; and

the associate has deducted or can deduct an amount for the asset under this Division; and

(c) section 40-102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40-102(4) and (5) applied to it at the relevant time (the relevant time for the associate) that applied to the associate under subsection 40-102(3); and

a different item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; and

(e) the item referred to in paragraph (d) would have applied to the asset at the relevant time for the associate if the use to which the asset were put at that time were the use (the new use) to which it is put when you start to hold it;

you must use:

if the associate was using the diminishing value method for the asset—an *effective life equal to the *capped life that would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; or

if the associate was using the prime cost method—an effective life equal to the capped life that:

would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; and

is yet to elapse at the time you start to hold it.

Note 1: If paragraph (e) is not satisfied, subsection (4C) may apply to the depreciating asset.

Note 2: You can require the associate to tell you the relevant time that applied to the associate under subsection 40-102(3): see section 40-140.

For a depreciating asset that you start to *hold if:

the former holder is an associate of yours; and

the associate has deducted or can deduct an amount for the asset under this Division; and

section 40-102 applied to the asset immediately before you started to hold it; and

one of the following applies:

no item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it;

subsection (4B) would apply to the asset but for paragraph (e) of that subsection not being satisfied;

you must use:

if the associate was using the diminishing value method for the asset—the *effective life determined by the Commissioner for the asset under section 40-100 that the associate would have used if section 40-102 had not applied to the asset; or

if the associate was using the prime cost method—an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40-100 that:

the associate would have used if section 40-102 had not applied to the asset; and

is yet to elapse at the time you start to hold it.

Note: You can require the associate to tell you which effective life the associate would have used if section 40-102 had not applied to the asset: see section 40-140.

Exception: holder changes but user same or associate of former user

For a depreciating asset that you start to *hold where:

(a) the former holder or another entity (each of which is the former user) was using the asset at a time before you became the holder; and

while you hold the asset, the former user or an associate of the former user uses the asset;

you must use:

if the former holder was using the diminishing value method for the asset—the same *effective life that the former holder was using; or

if the former holder was using the prime cost method—an effective life equal to any period of the asset’s effective life the former holder was using that is yet to elapse at the time you started to hold it.

Subsection (5) does not apply to a depreciating asset if subsection (5B) or (5C) applies to the asset.

For a depreciating asset that you start to *hold if:

paragraphs (5)(a) and (b) apply; and

(b) section 40-102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40-102(4) and (5) applied to it at the relevant time (the relevant time for the former holder) that applied to the former holder under subsection 40-102(3); and

a different item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it; and

(d) the item referred to in paragraph (c) would have applied to the asset at the relevant time for the former holder if the use to which the asset were put at that time were the use (the new use) to which it is put when you start to hold it;

you must use:

if the former holder was using the diminishing value method for the asset—an *effective life equal to the *capped life that would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; or

if the former holder was using the prime cost method—an effective life equal to the capped life that:

would have applied to the asset under subsection 40-102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; and

is yet to elapse at the time you start to hold it.

Note: If paragraph (d) is not satisfied, subsection (5C) may apply to the depreciating asset.

For a depreciating asset that you start to *hold if:

paragraphs (5)(a) and (b) apply; and

section 40-102 applied to the asset immediately before you started to hold it; and

one of the following applies:

no item in the tables in subsections 40-102(4) and (5) applies to the asset when you start to hold it;

subsection (5B) would apply to the asset but for paragraph (d) of that subsection not being satisfied;

you must use:

if the former holder was using the diminishing value method for the asset—the *effective life determined by the Commissioner for the asset under section 40-100 that the former holder would have used if section 40-102 had not applied to the asset; or

if the former holder was using the prime cost method—an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40-100 that:

the former holder would have used if section 40-102 had not applied to the asset; and

is yet to elapse at the time you start to hold it.

However, you must use an *effective life determined by the Commissioner if:

you do not know, and cannot readily find out, which effective life the former holder was using and, if subsection (5B) or (5C) applied to the asset, either of the following matters:

the effective life the former holder would have used if section 40-102 had not applied to the asset;

the relevant time that applied to the former holder under subsection 40-102(3); or

the former holder did not use an effective life.

Exception: intangible depreciating assets

(7) The effective life of an intangible *depreciating asset mentioned in this table is the period applicable to that asset under the table.

(8) The effective life of an intangible *depreciating asset that is not mentioned in the table in subsection (7) and is not an *IRU or a *mining, quarrying or prospecting right cannot be longer than the term of the asset as extended by any reasonably assured extension or renewal of that term.

(9) The effective life of an *IRU is the *effective life of the telecommunications cable over which the IRU is granted.

Exceptions: mining, quarrying or prospecting rights and mining, quarrying or prospecting information

(10) Subject to subsection (12), the effective life of:

a *mining, quarrying or prospecting right; or

*mining, quarrying or prospecting information;

is the period you work out yourself by estimating the period (in years, including fractions of years) set out in column 2 of this table:

(10A) However, if the only reason that subsection 40-80(1) does not apply to the *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, is that the right or information does not meet the requirements of paragraph 40-80(1)(d) or (e), the effective life of the right or information is the shorter of:

the period that would, apart from this subsection, be the effective life of the information or right under subsection (10); and

15 years.

You work out the period in subsection (10):

as from the *start time of the *mining, quarrying or prospecting right or *mining, quarrying or prospecting information; and

by reference only to the period of time over which the reserves, reasonably estimated using an appropriate accepted industry practice, are expected to be extracted from the mine, petroleum field or quarry.

(12) The effective life of a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, is 15 years if the right or information does not relate to:

a mine or proposed mine; or

a petroleum field or proposed petroleum field; or

a quarry or proposed quarry.

(1) The Commissioner may make a written determination specifying the effective life of *depreciating assets. The determination may specify conditions for particular depreciating assets.

A determination may specify a day from which it takes effect for *depreciating assets specified in the determination.

A determination may operate retrospectively to a day specified in the determination if:

there was no applicable determination at that day for the depreciating asset covered by the determination; or

the determination specifies a shorter *effective life for the depreciating asset covered by the determination than was previously applicable.

Criteria for making a determination

(4) The Commissioner is to make a determination of the effective life of a *depreciating asset in accordance with subsections (5) and (6).

Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes:

a taxable purpose;

the purpose of producing exempt income or non-assessable non-exempt income;

the purpose of conducting *R&D activities, assuming that this is reasonably likely.

Secondly, if relevant for the asset:

assume the asset will be subject to wear and tear at a rate that is reasonable for the Commissioner to assume; and

assume the asset will be maintained in reasonably good order and condition; and

have regard to the period within which the asset is likely to be scrapped, sold for no more than scrap value or abandoned.

However, for paragraph (c), disregard reasons attributable to the technical risk in conducting *R&D activities if it is reasonably likely that the asset will be used for such activities.

(1) If this section applies to a *depreciating asset, the effective life of the asset is the period (the capped life) that applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)).

Working out if this section applies

This section applies to a depreciating asset if:

you choose, under paragraph 40-95(1)(a), to use an *effective life determined by the Commissioner for the asset under section 40-100; and

your choice is limited to a determination in force at the time mentioned in paragraph 40-95(2)(a) or (c); and

a *capped life applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)); and

the capped life is shorter than the effective life mentioned in paragraph (a).

For the purposes of this section, the relevant time is:

the *start time of the depreciating asset if:

paragraph 40-95(2)(c) applies to you; or

paragraph 40-95(2)(a) applies to you and a *capped life does not apply to the asset under subsection (4) or (5) at the time mentioned in that paragraph; or

paragraph 40-95(2)(a) applies to you and the capped life that applies to the asset under subsection (4) or (5) at the time mentioned in that paragraph is longer than the capped life that applies to the asset at its start time; or

if paragraph (a) does not apply—the time mentioned in paragraph 40-95(2)(a).

Capped life

(4) If the *depreciating asset corresponds exactly to the description in column 2 of the table, the capped life of the asset is the period specified in column 3 of the table.

Item 10 of the table in subsection 40-102(4) does not apply to a vessel if:

ordinary income that you *derive, or your statutory income, in relation to the vessel; or

ordinary income that your associate derives, or your associate’s statutory income, in relation to the vessel;

is exempt from income tax under section 51-100 for the income year for which you are working out the vessel’s decline in value.

(5) If the *depreciating asset is of a kind described in column 2 of the table and is used in the industry specified in column 3 of the table for the asset, the capped life of the asset is the period specified in column 4 of the table.

If, at a particular time, item 10 of the table in subsection 40-102(4):

starts to apply to a vessel (whether or not that item has previously applied to the vessel); or

ceases to apply to a vessel (whether or not that item subsequently applies to the vessel);

at that time the effective life of the vessel changes accordingly.

(2) If subsection (1) applies and the decline in value of the vessel is worked out using the *prime cost method, the remaining effective life of the vessel just after that time is:

where:

alternative effective life is:

if that item starts to apply to the vessel at that time—what would have been the *effective life of the vessel just before that time if that item had applied to the vessel; or

if that item ceases to apply to the vessel at that time—what would have been the effective life of the vessel just before that time if that item had not applied to the vessel.

unadjusted effective life is what was the *effective life of the vessel just before that time.

unadjusted remaining effective life is what was the *remaining effective life of the vessel just before that time.

The remaining effective life of the vessel just before that item ceases to apply to the vessel is 3 years. Its alternative effective life is 20 years, and its unadjusted effective life is 10 years. Its remaining effective life just after that time is therefore 6 years.

The remaining effective life of the vessel just before that item again starts to apply to the vessel is 2 years. Its alternative effective life is 10 years, and its unadjusted effective life is 20 years. Its remaining effective life just after that time is therefore 1 year.

Example: Assume that item 10 of the table in subsection 40-102(4) ceases to apply to a vessel after having applied to the vessel for 7 years, and again starts to apply after another 4 years. Assume further that the effective life of a vessel of that kind has been determined under section 40-100 to be 20 years.

(1) You work out the effective life of a *depreciating asset yourself in accordance with this section.

Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes:

a taxable purpose;

the purpose of producing exempt income or non-assessable non-exempt income;

the purpose of conducting *R&D activities, assuming that this is reasonably likely.

Secondly, if relevant for the asset:

have regard to the wear and tear you reasonably expect from your expected circumstances of use; and

assume that the asset will be maintained in reasonably good order and condition.

If, in working out that period, you decide that the asset would be likely to be:

scrapped; or

sold for no more than scrap value or abandoned;

before the end of that period, its effective life ends at the earlier time. However, when making your decision, disregard reasons attributable to the technical risk in conducting *R&D activities if it is reasonably likely that the asset will be used for such activities.

You work out the period mentioned in subsection (1A) or (2) beginning at the *start time of the depreciating asset.

Exception: intangibles

This section does not apply to the following intangible *depreciating assets:

assets to which an item in the table in subsection 40-95(7) applies;

*mining, quarrying or prospecting rights;

*mining, quarrying or prospecting information.

You may choose to recalculate the *effective life of a depreciating asset from a later income year if the effective life you have been using is no longer accurate because of changed circumstances relating to the nature of the use of the asset.

Example: Some examples of changes in circumstances that may result in your recalculating the effective life of a depreciating asset are:

• your use of the asset turns out to be more or less rigorous than you expected (or was anticipated by the Commissioner’s determination);

• there is a downturn in demand for the goods or services the asset is used to produce that will result in the asset being scrapped;

• legislation prevents the asset’s continued use;

• changes in technology make the asset redundant;

• there is an unexpected demand, or lack of success, for a film.

You must recalculate a depreciating asset’s *effective life from a later income year if:

you:

self-assessed its effective life; or

are using an effective life worked out under section 40-100 (about the Commissioner’s determination), or 40-102 (about the capped life of certain depreciating assets), and the prime cost method; or

are using an effective life because of subsection 40-95(4), (4B), (4C), (5), (5B) or (5C); and

its *cost is increased in that year by at least 10%.

Note 1: You may conclude that the effective life is the same.

Note 2: For the elements of the cost of a depreciating asset, see Subdivision 40-C.

Example 1: Paul purchases a photocopier and self-assesses its effective life at 6 years. In a later year he incurs expenditure to increase the quality of the reproductions it makes. He recalculates its effective life, but concludes that it remains the same.

Example 2: Fiona also purchases a photocopier and self-assesses its effective life at 6 years. In a later year she incurs expenditure to incorporate a more robust paper handling system. She recalculates its effective life, and concludes that it is increased to 7 years.

You must recalculate a depreciating asset’s *effective life for the income year in which you started to *hold it if:

you are using an effective life because of subsection 40-95(4), (4B), (4C), (5), (5B) or (5C); and

the asset’s *cost is increased after you started to hold it in that year by at least 10%.

Subsections (1), (2) and (3) do not apply to a depreciating asset that is a *mining, quarrying or prospecting right or *mining, quarrying or prospecting information.

You may choose to recalculate the *effective life of a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, from a later income year if the effective life you have been using is no longer accurate:

because of changed circumstances relating to an existing or proposed mine, petroleum field or quarry to which that right or information relates; or

because that right or information now relates to an existing or proposed mine, petroleum field or quarry; or

because that right or information no longer relates to an existing or proposed mine, petroleum field or quarry.

A recalculation under this section must be done using:

if paragraph (b) does not apply—section 40-105 (about self-assessing effective life); or

if the depreciating asset is a *mining, quarrying or prospecting right or *mining, quarrying or prospecting information:

subsections 40-95(10) and (11) (if the right or information relates to an existing or proposed mine, petroleum field or quarry); or

subsection 40-95(12) (if the right or information no longer relates to an existing or proposed mine, petroleum field or quarry).

Exception: intangibles

This section does not apply to an intangible depreciating asset to which an item in the table in subsection 40-95(7) applies.

If a depreciating asset you *hold is split into 2 or more assets, this Division applies as if you had stopped holding the original asset and started holding the assets into which it is split.

Note 1: For the cost of the split assets, see section 40-205.

Note 2: A balancing adjustment event does not occur just because you split a depreciating asset: see section 40-295.

If you stop *holding part of a depreciating asset, this Division applies as if, just before you stopped holding that part, you had split the original asset into the part you stopped holding and the rest of the original asset. (The rest of the original asset is then taken to be a different asset from the original asset.)

Example: Bronwyn sells Tim a part interest in a depreciating asset she owns. They become joint holders under section 40-35. She is taken to have split the underlying asset into the interest she retains and the interest Tim buys. She now holds an interest (a new depreciating asset) in the underlying asset and is taken to have stopped holding the interest sold.

If you grant or assign an interest in an item of *intellectual property, subsection (2) applies to you as if you had stopped *holding part of the item.

If:

some (but not all) of a spectrum licence you *hold is assigned or resumed; and

your original licence is replaced by one or more other spectrum licences (possibly including a modified version of your original licence); and

the replacement licences together cover exactly the same rights as were covered by your original licence just after the assignment or resumption;

this Division applies as if your original licence (as it existed just after the assignment or resumption) had been split into the replacement licences.

The Australian Communications and Media Authority adjusts the licence to specify only areas A and B, and issues a new licence specifying area D.

Area D represents 25% of the market value of the spectrum remaining in the licence. The adjustable value of the new licence is therefore $1m and the adjustable value of the original (modified) licence is $3m.

Example: MGP Communications Ltd buys a spectrum licence on 1 July 2003 for $5 million. The licence specifies areas A, B, C and D. The company assigns the spectrum relating to area C. Area C represents 20% of the market value of the overall licence. $1m of the adjustable value is allocated to it and $4m is allocated to the remaining licence.

If a spectrum licence you *hold is replaced by 2 or more spectrum licences (possibly including a modified version of your original licence) that together cover exactly the same rights as your original licence, this Division applies as if the original licence had been split into the replacement licences.

This section applies if:

(a) a *depreciating asset you *hold is a *mining, quarrying or prospecting right (the old right) that relates to an area; and

(b) you begin to hold another depreciating asset (the partial new right) that:

is a mining, quarrying or prospecting right; and

relates to an area that is a part of the area that the old right relates to; and

the old right does not end when you begin to hold the partial new right.

This Division applies as if:

when you begin to hold the partial new right, the old right is split into:

an asset that is the partial new right; and

an asset that is the old right; and

the assets mentioned in subparagraphs (a)(i) and (ii) are both continuations of the old right.

Note: For the cost of the split assets, see section 40-205.

If a depreciating asset or assets that you *hold is or are merged into another depreciating asset, this Division applies as if you had stopped holding the original asset or assets and started holding the merged asset.

Note 1: For the cost of the merged asset, see section 40-210.

Note 2: A balancing adjustment event does not occur just because you merge depreciating assets: see section 40-295.

A choice you can make under this Division about a depreciating asset must be made:

by the day you lodge your income tax return for the income year to which the choice relates; or

within a further time allowed by the Commissioner.

Your choice, once made, applies to that income year and all later income years.

Exception: recalculating effective life

However, subsection (2) does not apply to a choice to recalculate the *effective life of a depreciating asset under section 40-110.

These anti-avoidance provisions:

(a) section 51AD (Deductions not allowable in respect of property under certain leveraged arrangements) of the Income Tax Assessment Act 1936;

Division 16D (Certain arrangements relating to the use of property) of Part III of that Act;

apply to your deductions under this Division for a depreciating asset you *hold as if you were the owner of the asset instead of any other person.

If you acquire a depreciating asset from an associate of yours where the associate has deducted or can deduct an amount for the asset under this Division, you may give the associate a written notice requiring the associate to tell you:

the method the associate was using to work out the decline in value of the asset; and

the *effective life the associate was using; and

if section 40-102 applied to the asset at any time:

the effective life that the associate would have used if section 40-102 had not applied to the asset; and

the relevant time that applied to the associate under subsection 40-102(3).

The notice must:

be given within 60 days of your acquiring the asset; and

specify a period of at least 60 days within which the information must be given; and

set out the effect of subsection (3).

Note: Subsections (4) and (5) explain how this subsection operates if the associate is a partnership.

Requirement to comply with notice

The associate must not intentionally refuse or fail to comply with the notice.

Penalty: 10 penalty units.

Giving the notice to a partnership

If the associate is a partnership:

you may give it to the partnership by giving it to any of the partners (this does not limit how else you can give it); and

the obligation to comply with the notice is imposed on each of the partners (not on the partnership), but may be discharged by any of them.

A partner must not intentionally refuse or fail to comply with that obligation, unless another partner has already complied with it.

Penalty: 10 penalty units.

Limits on giving a notice

Only one notice can be given in relation to the same depreciating asset.

Your cost of a depreciating asset is a component in working out the amounts you can deduct for it.

There are 2 elements of the cost of a depreciating asset. This Subdivision shows you how to work out those elements.

Table of sections

Operative provisions

40-175 Cost

40-180 First element of cost

40-185 Amount you are taken to have paid to hold a depreciating asset or to receive a benefit

40-190 Second element of cost

40-195 Apportionment of cost

40-200 Exclusion from cost

40-205 Cost of a split depreciating asset

40-210 Cost of merged depreciating assets

40-215 Adjustment: double deduction

40-217 Cost of partial continuations of mining, quarrying or prospecting rights

40-220 Cost reduced by amounts not of a capital nature

40-222 Cost reduced by water infrastructure improvement expenditure

40-225 Adjustment: acquiring a car at a discount

40-230 Adjustment: car limit

40-235 Adjustment: National Disability Insurance Scheme costs

Operative provisions

The cost of a *depreciating asset you *hold consists of 2 elements.

• Subdivision 27-B;

• subsection 40-90(2);

• paragraph 40-362(3)(c);

• paragraph 40-365(5)(a);

• section 40-1110;

• section 775-70;

• section 775-75.

Note: The cost of a depreciating asset may be modified by one of these provisions:

The first element is worked out as at the time when you began to *hold the depreciating asset (except for a case to which item 3, 4 or 14 of the table in subsection (2) applies). It is:

if an item in that table applies—the amount specified in that item; or

otherwise—the amount you are taken to have paid to hold the asset under section 40-185.

Note 1: The first element of the cost may be modified by a later provision in this Subdivision.

Note 2: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

If more than one item in this table covers the asset, apply the last item that covers it.

The first element of *cost includes an amount you paid or are taken to have paid in relation to starting to *hold the depreciating asset if that amount is directly connected with holding the asset.

The first element of *cost of a depreciating asset does not include an amount that forms part of the second element of cost of another depreciating asset.

Note: The first element of cost may be reduced under section 40-1130 to account for exploration benefits received under farm-in farm-out arrangements.

This Division applies to you as if you had paid, to *hold a depreciating asset or for an economic benefit for such an asset, the greater of these amounts:

the sum of the amounts that would have been included in your assessable income because you started to hold the asset or received the benefit, or because you gave something to start holding the asset or receive the benefit, if you ignored the value of anything you gave that reduced the amount actually included; or

the sum of the applicable amounts set out in this table in relation to holding the asset or receiving the benefit.

Example 1: Gold Medals Ltd manufactures some medals for a local sporting association’s annual meeting in return for a die cut stamping machine. The medals have a market value of $20,000. The machine has an arm’s length value of $100,000 but Gold Medals has to contribute $75,000 towards acquiring it from the association. Gold Medals will have to include:

in its assessable income because of section 21A of the Income Tax Assessment Act 1936.

The first element of the machine’s cost will be the greater of:

• the amount it paid ($75,000) plus the market value of the non-cash benefits it provided ($20,000), which comes to $95,000; and

• the amount that was assessable income from receiving the machine ($25,000) plus the amount by which that assessable income was reduced because of the payment Gold Medals made ($75,000), which comes to $100,000.

So, in this case, the first element of the machine’s cost to Gold Medals is $100,000.

Example 2: Laura travels overseas to purchase a purpose-built vehicle for use in her trade. The purchase of the vehicle is the sole reason for the trip. Laura incurs expenses for airfares and accommodation. These expenses are included in the cost of the vehicle because they are “in relation to starting to hold” the vehicle.

Note 1: Item 1 includes not only amounts actually paid but also amounts taken to have been paid. Examples include the price of the notional purchase made when trading stock is converted to a depreciating asset under section 70-110, the cost of an asset held under a hire purchase arrangement under section 240-25 and a lessor’s deemed purchase price when a luxury car lease ends under subsection 242-90(3).

Note 2: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

In applying the table in subsection (1) to a liability of yours to pay an amount or provide a *non-cash benefit, don’t count any part of the liability you have already satisfied.

The second element is worked out after you start to *hold the depreciating asset.

The second element is:

the amount you are taken to have paid under section 40-185 for each economic benefit that has contributed to bringing the asset to its present condition and location from time to time since you started to *hold the asset; and

expenditure you incur that is reasonably attributable to a balancing adjustment event occurring for the asset.

Example 1: Andrew adds a new tray and canopy to his ute. The materials and labour that go into the addition are economic benefits that Andrew received and that contribute to the ute’s present condition.

The payments he makes for those economic benefits are included in the second element of the ute’s cost.

Example 2: Leonie needed to replace one of her old depreciating assets that was fixed to her land with a new, more efficient one. Leonie paid a contractor a fee to demolish and remove the old asset. This resulted in a balancing adjustment event occurring for the old asset, and the fee forms part of the second element of the cost of the old asset that was demolished.

Note: The second element of the cost may be modified by a later provision in this Subdivision.

Paragraph (2)(b) does not apply to a balancing adjustment event referred to in item 6 or 11 of the table in subsection 40-300(2).

However, the second element is worked out using this table if an item in it applies. Use the last applicable item.

If you pay an amount for 2 or more things that include at least one depreciating asset, or that include a contribution to bringing a depreciating asset to its present condition and location, you take into account as part of its *cost only that part of what you paid that is reasonably attributable to the asset.

The first element of the depreciating asset’s cost is $25,000.

Example: Ian buys 3 assets (one depreciating asset and 2 other assets) under the one transaction. He pays $30,000 for the 3 assets. $25,000 of that amount is reasonably attributable to the depreciating asset.

The *cost of a depreciating asset that is not plant does not include any amount that was incurred:

before 1 July 2001; or

under a contract entered into before that day.

If you split a *depreciating asset into separate assets as mentioned in section 40-115, the first element of the cost of each of the separate assets is a reasonable proportion of the sum of these amounts:

the *adjustable value of the original asset just before it was split; and

the amount you are taken to have paid under section 40-185 for any economic benefit involved in splitting the original asset.

Example: Barry owns a spectrum licence that covers 3 areas: Area A, area B and area C. The licence has an adjustable value of $160,000. He sells area A to Chris, and his costs of splitting are $10,000. Barry is taken to have split the licence into 2 assets.

On the basis of their relative market values, Barry apportions $170,000 to area A (that he disposed of) and to the licence he still holds for areas B and C.

If a *depreciating asset or assets that you *hold is or are merged into another depreciating asset as mentioned in section 40-125, the first element of the cost of the merged asset is a reasonable proportion of the sum of:

the *adjustable value or adjustable values of the original asset or assets just before the merger; and

the amount you are taken to have paid under section 40-185 for any economic benefit involved in merging the original asset or assets.

Each element of the *cost of a depreciating asset is reduced by any portion of that element of cost that you have deducted or can deduct, or that has been or will be taken into account in working out an amount you can deduct, other than under this Division, Division 41 or Division 328.

Note: This section does not apply to notional deductions under section 355-305 or 355-520 (about R&D) because those provisions are about deducting the asset’s decline in value, not its cost.

If:

(a) because of subsection 40-30(6), this Division applies to a *mining, quarrying or prospecting right (the new right) as if it were a continuation of another mining, quarrying or prospecting right you *held; and

the new right satisfies the condition in subparagraph (b)(ii) of that subsection because it relates to an area that is a part of the area that the other right relates to;

the first element of the cost of the new right is a reasonable proportion of the *adjustable value of other right at the time just before the other right ends.

The *cost of a depreciating asset is reduced by any portion of it that consists of an amount that is not of a capital nature.

The *cost of a depreciating asset is reduced by any portion of it that consists of expenditure that you cannot deduct because of section 26-100.

(1) You must increase the first element of the cost of a *car designed mainly for carrying passengers you acquire at a discount if:

(a) it is reasonable to conclude that any portion (the discount portion) of the discount is referable to you or another entity selling another asset for less than its *market value; and

you, or another entity, has deducted or can deduct an amount for the other asset for any income year; and

the sum of the cost of the car and the discount portion exceeds the car limit for the financial year in which you first use the car for any purpose.

(2) The first element of the cost of the *car is increased by the discount portion.

This section does not apply to a car that is excluded from the car limit by subsection 40-230(2).

(1) The first element of the cost of a *car designed mainly for carrying passengers (after applying section 40-225 and Subdivision 27-B) is reduced to the *car limit for the *financial year in which you started to *hold it if its cost exceeds that limit.

However, the car limit does not apply to a car:

fitted out for transporting disabled people in wheelchairs for profit; or

whose first element of *cost exceeds that limit only because of modifications made to enable an individual with a disability to use it for a taxable purpose.

(3) The car limit for the 2000-01 *financial year is $55,134. The limit is indexed annually.

Note: Subdivision 960-M shows you how to index amounts.

If you *hold a car that is also held by one or more other entities, subsection (1) applies to the *cost of the car despite section 40-35. Then section 40-35 applies to the cost of the car as reduced under subsection (1).

The *cost of a depreciating asset does not include an amount to the extent that section 26-97 prevents the amount from being deducted (even if some other provision also prevents it being deducted).

Note: Section 26-97 denies deductions for National Disability Insurance Scheme expenditure.

You may have to make an adjustment to your taxable income if you stop holding a depreciating asset.

The adjustment is generally based on the difference between the actual value of the asset when you stop holding it and its adjustable value.

Table of sections

Operative provisions

40-285 Balancing adjustments

40-290 Reduction for non-taxable use

40-291 Reduction for second-hand assets used in residential property

40-291A Fixed reduction for certain assets used to produce assessable labour income

40-292 Adjustments—assets used for both general tax purposes and R&D activities

40-293 Adjustments—partnership assets used for both general tax purposes and R&D activities

40-295 Meaning of balancing adjustment event

40-300 Meaning of termination value

40-305 Amount you are taken to have received under a balancing adjustment event

40-310 Apportionment of termination value

40-320 Car to which section 40-225 applies

40-325 Adjustment: car limit

40-335 Deduction for in-house software where you will never use it

40-340 Roll-over relief

40-345 What the roll-over relief is

40-350 Additional consequences

40-360 Notice to allow transferee to work out how this Division applies

40-362 Roll-over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012

40-363 Roll-over relief for interest realignment arrangements

40-364 Interest realignment adjustments

40-365 Involuntary disposals

40-370 Balancing adjustments where there has been use of different car expense methods

Operative provisions

An amount is included in your assessable income if:

a balancing adjustment event occurs for a depreciating asset you *held and:

whose decline in value you worked out under Subdivision 40-B; or

whose decline in value you would have worked out under that Subdivision if you had used the asset; and

the asset’s termination value is more than its *adjustable value just before the event occurred.

The amount included is the difference between those amounts, and it is included for the income year in which the balancing adjustment event occurred.

Note 1: The most common balancing adjustment event is where you sell the depreciating asset.

Note 2: There is a different calculation if you had used different car expense methods for a car: see section 40-370.

Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25-47.

You can deduct an amount if:

a balancing adjustment event occurs for a depreciating asset you *held and:

whose decline in value you worked out under Subdivision 40-B; or

whose decline in value you would have worked out under that Subdivision if you had used the asset; and

the asset’s termination value is less than its *adjustable value just before the event occurred.

The amount you can deduct is the difference between those amounts, and you can deduct it for the income year in which the balancing adjustment event occurred.

Note 1: There is a different calculation if you had used different car expense methods for a car: see section 40-370.

Note 2: The timing of a deduction allowed under this subsection is determined under Subdivision 170-D where that Subdivision applies to the balancing adjustment event.

Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25-47.

The *adjustable value of a depreciating asset you *hold after this section applies to it is then zero.

(4) However, subsection (3) does not apply to a *depreciating asset for which you have a *cost under item 3, 4 or 14 of the table in subsection 40-180(2). Instead, the asset’s *opening adjustable value for the income year (the later year) after the one in which the *balancing adjustment event occurred is that cost plus any amounts included in the second element of that cost after the event occurred and before the start of the later year.

Note: Those items deal with a case where a balancing adjustment event happens even though you still hold the asset in question.

Despite subsection (1), an amount included in your assessable income under that subsection is included for the second income year after the income year in which the balancing adjustment event occurs if:

the depreciating asset is a vessel; and

(b) you have a certificate for the vessel under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 that:

applies to the day that the balancing adjustment event occurs; and

is not a shipping exempt income certificate.

Note: An amount will not be included in your assessable income in relation to the balancing adjustment event if you choose roll-over relief under section 40-362.

(1) You must reduce the amount (the balancing adjustment amount) included in your assessable income, or the amount you can deduct, under section 40-285 for a *depreciating asset if your deductions for the asset have been reduced under section 40-25.

Note: You may instead choose a fixed reduction for certain depreciating assets that have been used to produce your assessable labour income: see section 40-291A.

The reduction is:

where:

sum of reductions is the sum of:

the reductions in your deductions for the asset under section 40-25; and

if there has been roll-over relief for the asset under section 40-340—the reductions in deductions for the asset for the transferor or an earlier successive transferor under section 40-25; and

if you *hold the asset as the *legal personal representative of an individual—the reductions in deductions for the asset for the individual under section 40-25.

total decline is the sum of:

the decline in value of the depreciating asset since you started to *hold it; and

if there has been roll-over relief for the asset under section 40-340—the decline in value of the asset for the transferor or an earlier successive transferor; and

if you *hold the asset as the *legal personal representative of an individual—the decline in value of the asset for the individual.

(3) You must further reduce the amount included in your assessable income, or the amount you can deduct, under section 40-285 for a *depreciating asset (the current asset) if:

the asset’s *cost (for you) was worked out under section 40-205 (Cost of a split depreciating asset) or 40-210 (Cost of merged depreciating assets); and

you used the depreciating asset from which the current asset was split, or a depreciating asset that was merged into the current asset, or had it installed ready for use, for a purpose other than a taxable purpose.

The further reduction is such amount as is reasonable having regard to the extent of the use referred to in paragraph (3)(b).

Exception: mining, quarrying or prospecting information

This section does not apply to *mining, quarrying or prospecting information.

(1) In addition to section 40-290, you must reduce the amount (the balancing adjustment amount) included in your assessable income, or that you can deduct, under section 40-285 for a *depreciating asset if your deductions for the asset have been reduced under section 40-27.

Note: You may instead choose a fixed reduction for certain depreciating assets that have been used to produce your assessable labour income: see section 40-291A.

The reduction is the following, as increased under subsection (3) if applicable:

where:

sum of section 40-27 reductions is the sum of:

the reductions in your deductions for the asset under section 40-27; and

if there has been roll-over relief for the asset under section 40-340—the reductions in deductions for the asset for the transferor or an earlier successive transferor under section 40-27; and

if you *hold the asset as the *legal personal representative of an individual—the reductions in deductions for the asset for the individual under section 40-27.

total decline is the sum of:

the decline in value of the depreciating asset since you started to *hold it; and

if there has been roll-over relief for the asset under section 40-340—the decline in value of the asset for the transferor or an earlier successive transferor; and

if you hold the asset as the *legal personal representative of an individual—the decline in value of the asset for the individual.

If:

(a) the *cost (for you) of the asset (the current asset) was worked out under section 40-205 (Cost of a split depreciating asset) or 40-210 (Cost of merged depreciating assets); and

you used the depreciating asset from which the current asset was split, or a depreciating asset that was merged into the current asset, or had it installed ready for use, for the purpose to which paragraphs 40-27(2)(a) and (b) relate;

the reduction includes an increase equal to such amount as is reasonable having regard to the extent of the use referred to in paragraph (b) of this subsection.

(1) Instead of a reduction under section 40-290 or 40-291, you may reduce, by a fixed amount, the amount (the balancing adjustment amount) included in your assessable income, or the amount you can deduct, under section 40-285 for a *depreciating asset if:

the depreciating asset has been used at any time for the purpose of gaining or producing your assessable labour income; and

you have deducted an amount under section 25-130 for an income year (whether the income year in which the balancing adjustment event that gave rise to the balancing adjustment amount occurred or another income year); and

the *effective life of the depreciating asset overlaps, wholly or partly, with that income year.

The amount of the reduction is 50% of the balancing adjustment amount.

This section applies if:

(a) a *balancing adjustment event happens in an income year (the event year) for an asset you *held and for which:

(i) you can deduct, for an income year, an amount under section 40-25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936; or

you could have deducted, for an income year, an amount as described in subparagraph (i) if you had used the asset; and

(b) you are entitled under section 355-100 to *tax offsets for one or more income years for deductions (the R&D deductions) under section 355-305 for the asset.

Note 1: This section applies in a modified way if you have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40-292 of the Income Tax (Transitional Provisions) Act 1997).

Note 2: To the extent that any amount is included in your assessable income under section 40-285 in relation to R&D activities, you may have an additional amount included in your assessable income (see section 355-447).

Note 3: To the extent any amount that you are entitled to as a deduction under section 40-285 relates to R&D activities, you may have an additional amount you can deduct (see section 355-466).

Section 40-290 to be applied as if use for conducting R&D activities were use for a taxable purpose

In applying section 40-290 (including references in that section to the reduction of deductions under section 40-25) in relation to the asset, assume that using the asset for a taxable purpose includes using it for the purpose of conducting the *R&D activities to which the R&D deductions relate.

This section applies to an *R&D partnership if:

(a) a *balancing adjustment event happens in an income year (the event year) for a *depreciating asset *held by the R&D partnership and for which:

(i) the R&D partnership can deduct, for an income year, an amount under section 40-25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936; or

the R&D partnership could have deducted, for an income year, an amount as described in subparagraph (i) if it had used the asset; and

(b) one or more partners of the R&D partnership are entitled under section 355-100 to *tax offsets for one or more income years for deductions (the R&D deductions) under section 355-520 for the asset.

Note 1: This section applies in a modified way if the partners have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40-293 of the Income Tax (Transitional Provisions) Act 1997).

Note 2: To the extent any amount that is included in the R&D partnership’s assessable income under section 40-285 relates to R&D activities, a partner may have an additional amount included in the partner’s assessable income (see section 355-449).

Note 3: To the extent any amount that the R&D partnership is entitled to as a deduction under section 40-285 relates to R&D activities, a partner may have an additional amount the partner can deduct (see section 355-468).

Section 40-290 to be applied as if use for conducting R&D activities were use for a taxable purpose

In applying section 40-290 (including references in that section to the reduction of deductions under section 40-25) in relation to the asset, assume that using the asset for a taxable purpose includes using it for the purpose of conducting the *R&D activities to which the R&D deductions relate.

(1) A balancing adjustment event occurs for a *depreciating asset if:

you stop *holding the asset; or

you stop using it, or having it installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again; or

you have not used it and:

if you have had it installed ready for use—you stop having it so installed; and

you decide never to use it.

Note: A balancing adjustment event occurs under paragraph 40-295(1)(a) when you start holding a depreciating asset as trading stock.

(1A) A balancing adjustment event occurs for a *depreciating asset you *hold that is a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, if:

the only reason that subsection 40-80(1) does not apply to the right or information is that the right or information does not meet the requirements of paragraph 40-80(1)(d) or (e); and

you have neither budgeted nor planned for further expenditure that:

will relate to the tenement to which the right or information relates; and

will exceed the minimum expenditure required to maintain the tenement; and

you choose to apply this subsection to the right or information.

(1B) A balancing adjustment event occurs for a *depreciating asset you *hold that is a *mining, quarrying or prospecting right, or *mining, quarrying or prospecting information, if:

since the last time you commenced to hold the right or information, a balancing adjustment event occurred, because of subsection (1A), to the right or information; and

paragraph (1A)(b) no longer applies.

(2) A balancing adjustment event occurs for a *depreciating asset if:

for any reason, a change occurs in the *holding of, or in the interests of entities in, the asset; and

the entity or one of the entities that had an interest in the asset before the change has an interest in it after the change; and

the asset was a partnership asset before the change or becomes one as a result of the change.

(3) However, a balancing adjustment event does not occur for a *depreciating asset merely because you split it into 2 or more depreciating assets or you merge it with one or more other depreciating assets.

Note: A balancing adjustment event will occur if you stop holding part of a depreciating asset.

(1) The termination value of a *depreciating asset is worked out as at the time when the *balancing adjustment event occurs. It is:

if an item in the table in subsection (2) applies—the amount specified in that item; or

otherwise—the amount you are taken to have received under section 40-305 for the asset.

Note: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

If more than one item applies, use the value under the last applicable item.

(3) The termination value of a *depreciating asset does not include an amount that is included in assessable income as *ordinary income under section 6-5 or as *statutory income under section 6-10 (except an amount that is statutory income under this Division).

Note 1: Termination value may be adjusted under Subdivision 27-B so that any GST consequences are accounted for.

Note 2: Termination value may be reduced under section 40-1105 to account for exploration benefits received under farm-in farm-out arrangements.

This Division applies to you as if you had received, under a balancing adjustment event, the greater of these amounts:

the sum of the amounts you have deducted or can deduct, or has been or will be taken into account in working out an amount you can deduct because of the balancing adjustment event and any amount by which the amount so deductible was reduced because of a case described in the table in this subsection; and

the sum of the applicable amounts set out in that table:

Note 1: Item 1 includes not only amounts actually received but also amounts taken to have been received. Examples include the price of the notional sale made when a depreciating asset is converted to trading stock under section 70-30, the consideration for an asset held under a hire purchase arrangement under section 240-25 and a lessee’s deemed consideration when a luxury car lease ends under subsection 242-90(3).

Note 2: Section 230-505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration.

In applying the table in subsection (1) to a right you have to receive an amount or a *non-cash benefit, don’t count any part of the right that has already been satisfied.

If you receive an amount for 2 or more things that include a balancing adjustment event occurring for a depreciating asset, you take into account as its termination value only that part of what you received that is reasonably attributable to the asset.

You must increase the termination value of a car the *cost of which was increased under section 40-225 by the discount portion for the car referred to in that section.

The termination value of a *car the *cost of which was worked out by applying section 40-230 (Car limit) is the amount worked out under subsection 40-300(1) multiplied by the fraction:

where:

CL is the *car limit for the *car for the *financial year in which you first used it for any purpose.

You can deduct expenditure you incurred on *in-house software if:

you incurred the expenditure with the intention of using the software for a taxable purpose; and

the expenditure relates to a unit of software that you have not used or had installed ready for use; and

the expenditure is not allocated to a software development pool (see Subdivision 40-E); and

in the current year, you have decided that you will never use the software, or have it installed ready for use.

The amount that you can deduct in the current year is:

(a) the total of your expenditure on the *in-house software in the current year and any previous income year; less

any amount of consideration you *derive in relation to the software or any part of it (but no more than the total in paragraph (a));

but only to the extent that, when you incurred the expenditure, you intended to use the software, or have it installed ready for use, for a taxable purpose.

Example: Shannon has abandoned a software project that she was working on. She could not deduct expenditure on the project for the current year or any previous income year under any other provision. Shannon can deduct it under this section, to the extent that she intended to use it, or have it installed ready for use, for a taxable purpose.

Note: If an amount of the expenditure is recouped, the amount may be included in her assessable income: see Subdivision 20-A.

Automatic roll-over relief

There is roll-over relief if:

(a) there is a *balancing adjustment event because an entity (the transferor) disposes of a *depreciating asset in an income year to another entity (the transferee); and

the disposal involves a CGT event; and

the conditions in an item in this table are satisfied.

Note 1: Section 40-345 sets out what the relief is.

Note 2: This Act also applies as if there were roll-over relief under this subsection in the circumstances set out in section 620-30 (which is about a body incorporated under one law ceasing to exist and disposing of its assets to a company incorporated under another law that has not significantly different ownership).

In applying an item in the table in subsection (1), disregard the following so far as they relate to the depreciating asset you disposed of:

an exemption in Division 118 (which contains the general exemptions from CGT); and

subsection 122-25(3) (which excludes certain assets from some kinds of CGT roll-over); and

subsection 124-870(5) (which excludes certain assets from roll-over relief under Subdivision 124-N).

Choosing roll-over relief

There is also roll-over relief if:

there is a balancing adjustment event for a depreciating asset because of subsection 40-295(2) (about a change in the holding of, or in interests in, the asset); and

(b) the entity or entities that had an interest in the asset before the change (also the transferor) and the entity or entities that have an interest in the asset after the change (also the transferee) jointly choose the roll-over relief.

Example: The change could be a variation in the constitution of a partnership or in the interests of the partners.

Note 1: Section 40-345 sets out what the relief is.

Note 2: Subdivision 328-D sets out what the relief is for small business entities that calculate deductions for their depreciating assets under that Subdivision.

The choice must:

be in writing; and

contain enough information about the transferor’s holding of the property for the transferee to work out how this Division or Subdivision 328-D applies to the transferee’s holding of the depreciating asset; and

be made within 6 months after the end of the transferee’s income year in which the balancing adjustment event occurred, or within a longer period allowed by the Commissioner.

If you die before the end of the time allowed for jointly choosing roll-over relief, the trustee of your estate may be a party to the choice.

The transferor must keep the choice or a copy of it for 5 years after the balancing adjustment event occurred.

Penalty: 30 penalty units.

The transferee must keep the choice or a copy of it until the end of 5 years after the next balancing adjustment event occurs for the depreciating asset.

Penalty: 30 penalty units.

Exception: Subdivision 170-D applies

There can be no roll-over relief if Subdivision 170-D (about transactions by a company that is a member of a linked group) applies to the disposal of the depreciating asset or the change in interests in it.

Section 40-285 does not apply to the balancing adjustment event for the transferor.

The transferee can deduct the decline in value of the depreciating asset using the same method and *effective life (or *remaining effective life if that method is the prime cost method) that the transferor was using.

For the purposes of Division 45:

if the transferor, or a partnership of which the transferor was a member, leased the depreciating asset to another entity for most of the time that the transferor or partnership *held the asset, the transferee is taken also to have done so; and

if the transferor, or a partnership of which the transferor was a member, leased the asset to another entity for a period on or after 22 February 1999, the transferee is taken also to have done so; and

if the main business of the transferor, or a partnership of which the transferor was a member, was to lease assets, the main business of the transferee is taken also to have been to lease assets.

However, subsection (1) does not apply to roll-over relief under subsection 40-340(3) if the sum of the amounts specified in paragraph 45-5(1)(e) or 45-10(1)(f), or subsection 45-5(4) or 45-10(4), is at least equal to the *market value of the plant or interest concerned.

This section applies if there is roll-over relief because of subsection 40-340(1).

The transferor must give the transferee a notice containing enough information about the transferor’s *holding of the property for the transferee to work out how this Division applies to the transferee’s holding of the depreciating asset.

The transferor must give the notice within 6 months after the end of the transferee’s income year in which the balancing adjustment event occurred, or within a longer period allowed by the Commissioner.

The transferee must keep the notice until the end of 5 years after the earlier of these events:

the transferee disposes of the property;

the property is lost or destroyed.

Penalty: 30 penalty units.

Circumstances giving rise to roll-over relief

There is roll-over relief if:

(a) there is a *balancing adjustment event under section 40-295 because you cease to *hold a *depreciating asset that is a vessel (the original vessel); and

(b) on the day that the balancing adjustment event occurs, you have a certificate for the vessel under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 that:

applies to that day; and

is not a shipping exempt income certificate; and

there is no roll-over relief under section 40-340 relating to the original vessel; and

(d) on the day occurring 2 years after the day you cease to hold the original vessel, you are the holder of another depreciating asset that is a vessel (the other vessel):

for which you choose to apply roll-over relief in relation to the original vessel; and

(ii) for which you have a certificate under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 (other than a shipping exempt income certificate) that applies to the day of that choice; and

you became the holder of the other vessel during the period starting 1 year before the day you cease to hold the original vessel and ending 2 years after that day.

Choosing to apply roll-over relief

The choice must:

be in writing; and

be made within 6 months after the end of the second income year after the income year in which the balancing adjustment event occurs, or within a longer period allowed by the Commissioner.

The effect of roll-over relief

If there is roll-over relief under this section:

subsection 40-285(1) does not apply to the balancing adjustment event in relation to the original vessel; and

an amount is included in your assessable income if the original vessel’s termination value exceeds the sum of:

the original vessel’s *adjustable value just before the balancing adjustment event occurred; and

the *cost of the other vessel (disregarding paragraph (3)(c)); and

for the purpose of applying this Act to the other vessel, its cost is reduced (but not below zero) by the difference between:

the original vessel’s termination value; and

the original vessel’s adjustable value just before the balancing adjustment event occurred.

The amount included in your assessable income under paragraph (3)(b) is the amount of the excess mentioned in that paragraph. It is included in the second income year after the income year in which the balancing adjustment event occurs.

Circumstances giving rise to roll-over relief

There is roll-over relief if:

there is a balancing adjustment event under section 40-295 because, in an income year, you dispose of a depreciating asset to another entity; and

the asset is a *mining, quarrying or prospecting right; and

the disposal occurs under an interest realignment arrangement; and

you choose to apply roll-over relief in relation to the asset.

Choosing to apply roll-over relief

The choice must:

be in writing; and

be made at or before the time you lodge your income tax return for the income year in which the balancing adjustment event occurs, or within a longer period allowed by the Commissioner.

The effect of roll-over relief

If there is roll-over relief under this section:

section 40-285 does not apply to the balancing adjustment event in relation to the asset; and

(b) an amount is included in your assessable income if such an amount (the non-realignment amount) would have been included under subsection 40-285(1) if:

paragraph (a) of this subsection did not apply; and

the *adjustable value of the *mining, quarrying or prospecting rights that you disposed of under the arrangement were taken to be the market value of the mining, quarrying or prospecting rights that you received under the arrangement; and

in working out the *cost of a mining, quarrying or prospecting right that you receive under the arrangement, if:

some or all of the cost consists of a *non-cash benefit that you provide; and

that benefit is a mining, quarrying or prospecting right that you disposed of under the arrangement;

the market value of the benefit is taken to be the adjustable value of the benefit.

The amount included in your assessable income under paragraph (3)(b) is the non-realignment amount, and it is included for the income year in which the balancing adjustment event occurred.

Meaning of interest realignment arrangement etc.

(5) An interest realignment arrangement is an *arrangement:

that is entered into between entities:

that are undertaking jointly, or propose to undertake jointly, a project for carrying out mining and quarrying operations; and

that each *holds one or more *mining, quarrying or prospecting rights relating to the project; and

under which those entities exchange (or agree to exchange), with the effect set out in subsection (6), parts of those rights; and

that does not provide for any transfer, of a mining, quarrying or prospecting right, that does not give rise to the effect referred to in subsection (6).

Note: The parts referred to in paragraph (b) are themselves mining, quarrying or prospecting rights (see paragraph (c) of the definition of mining, quarrying or prospecting right in subsection 995-1(1)), and are therefore not referred to elsewhere in this Act as parts of such rights.

The effect referred to in paragraphs (5)(b) and (c) must be that, for each of those entities, the following are equal:

the entity’s percentage interest in the project;

the reserves and resources represented by the *mining, quarrying or prospecting rights that the entity *holds relating to the project, expressed as a percentage of the reserves and resources represented by all mining, quarrying or prospecting rights that any of the entities hold relating to the project.

For the purposes of subsection (6):

the reserves represented by a *mining, quarrying or prospecting right are taken to be the reserves, reasonably estimated using an appropriate accepted industry practice, that are expected to be extracted from the mine, petroleum field or quarry to which the right relates; and

the resources represented by a mining, quarrying or prospecting right are taken to be the resources, reasonably estimated using an appropriate accepted industry practice, that are expected to be situated in the area to which the right relates (other than those resources that are reserves referred to in paragraph (a)).

Effect of receiving interest realignment adjustment on assessable income

(1) If you receive an *interest realignment adjustment in an income year, include in your assessable income for the year an amount (the adjustment amount) equal to:

the amount of the adjustment; or

if the adjustment is not an amount—the *market value of the adjustment.

Effect of providing interest realignment adjustment on cost, or cost base and reduced cost base

If an interest realignment adjustment is provided by you or on your behalf:

include the adjustment amount in the second element of the *cost of a *mining, quarrying or prospecting right that you acquired under the interest realignment arrangement to which the adjustment amount relates; or

if this Division does not apply to that right—include the adjustment amount in the *cost base and *reduced cost base of that right.

However, if you acquired more than one such right under the arrangement, apportion the adjustment amount between the costs, or cost bases and reduced cost bases, of those rights on a reasonable basis.

Tax effects of the right to an interest realignment adjustment

Note: Subsections 40-77(1D) and (1E) of the Income Tax (Transitional Provisions) Act 1997 set out when this Division does not apply to the right.

In calculating the termination value of a *mining, quarrying or prospecting right that you provide under an interest realignment arrangement, assume to be zero the *market value of any contractual right conferred by the arrangement to an interest realignment adjustment to be received by you.

In calculating the *cost of a *mining, quarrying or prospecting right that you receive under an interest realignment arrangement, assume to be zero the *market value of any contractual right conferred by the arrangement to an interest realignment adjustment to be provided by you.

The creation of a right to an interest realignment adjustment does not cause CGT event D1 or CGT event D3 to happen.

Your receipt of an interest realignment adjustment does not cause CGT event C2 to happen in relation to the right to receive the adjustment.

Meaning of interest realignment adjustment

(7) An interest realignment adjustment is an amount, or an asset (other than a *mining, quarrying or prospecting right), that:

is provided under an interest realignment arrangement to a party to the arrangement by or on behalf of another party to the arrangement; and

is provided as an adjustment, to the parties’ contributions of value to the project to which the arrangement relates, that arises because information that has become available since the time the arrangement took effect indicates that the other party did not make an appropriate contribution at that time.

(1) You may exclude some or all of an amount that has been included in your assessable income for a *depreciating asset (the original asset) as a result of a *balancing adjustment event to the extent that you choose to treat it as an amount to be applied under subsection (5) for one or more replacement assets.

You can only make this choice if you stop *holding the asset because:

the original asset is lost or destroyed; or

the original asset is compulsorily acquired by an *Australian government agency; or

the original asset is acquired by an entity (other than an Australian government agency or a *foreign government agency) under a power of compulsory acquisition conferred by a law covered under subsection (2A); or

you dispose of the original asset to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:

the disposal takes place after a notice was served on you by or on behalf of the entity;

the notice invited you to negotiate with the entity with a view to the entity acquiring the asset by agreement;

the notice informed you that if the negotiations were unsuccessful, the asset would be compulsorily acquired by the entity;

the compulsory acquisition would have been under a power of compulsory acquisition conferred by a law covered under subsection (2A); or

you dispose of land onto which the original asset was fixed to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:

a mining lease was compulsorily granted over the land;

the lease significantly affected your use of the land;

the lease was in force just before the disposal;

the entity to which you dispose of the land was the lessee under the lease; or

you dispose of land onto which the original asset was fixed to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:

a mining lease would have been compulsorily granted over the land if you had not disposed of it;

that lease would have significantly affected your use of the land;

the entity to which you dispose of the land would have been the lessee under the lease.

A law is covered under this subsection if it is:

(a) an *Australian law (other than Chapter 6A of the Corporations Act 2001); or

(b) a *foreign law (other than a foreign law corresponding to Chapter 6A of the Corporations Act 2001).

You can only make this choice for a replacement asset if you incur the expenditure on the replacement asset, or you start to *hold it:

no earlier than one year, or within a further period the Commissioner allows, before the balancing adjustment event occurred; and

no later than one year, or within a further period the Commissioner allows, after the end of the income year in which the balancing adjustment event occurred.

You can only make this choice for a replacement asset if:

at the end of the income year in which you incurred the expenditure on the asset, or you started to *hold it, you used it, or had it installed ready for use, wholly for a taxable purpose; and

you can deduct an amount for it.

For the purposes of applying this Act to the replacement asset:

its *cost is reduced by the amount covered by the choice for the income year in which the asset’s *start time occurs; and

if the income year is later than the one in which the asset’s *start time occurs—the sum of its *opening adjustable value for that later year and any amount included in the second element of the asset’s cost for that later year is reduced by the amount covered by the choice.

If you are making the choice for 2 or more replacement assets, you apportion the amount covered by the choice between those items in proportion to their *cost.

An amount is included in your assessable income or you can deduct an amount under this section instead of section 40-285 if:

a balancing adjustment event occurs for a car you *held; and

you have deducted or can deduct an amount for the decline in value of the car for an income year under this Division; and

you chose the “cents per kilometre” method in Subdivision 28-C for deducting your car expenses for the car for one or more other income years.

Note 1: This means if you have only used the “log book” method since you began using the car, you calculate the assessable amount or deductible amount under section 40-285.

Note 2: Also, if you have only used the “cents per kilometre” method since you began using the car, no amount is assessable or deductible under this section or section 40-285.

Work out the amount you include in your assessable income or the amount you can deduct in this way:

Method statement

Step 1. Subtract the car’s *adjustable value just before the balancing adjustment event occurred from the car’s termination value.

Step 2. Reduce the step 1 amount by the part of the car’s decline in value that is attributable to your using the car, or having it installed ready for use, for purposes other than *taxable purposes. You do this by applying the formula in subsection 40-290(2).

Step 3. Multiply the step 2 amount by the total number of days for which you deducted the decline in value of the car under this Division.

Step 4. Divide the step 3 amount by the total number of days you *held the car.

Step 5. The step 4 amount is a deduction if it is negative or it is included in your assessable income if it is positive.

In working out the *adjustable value for the income years for which you chose the “cents per kilometre method”, assume the decline in value was calculated under this Division on the same basis as those income years when that method did not apply.

In working out the reduction in step 2 for the income years for which you chose the “cents per kilometre method”, assume that:

you had not chosen that method for the car; and

Division 28 (about car expenses) had not applied to the car; and

20% was the extent of your use of the car for *taxable purposes.

You may choose to work out the decline in value of low-cost assets (assets costing less than $1,000) and certain other depreciating assets through a low-value pool.

You may also choose to deduct amounts for expenditure you incur on in-house software through a software development pool.

Table of sections

Operative provisions

40-425 Allocating assets to a low-value pool

40-430 Rules for assets in low-value pools

40-435 Private or exempt use of assets

40-440 How you work out the decline in value of assets in low-value pools

40-445 Balancing adjustment events

40-450 Software development pools

40-455 How to work out your deduction

40-460 Your assessable income includes consideration for pooled software

Operative provisions

You may choose to allocate a *low cost asset you *hold to a low-value pool for the income year in which you start to use it, or have it installed ready for use, for a taxable purpose.

(2) A low-cost asset is a *depreciating asset (except a *horticultural plant) whose *cost as at the end of the income year in which you start to use it, or have it *installed ready for use, for a *taxable purpose is less than $1,000.

You may also choose to allocate a low-value asset to a low-value pool.

You cannot allocate a depreciating asset to a low-value pool if:

its *cost does not exceed $300; and

you use the asset predominantly for the *purpose of producing assessable income that is not income from carrying on a business; and

the asset is not part of a set of assets that you started to hold in that income year where the total cost of the set of assets exceeds $300; and

the total cost of the asset and any other identical, or substantially identical, asset that you start to hold in that income year does not exceed $300.

(5) A low-value asset is a *depreciating asset, except a *horticultural plant, you *hold:

if you have deducted or can deduct amounts for it under this Division for a previous income year—for which you used the diminishing value method; and

that has an *opening adjustable value for the current year of less than $1,000 (worked out using the diminishing value method); and

that is not a low-cost asset.

A depreciating asset:

to which Division 58 (about assets previously owned by an exempt entity) applied for an entity sale situation; and

for which you used the diminishing value method; and

whose *adjustable value as at the end of the income year before the current year is less than $1,000;

is also a low-value asset.

Exception: small business entities

You cannot allocate a depreciating asset to a low-value pool if you deduct amounts for it under Subdivision 328-D (about capital allowances for small business entities).

Exception: medium sized businesses

You cannot allocate a depreciating asset to a low-value pool if the decline in value of the asset for any income year is determined by section 40-82 (about assets costing below a threshold).

Exception: R&D

You cannot allocate a depreciating asset to a low-value pool if you are entitled under section 355-100 to a tax offset for a deduction under section 355-305 for the asset for an income year starting before, or at the same time as, the allocation has effect.

Note: A similar rule applies if you deducted or could have deducted amounts under former 73BA of the Income Tax Assessment Act 1936 (see section 40-430 of the Income Tax (Transitional Provisions) Act 1997).

Exception: assessable labour income

You cannot allocate a depreciating asset to a low-value pool if, at the time you:

started to use it; or

had it installed ready for use;

you reasonably expected to use it mainly for the purpose of gaining or producing your assessable labour income.

Once you have made a choice to allocate a low-cost asset to a low-value pool for an income year, you must allocate all low-cost assets you start to *hold in that income year or a later one to the pool.

Note 1: This rule does not apply to low-value assets.

Note 2: If you are a small business entity for the income year and you calculate your deductions for your depreciating assets under Subdivision 328-D, you must deduct amounts for your depreciating assets under that Subdivision unless deductions for particular assets are specifically excluded by that Subdivision.

Once you allocate any depreciating asset to a low-value pool, it must remain in the pool.

(1) When you allocate a *depreciating asset to a low-value pool, you must make a reasonable estimate of the percentage (the taxable use percentage) of your use of the asset (including any past use) that will be for a *taxable purpose over:

for a low-cost asset—its *effective life; or

for a low-value asset—any period of its effective life that is yet to elapse at the start of the income year for which you allocate it to the pool.

For the purposes of subsection (1), disregard a taxable purpose that is the *purpose of producing assessable income:

from the use of residential premises to provide residential accommodation; but

not in the course of carrying on a business;

if, apart from subsections 40-25(5) and 40-27(6), section 40-27 would reduce your deductions under subsection 40-25(1) for the asset.

You work out the decline in value of *depreciating assets in a low-value pool for an income year in this way:

Step 1. Work out the amount obtained by taking 183/4% of the taxable use percentage of the *cost of each low-cost asset you allocated to the pool for that year. Add those amounts.

Step 2. Add to the step 1 amount 183/4% of the taxable use percentage of any amounts included in the second element of the *cost for that year of:

assets allocated to the pool for an earlier income year; and

*low-value assets allocated to the pool for the current year.

Step 3. Add to the step 2 amount 371/2% of the sum of:

the *closing pool balance for the previous income year; and

the taxable use percentage of the *opening adjustable values of *low-value assets, at the start of the income year, that you allocated to the pool for that year.

Step 4. The result is the decline in value of the *depreciating assets in the pool.

(2) The closing pool balance of a low-value pool for an income year is the sum of:

the *closing pool balance of the pool for the previous income year; and

the taxable use percentage of the *costs of *low-cost assets you allocated to the pool for that year; and

the taxable use percentage of the *opening adjustable values of any *low-value assets you allocated to the pool for that year as at the start of that year; and

the taxable use percentage of any amounts included in the second element of the cost for the income year of:

assets allocated to the pool for an earlier income year; and

low-value assets allocated to the pool for the current year;

less the decline in value of the *depreciating assets in the pool worked out under subsection (1).

Note: The closing pool balance may be reduced under section 40-445 if a balancing adjustment event happens.

If a balancing adjustment event happens to a depreciating asset in a low-value pool in an income year, the *closing pool balance for that year is reduced (but not below zero) by the taxable use percentage of the asset’s termination value.

If the sum of the *termination values, or the part of it, applicable under subsection (1) exceeds the *closing pool balance of the pool for that year, the excess is included in your assessable income.

You may choose to allocate amounts of expenditure you incur on *in-house software in an income year to a software development pool if it is expenditure on developing, or having another entity develop, computer software.

Note: You cannot allocate expenditure on in-house software to a software development pool if it is expenditure on acquiring computer software or a right to use computer software.

Once you choose to create a software development pool for an income year, any amounts of the kind referred to in subsection (1) you incur after the pool is created (whether in that income year or a later one) must be allocated to a software development pool.

However, an amount of expenditure on *in-house software can only be allocated to a software development pool if you intend to use the software solely for a taxable purpose.

You must create a separate software development pool for each income year for which you incur amounts of the kind referred to in subsection (1).

For all the expenditure on *in-house software in a software development pool that was incurred in a particular income year (Year 1), you get deductions in successive income years as follows:

If expenditure on *in-house software is (or was) in your software development pool, your assessable income includes any amount you *derive as consideration in relation to the software.

However, subsection (1) does not apply if subsection 40-340(3) (roll-over relief) applies to the change.

You can deduct amounts for capital expenditure on depreciating assets that are water facilities, horticultural plants, fodder storage assets or fencing assets.

The amount you can deduct is equal to the asset’s decline in value during an income year (as measured under this Subdivision).

Table of sections

Operative provisions

40-515 Water facilities, horticultural plants, fodder storage assets and fencing assets

40-520 Meaning of water facility, horticultural plant, fodder storage asset and fencing asset

40-525 Conditions

40-530 When declines in value start

40-535 Meaning of horticulture and commercial horticulture

40-540 How you work out the decline in value for water facilities

40-545 How you work out the decline in value for horticultural plants

40-548 How you work out the decline in value for fodder storage assets

40-551 How you work out the decline in value for fencing assets

40-555 Amounts you cannot deduct

40-560 Non-arm’s length transactions

40-565 Extra deduction for destruction of a horticultural plant

40-570 How this Subdivision applies to partners and partnerships

40-575 Getting tax information if you acquire a horticultural plant

Operative provisions

You can deduct an amount equal to the decline in value for an income year (as worked out under this Subdivision) of a depreciating asset that is one of these:

a water facility;

a horticultural plant;

a fodder storage asset;

a fencing asset.

Note 1: Sections 40-540, 40-545, 40-548 and 40-551 show you how to work out the decline.

Note 2: Generally, only one taxpayer can deduct amounts for a depreciating asset. However, if you and another taxpayer jointly hold the asset, each of you deduct amounts for it: see section 40-35.

Conditions

However, the applicable condition in section 40-525 must be satisfied for the depreciating asset.

Limit on deduction

You cannot deduct more in total than:

for a water facility—the amount of capital expenditure (disregarding expenditure that you cannot deduct because of section 26-100 (about water infrastructure improvement expenditure)) incurred on the facility; or

for a horticultural plant—the amount of capital expenditure incurred on the plant; or

for a fodder storage asset—the amount of capital expenditure incurred on the asset; or

for a fencing asset—the amount of capital expenditure incurred on the asset.

Reduction of deduction: water facilities, fodder storage assets and fencing assets

You must reduce your deduction for a water facility, fodder storage asset or fencing asset for an income year by the part of the decline in value of the facility or asset that is attributable to the period (if any) in the income year when it was:

not wholly used in carrying on a *primary production business on land in Australia; or

not wholly used for a taxable purpose.

Paragraph (4)(a) does not apply to a water facility if the expenditure incurred on the construction, manufacture, installation or acquisition of the water facility was incurred by an irrigation water provider.

Meaning of irrigation water provider

(6) An irrigation water provider is an entity whose *business is primarily and principally the supply (otherwise than by using a *motor vehicle) of water to entities for use in *primary production businesses on land in Australia.

(1) A water facility is:

plant or a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to plant or a structural improvement, that is primarily and principally for the purpose of conserving or conveying water; or

a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to conserving or conveying water.

Example: Examples of a water facility include a dam, tank, tank stand, bore, well, irrigation channel, pipe, pump, water tower and windmill. Examples of things reasonably incidental to conserving or conveying water include a culvert, a fence to prevent live stock entering an irrigation channel and a bridge over an irrigation channel.

(2) A horticultural plant is a live plant or fungus that is cultivated or propagated for any of its products or parts.

(3) A fodder storage asset is an asset or a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to an asset or a structural improvement, that is primarily and principally for the purpose of storing fodder.

(4) A fencing asset is:

an asset or a structural improvement that is a fence; or

a repair of a capital nature, or an alteration, addition or extension, to a fence.

Water facilities

The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the water facility must have been incurred:

primarily and principally for the purpose of conserving or conveying water for use in a *primary production business that you conduct on land in Australia; or

for expenditure incurred by an irrigation water provider—primarily and principally for the purpose of conserving or conveying water for use in primary production businesses conducted by other entities on land in Australia, being entities supplied with water by the irrigation water provider.

Note: If Division 250 applies to you and an asset that is a water facility:

if section 250-150 applies—the condition in this subsection is taken not to be satisfied for the facility to the extent specified under subsection 250-150(3); or

otherwise—the condition in this subsection is taken not to be satisfied for the facility.

Horticultural plants

One of the conditions in this table must be satisfied:

Note: If Division 250 applies to you and an asset that is a horticultural plant:

if section 250-150 applies—a condition in this subsection is taken not to be satisfied for the plant to the extent specified under subsection 250-150(3); or

otherwise—the conditions in this subsection are taken not to be satisfied for the horticultural plant.

Fodder storage assets

The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the fodder storage asset must have been incurred primarily and principally for use in a *primary production business that you conduct on land in Australia.

Note: If Division 250 applies to you and an asset that is a fodder storage asset:

if section 250-150 applies—the condition in this subsection is taken not to be satisfied for the asset to the extent specified under subsection 250-150(3); or

otherwise—the condition in this subsection is taken not to be satisfied for the asset.

Fencing assets

The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the fencing asset must have been incurred primarily and principally for use in a *primary production business that you conduct on land in Australia.

Note: If Division 250 applies to you and an asset that is a fencing asset:

if section 250-150 applies—the condition in this subsection is taken not to be satisfied for the asset to the extent specified under subsection 250-150(3); or

otherwise—the condition in this subsection is taken not to be satisfied for the asset.

A water facility, fodder storage asset or fencing asset starts to decline in value in the income year in which you first incur expenditure on the facility or asset.

A horticultural plant starts to decline in value in:

if you are the first entity to satisfy a condition in subsection 40-525(2) for the plant—the income year in which the first commercial season starts; or

if not—the later of the income year in which you first satisfied that condition and the income year in which the first commercial season starts.

(1) Horticulture includes:

propagation and cultivation of a horticultural plant in any environment (whether natural or artificial); and

propagation and cultivation of seeds, bulbs, spores and similar things; and

propagation and cultivation of fungi.

(2) Use for commercial horticulture means use for the *purpose of producing assessable income in a *business of *horticulture.

The decline in value of a water facility for the income year in which you incurred the expenditure is the amount of capital expenditure you incurred on the construction, manufacture, installation or acquisition of the water facility.

However, disregard expenditure that you cannot deduct because of section 26-100 (about water infrastructure improvement expenditure).

The decline in value of a horticultural plant for the income year in which it starts to decline in value is all of the capital expenditure attributable to the establishment of the plant if its *effective life is less than 3 years.

You work out the decline in value for an income year of a horticultural plant whose *effective life is 3 years or more in this way:

where:

establishment expenditure is the amount of capital expenditure incurred that is attributable to the establishment of the *horticultural plant.

write-off days in income year is the number of days in the income year on which you satisfied a condition in subsection 40-525(2) for the plant and either used it for *commercial horticulture or held it ready for that use.

write-off rate is the rate shown in this table for the *horticultural plant according to its *effective life.

Limit on write-off days

Disregard your use of the horticultural plant on a day outside the period that:

(a) starts when the plant can first be used for *commercial horticulture; and

extends for the time shown in this table (depending on the plant’s *effective life).

The decline in value of a fodder storage asset for the income year in which you incurred the expenditure is the amount of capital expenditure you incurred on the construction, manufacture, installation or acquisition of the fodder storage asset.

The decline in value of a fencing asset for the income year in which you incurred the expenditure is the amount of capital expenditure you incurred on the construction, manufacture, installation or acquisition of the fencing asset.

Water facilities

You cannot deduct an amount for any income year for capital expenditure on the acquisition of a water facility if any entity has deducted or can deduct an amount under this Subdivision for any income year for earlier capital expenditure on:

the construction or manufacture of the facility; or

a previous acquisition of the facility.

Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset that is a water facility are not the same depreciating asset for the purposes of section 40-50 and this Subdivision: see section 40-53.

Horticultural plants

In working out your deduction under this Subdivision for a horticultural plant, disregard expenditure incurred:

in draining swamp or low-lying land; or

in clearing land.

Fodder storage assets

You cannot deduct an amount for any income year for capital expenditure on the acquisition of a fodder storage asset if any entity has deducted or can deduct an amount under this Subdivision for any income year for earlier capital expenditure on:

the construction or manufacture of the asset; or

a previous acquisition of the asset.

Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset that is a fodder storage asset are not the same depreciating asset for the purposes of section 40-50 and this Subdivision: see section 40-53.

Fencing assets

You cannot deduct an amount for any income year for capital expenditure on the acquisition of a fencing asset if any entity has deducted or can deduct an amount under this Subdivision for any income year for earlier capital expenditure on:

the construction or manufacture of the fencing asset; or

a previous acquisition of the fencing asset.

Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset that is a fencing asset are not the same depreciating asset for the purposes of section 40-50 and this Subdivision: see section 40-53.

You cannot deduct an amount for any income year for capital expenditure on a fencing asset to the extent that any entity has deducted or can deduct the amount under subsection 40-630(1) (about landcare operations).

You cannot deduct an amount for any income year for capital expenditure on a fencing asset if the fencing asset is (or is a repair, alteration, addition or extension to):

a stockyard or pen; or

a portable fence.

If you incurred capital expenditure under an arrangement and:

there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and

apart from this section, the amount of the expenditure would be more than the *market value of what it was for;

the amount of expenditure you take into account under this Subdivision is that market value.

You can deduct the amount worked out under subsection (2) for a horticultural plant for an income year if its *effective life is 3 years or more and it is destroyed during the income year while you own it and use it for commercial horticulture.

Work out your deduction as follows:

Method statement

Step 1. Work out the total of the amounts you could have deducted under this Subdivision for the horticultural plant for the period:

starting when the plant could first be used for commercial horticulture; and

ending when it was destroyed;

assuming that, during that period, you satisfied a condition in section 40-525 for the plant and used it for commercial horticulture.

Step 2. Subtract from the capital expenditure that is attributable to the establishment of the horticultural plant:

the result from step 1; and

any amount you received (under an insurance policy or otherwise) for the destruction.

The remaining amount (if any) is your deduction under subsection (1).

This deduction is in addition to any deduction for the income year under section 40-545.

This section applies to allocate expenditure to you for the purposes of this Subdivision if you were a partner in a partnership when it incurred capital expenditure during an income year.

For the purposes of this Subdivision, you are taken to have incurred during that income year:

the amount of the expenditure that the partners agreed you should bear; or

if there was no such agreement—the proportion of the expenditure equal to the proportion of your individual interest in the net income or partnership loss of the partnership for that income year.

(3) Disregard this Subdivision when working out the net income or partnership loss of the partnership under section 90 of the Income Tax Assessment Act 1936.

If you begin to satisfy a condition in section 40-525 for a horticultural plant, you may give the last entity (if any) that satisfied such a condition for the plant a written notice requiring the entity to give you any or all of the following information:

the amount of establishment expenditure for the plant;

if the entity used the plant’s *effective life to work out the decline in value of the plant—its effective life and the day on which it could first be used for commercial horticulture.

The notice must:

be given within 60 days of your beginning to satisfy that condition; and

specify a period of at least 60 days within which the information must be given; and

set out the effect of subsection (3).

Note: Subsections (4) and (5) explain how this subsection operates if the last owner is a partnership.

Requirement to comply with notice

The entity to whom the notice is given must not intentionally refuse or fail to comply with the notice.

Penalty: 10 penalty units.

Giving the notice to a partnership

If the entity to whom the notice is given is a partnership:

you may give it to the partnership by giving it to any of the partners (this does not limit how else you can give it); and

the obligation to comply with the notice is imposed on each of the partners (not on the partnership), but may be discharged by any of them.

A partner must not intentionally refuse or fail to comply with that obligation, unless another partner has already complied with it.

Penalty: 10 penalty units.

Limits on giving a notice

Only one notice can be given in relation to the same horticultural plant.

You can deduct amounts for capital expenditure you incur:

• on landcare operations; or

• on electricity connections or telephone lines.

Table of sections

Operative provisions

40-630 Landcare operations

40-635 Meaning of landcare operation

40-640 Meaning of approved management plan

40-645 Electricity and telephone lines

40-650 Amounts you cannot deduct under this Subdivision

40-655 Meaning of connecting power to land or upgrading the connection and metering point

40-660 Non-arm’s length transactions

40-665 How this Subdivision applies to partners and partnerships

40-670 Approval of persons as farm consultants

40-675 Review of decisions relating to approvals

Operative provisions

You can deduct capital expenditure you incur at a time in an income year on a landcare operation for:

land in Australia you use at the time for carrying on a *primary production business; or

rural land in Australia you use at the time for carrying on a business for a taxable purpose from the use of that land (except a business of mining and quarrying operations).

Note: If Division 250 applies to you and an asset that is land:

if section 250-150 applies—you are taken not to be using the land for the purpose of carrying on a primary production business, or a business for the purpose of producing assessable income from the use of rural land (except a business of mining and quarrying operations), to the extent specified under subsection 250-150(3); or

otherwise—you are taken not to be using the land for such a purpose.

A rural land irrigation water provider can deduct capital expenditure it incurs at a time in an income year on a landcare operation for:

land in Australia that other entities use at the time for carrying on *primary production businesses; or

rural land in Australia that other entities use at the time for carrying on *businesses for a taxable purpose from the use of that land (except a business of mining and quarrying operations);

being entities supplied with water by the rural land irrigation water provider.

(1B) A rural land irrigation water provider is:

an irrigation water provider; or

an entity whose business is primarily and principally the supply (otherwise than by using a motor vehicle) of water to entities for use in carrying on *businesses (except businesses of mining and quarrying operations) using rural land in Australia.

Exception: plant

However, you cannot deduct an amount under this Subdivision for capital expenditure on plant, except:

a fence erected for a purpose described in paragraph 40-635(1)(a) or (b); or

(b) a dam or structural improvement (except a fence) covered by paragraph (1)(c), (d), (e) or (f) of the definition of plant in section 45-40.

In applying paragraph (2)(b) to capital expenditure incurred by a rural land irrigation water provider on a dam or structural improvement, the requirement in paragraph 45-40(1)(c) that the land on which the dam or structural improvement is situated be used for agricultural or pastoral operations is to be disregarded.

Exception: deduction available under Subdivision 40-F

A rural land irrigation water provider cannot deduct an amount under this Subdivision for capital expenditure if the entity can deduct an amount for that expenditure under Subdivision 40-F.

Exception: deduction available under Subdivision 40-J

You cannot deduct an amount under this Subdivision for capital expenditure if any entity can deduct an amount for that expenditure for any income year under Subdivision 40-J.

Reduction of deduction

You must reduce your deduction by a reasonable amount to reflect your use of the land in the income year after the time when you incurred the expenditure for a purpose other than the purpose of carrying on:

a *primary production business; or

a business for the *purpose of producing assessable income from the use of rural land (except a business of mining and quarrying operations).

Subsection (3) does not apply to expenditure incurred by a rural land irrigation water provider. Instead, a rural land irrigation water provider must reduce its deduction in relation to particular land by a reasonable amount to reflect an entity’s use of the land in the income year after the rural land irrigation water provider incurred the expenditure for a purpose other than a taxable purpose.

(1) Landcare operation for land means:

erecting a fence to separate different land classes on the land in accordance with an *approved management plan for the land; or

erecting a fence on the land primarily and principally for the purpose of excluding animals from an area affected by land degradation:

to prevent or limit extension or worsening of land degradation in the area; and

to help reclaim the area; or

constructing a levee or a similar improvement on the land; or

constructing drainage works on the land primarily and principally for the purpose of controlling salinity or assisting in drainage control; or

an operation primarily and principally for the purpose of:

eradicating or exterminating from the land animals that are pests; or

eradicating, exterminating or destroying plant growth detrimental to the land; or

preventing or fighting land degradation (except by erecting fences on the land); or

a repair of a capital nature, or an alteration, addition or extension, to an asset described in paragraph (a), (b), (c) or (d) or an extension of an operation described in paragraph (e); or

constructing a structural improvement, or a repair of a capital nature, or an alteration, addition or extension, to a structural improvement, that is reasonably incidental to an asset described in paragraph (c) or (d).

Note: A depreciating asset and a repair of a capital nature or an alteration, addition or extension to that asset are not the same asset for the purposes of section 40-50 and this Subdivision: see section 40-53.

Paragraph (1)(d) does not apply to an operation draining swamp or low-lying land.

An approved management plan for *land is a plan that:

shows the different classes within the land and the location of any fencing needed to separate any of the land classes to prevent land degradation; and

describes the kind of fencing and how it will prevent land degradation; and

has been prepared by, or approved in writing as a suitable plan for the land by:

an officer of an *Australian government agency responsible for land conservation who has authority to do so; or

an individual who was at the time approved as a farm consultant under this Subdivision.

You can deduct amounts for capital expenditure you incur on connecting power to land or upgrading the connection if, when you incur the expenditure:

you have an interest in the land or are a share-farmer carrying on a business on the land; and

you or another entity intends to use some or all of the electricity to be supplied as a result of the expenditure in carrying on a business on the land for a taxable purpose at a time when you have an interest in the land or are a share-farmer carrying on a business on the land.

You can also deduct amounts for capital expenditure you incur on a telephone line on or extending to land if, when you incurred the expenditure:

a *primary production business was carried on the land; and

you had an interest in the land or you were a share-farmer carrying on a primary production business on the land.

The amount you can deduct is 10% of the expenditure:

for the income year in which you incur it; and

for each of the next 9 income years.

Note 1: Various provisions may reduce the amount you can deduct or stop you deducting. For example, see:

Division 26 (limiting deductions generally); and

section 40-650 (specifying expenditure you cannot deduct under this Subdivision); and

Division 245 (which may affect your entitlement to a deduction if your debts are forgiven).

Note 2: If you recoup an amount of the expenditure, the amount will be included in your assessable income. See Subdivision 20-A.

You cannot deduct amounts for capital expenditure you incur on connecting power to land or upgrading the connection if, during the 12 months after electricity is first supplied to the land as a result of the expenditure, no electricity supplied as a result of the expenditure is used in carrying on a business on the land for a taxable purpose.

(2) If you deducted an amount for any income year under this Subdivision for the expenditure, your assessment for that income year may be amended under section 170 of the Income Tax Assessment Act 1936 to disallow the deduction.

You cannot deduct an amount for capital expenditure you incur on connecting power to land or upgrading the connection for:

expenditure in providing water, light or power for use on, access to or communication with the site of mining and quarrying operations; or

a contribution to the cost of providing water, light or power for those operations.

You cannot deduct an amount for any income year for your capital expenditure on a part of a telephone line if:

any entity has deducted, or can deduct, an amount for any income year for the cost of that part under a provision of this Act (except this Subdivision); or

the cost of that part has been, or must be, taken into account in working out:

the amount of any entity’s deduction (including a deduction for a depreciating asset) for any income year under a provision of this Act (except this Subdivision); or

(ii) the net income, or partnership loss, of a partnership under section 90 of the Income Tax Assessment Act 1936.

However, you can deduct an amount under this Subdivision for your expenditure on a part of a telephone line even if:

an entity that worked on installing that part has deducted, or can deduct, an amount relating to that part for any income year under this Act (except this Subdivision); or

the cost of that part has been, or must be, taken into account:

in working out the amount of such an entity’s deduction for any income year under a provision of this Act (except this Subdivision); or

(ii) under section 90 of the Income Tax Assessment Act 1936 in working out the net income, or partnership loss, of a partnership that worked on installing that part.

Subsection (5) has effect whether the entity did the work itself or through one or more employees or *agents.

If you can deduct, or have deducted, an amount for any income year under section 40-645 for your expenditure:

an entity cannot deduct an amount for any income year under a provision of this Act (except this Subdivision) for the expenditure; and

the expenditure cannot be taken into account to work out the amount of an entity’s deduction for any income year under a provision of this Act (except this Subdivision).

(8) Subsection (7) also applies in working out the net income, or partnership loss, of a partnership under section 90 of the Income Tax Assessment Act 1936.

(1) Each of these operations is connecting power to land or upgrading the connection:

connecting a mains electricity cable to a *metering point on the land (whether or not the point from which the cable is connected is on the land);

providing or installing equipment designed to measure the amount of electricity supplied through a mains electricity cable to a metering point on the land;

providing or installing equipment for use directly in connection with the supply of electricity through a mains electricity cable to a metering point on the land;

work to increase the amount of electricity that can be supplied through a mains electricity cable to a metering point on the land;

work to modify or replace equipment designed to measure the amount of electricity supplied through a mains electricity cable to a metering point on the land, if the modification or replacement results from increasing the amount of electricity supplied to the land;

work to modify or replace equipment for use directly in connection with the supply of electricity through a mains electricity cable to the land, if the modification or replacement results from increasing the amount of electricity supplied to the land;

work carried out as a result of a contribution to the cost of a project consisting of the connection of mains electricity facilities to that land and other land.

(2) However, an operation described in subsection (1) done in the course of replacing or relocating mains electricity cable or equipment is connecting power to land or upgrading the connection only if done to increase the amount of electricity that can be supplied to a *metering point on the land.

(3) A metering point on land is a point where consumption of electricity supplied to the land through a mains electricity cable is measured.

If you incurred capital expenditure under an arrangement and:

there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and

apart from this section, the amount of the expenditure would be more than the *market value of what it was for;

the amount of expenditure you take into account under this Subdivision is that market value.

This section applies to allocate expenditure to you for the purposes of this Subdivision if you were a partner in a partnership when it incurred capital expenditure during an income year.

For the purposes of this Subdivision, you are taken to have incurred during that income year:

the amount of the expenditure that the partners agreed you should bear; or

if there was no such agreement—the proportion of the expenditure equal to the proportion of your individual interest in the net income or partnership loss of the partnership for that income year.

(3) Disregard this Subdivision when working out the net income or partnership loss of the partnership under section 90 of the Income Tax Assessment Act 1936.

A person may be approved in writing as a farm consultant by:

the Agriculture Secretary; or

an officer of the Agriculture Department who has been authorised in writing by the Agriculture Secretary to approve persons as farm consultants.

Note: This subsection also allows the approval of an individual as a farm consultant to be revoked. See subsection 33(3) of the Acts Interpretation Act 1901.

The following matters must be taken into account when deciding whether to approve a person as a farm consultant:

the person’s qualifications, experience and knowledge relating to *land conservation and farm management;

the person’s standing in the professional community;

any other relevant matters.

A person may apply to the *ART for review of a decision (as defined in the Administrative Review Tribunal Act 2024):

to refuse to approve the person as a farm consultant; or

to revoke the approval of the person as a farm consultant.

You get an immediate deduction for certain capital expenditure on:

• exploration or prospecting; and

• rehabilitation of mining or quarrying sites; and

• paying petroleum resource rent tax; and

• environmental protection activities.

Table of sections

Operative provisions

40-730 Deduction for expenditure on exploration or prospecting

40-735 Deduction for expenditure on mining site rehabilitation

40-740 Meaning of ancillary activities and mining building site

40-745 No deduction for certain expenditure

40-750 Deduction for payments of petroleum resource rent tax

40-755 Environmental protection activities

40-760 Limits on deductions from environmental protection activities

40-765 Non-arm’s length transactions

Operative provisions

You can deduct expenditure you incur in an income year on *exploration or prospecting for *minerals, or quarry materials, obtainable by mining and quarrying operations if, for that expenditure, you satisfy one or more of these paragraphs:

you carried on mining and quarrying operations;

it would be reasonable to conclude you proposed to carry on such operations;

you carried on a business of, or a business that included, exploration or prospecting for minerals or quarry materials obtainable by such operations, and the expenditure was necessarily incurred in carrying on that business.

Note: If Division 250 applies to you and an asset that is land:

if section 250-150 applies—you cannot deduct expenditure you incur in relation to the land to the extent specified under subsection 250-150(3); or

otherwise—you cannot deduct such expenditure.

However, you cannot deduct expenditure under subsection (1) if it is expenditure on:

development drilling for petroleum; or

operations in the course of working a mining property, quarrying property or petroleum field.

Also, you cannot deduct expenditure under subsection (1) to the extent that it forms part of the *cost of a depreciating asset.

Definitions

(4) Exploration or prospecting includes:

for mining in general, and quarrying:

geological mapping, geophysical surveys, systematic search for areas containing *minerals (except petroleum) or quarry materials, and search by drilling or other means for such minerals or materials within those areas; and

search for ore within, or near, an ore-body or search for quarry materials by drives, shafts, cross-cuts, winzes, rises and drilling; and

for petroleum mining:

geological, geophysical and geochemical surveys; and

exploration drilling and appraisal drilling; and

feasibility studies to evaluate the economic feasibility of mining minerals or quarry materials once they have been discovered; and

obtaining *mining, quarrying or prospecting information associated with the search for, and evaluation of, areas containing minerals or quarry materials.

(5) Minerals includes *petroleum.

(6) Petroleum means:

any naturally occurring hydrocarbon or naturally occurring mixture of hydrocarbons, whether in a gaseous, liquid or solid state; or

any naturally occurring mixture of:

one or more hydrocarbons, whether in a gaseous, liquid or solid state; and

one or more of the following: hydrogen sulphide, nitrogen, helium or carbon dioxide;

whether or not that substance has been returned to a natural reservoir.

(7) Mining and quarrying operations means:

mining operations on a mining property for extracting *minerals (except petroleum) from their natural site; or

mining operations for the purpose of obtaining petroleum; or

quarrying operations on a quarrying property for extracting quarry materials from their natural site;

for the *purpose of producing assessable income.

(8) Mining, quarrying or prospecting information is geological, geophysical or technical information that:

relates to the presence, absence or extent of deposits of *minerals or quarry materials in an area; or

is likely to help in determining the presence, absence or extent of such deposits in an area.

You can deduct for an income year expenditure you incur in that year to the extent it is on mining site rehabilitation of:

a site on which you:

carried on mining and quarrying operations; or

conducted *exploration or prospecting; or

conducted ancillary mining activities; or

a mining building site.

Note 1: If an amount of the expenditure is recouped, the amount may be included in your assessable income: see Subdivision 20-A.

Note 2: If Division 250 applies to you and an asset that is land:

if section 250-150 applies—you cannot deduct expenditure you incur in relation to the land to the extent specified under subsection 250-150(3); or

otherwise—you cannot deduct such expenditure.

However, a provision of this Act (except Division 8 (which is about deductions)) that expressly prevents or restricts the operation of that Division applies in the same way to this section.

However, you cannot deduct expenditure under subsection (1) to the extent that it forms part of the *cost of a depreciating asset.

(4) Mining site rehabilitation is an act of restoring or rehabilitating a site or part of a site to, or to a reasonable approximation of, the condition it was in before *mining and quarrying operations, *exploration or prospecting or *ancillary mining activities were first started on the site, whether by you or by someone else.

(5) Partly restoring or rehabilitating such a site counts as mining site rehabilitation (even if you had no intention of completing the work).

For a mining building site, the time when ancillary mining activities were first started on the site is the earliest time when the buildings, improvements or *depreciating assets concerned were located on the site.

(1) Any of the following are ancillary mining activities:

preparing a site for you to carry on mining and quarrying operations;

providing water, light or power for, access to, or communications with, a site on which you carry on, or will carry on, mining and quarrying operations;

minerals treatment of *minerals or minerals treatment of quarry materials, obtained by you in carrying on mining and quarrying operations;

storing (whether before or after minerals treatment) such minerals, petroleum or quarry materials in relation to the operation of a depreciating asset for use primarily and principally in treating such minerals or quarry materials;

liquefying natural gas obtained from mining and quarrying operations you carry on.

(2) A mining building site is a site, or a part of a site, where there are *depreciating assets that are or were necessary for you to carry on *mining and quarrying operations. However, a mining building site does not include anything covered by the definition of housing and welfare.

Expenditure on these things is not deductible under section 40-735:

acquiring land or an interest in land or a right, power or privilege to do with land;

a bond or security, however described, for performing mining site rehabilitation;

*housing and welfare.

You can deduct a payment of petroleum resource rent tax, or an *instalment of petroleum resource rent tax, that you make in an income year.

Note 1: If an amount of the expenditure is recouped, the amount may be included in your assessable income: see Subdivision 20-A.

Note 2: If Division 250 applies to you and an asset:

if section 250-150 applies—you cannot deduct expenditure you incur in relation to the asset to the extent specified under subsection 250-150(3); or

otherwise—you cannot deduct such expenditure.

(2) You cannot deduct under subsection (1) a payment that you make under paragraph 99(c) of the Petroleum Resource Rent Tax Assessment Act 1987.

These amounts are included in your assessable income for the income year in which they are refunded, credited, paid or applied:

(a) an amount the Commissioner pays you in total or partial discharge of a debt of the kind referred to in subsection 47(1) of the Petroleum Resource Rent Tax Assessment Act 1987; or

(b) an amount the Commissioner applies under subsection 47(2) of the Petroleum Resource Rent Tax Assessment Act 1987 in total or partial discharge of a liability you have.

You can deduct expenditure you incur in an income year for the sole or dominant purpose of carrying on environmental protection activities.

Note: If Division 250 applies to you and an asset that is land:

if section 250-150 applies—you cannot deduct expenditure you incur in relation to the land to the extent specified under subsection 250-150(3); or

otherwise—you cannot deduct such expenditure.

(2) Environmental protection activities are any of the following activities that are carried on by or for you:

preventing, fighting or remedying:

pollution resulting, or likely to result, from your earning activity; or

pollution of or from the site of your earning activity; or

pollution of or from a site where an entity was carrying on any business that you have acquired and carry on substantially unchanged as your earning activity;

treating, cleaning up, removing or storing:

waste resulting, or likely to result, from your earning activity; or

waste that is on or from the site of your earning activity; or

waste that is on or from a site where an entity was carrying on any business that you have acquired and carry on substantially unchanged as your earning activity.

No other activities are environmental protection activities.

(3) Your earning activity is an activity you carried on, carry on, or propose to carry on:

for the *purpose of producing assessable income for an income year (except a net capital gain); or

for the purpose of *exploration or prospecting; or

for the purpose of mining site rehabilitation; or

for purposes that include one or more of those purposes.

If your earning activity is:

leasing a site you own; or

granting a right to use a site you own or control; or

a similar activity involving a site;

that site is taken to be the site of your earning activity.

Note: This means you can deduct your expenditure on environmental protection activities relating to the site, even if the pollution or waste is caused by another entity that uses the site.

Expenditure you cannot deduct

You cannot deduct an amount under section 40-755 for an income year for:

expenditure for acquiring land; or

capital expenditure for constructing a building, structure or structural improvement; or

capital expenditure for constructing an extension, alteration or improvement to a building, structure or structural improvement; or

a bond or security (however described) for performing environmental protection activities; or

expenditure to the extent that you can deduct an amount for it under a provision of this Act outside this Subdivision.

Note: You may be able to deduct expenditure described in paragraph (1)(b) or (c) under Division 43 (which deals with capital works).

In particular, you cannot deduct under section 40-755 expenditure to the extent that you incur it on carrying out an activity for environmental impact assessment of your project.

However, a provision of this Act (except Division 8 (which is about deductions)) that expressly prevents or restricts the operation of that Division applies in the same way to section 40-755.

If you incurred capital expenditure under an arrangement and:

there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and

apart from this section, the amount of the expenditure would be more than the *market value of what it was for;

the amount of expenditure you take into account under this Subdivision is that market value.

You can deduct amounts for certain capital expenditure associated with projects you carry on. You deduct the amounts over the life of the project using a pool.

You can also deduct amounts for certain business related costs. You deduct these amounts over 5 years (or immediately in the case of some start-up expenses for small businesses) if the amounts are not otherwise taken into account and are not denied a deduction.

Table of sections

Operative provisions

40-830 Project pools

40-832 Project pools for post-9 May 2006 projects

40-835 Reduction of deduction

40-840 Meaning of project amount

40-845 Project life

40-855 When you start to deduct amounts for a project pool

40-860 Meaning of mining capital expenditure

40-865 Meaning of transport capital expenditure

40-870 Meaning of transport facility

40-875 Meaning of processed minerals and minerals treatment

40-880 Business related costs

40-885 Non-arm’s length transactions

Operative provisions

You can allocate *project amounts to a project pool.

You can deduct amounts for *project amounts that are allocated to the project pool.

You calculate your deduction for an income year for a project pool in this way:

where:

DV project pool life is:

the project life of the project; or

if its project life has been recalculated—its most recently recalculated project life.

pool value is:

for the first income year that a project amount is allocated to the pool—the sum of the project amounts allocated to the pool for that year; or

for a later income year—the sum of the pool’s closing pool value for the previous income year and any project amounts allocated to the pool for the later year.

Note: The calculation is made under subsection 40-832(3) for project amounts incurred on or after 10 May 2006 for projects that start to operate on or after that day.

If, in an income year, you abandon, sell or otherwise dispose of a project for which you have a project pool, you can deduct for that year the sum of the pool’s closing pool value for the previous income year and any *project amounts allocated to the pool for the income year.

Your assessable income for that income year includes any amount you receive for the abandonment, sale or other disposal.

Your assessable income for an income year includes other capital amounts that you *derive in that year in relation to a project amount allocated to your project pool or in relation to something on which the project amount is expended.

(7) The closing pool value of a project pool for an income year is:

for the first income year that a project amount is allocated to the pool—the sum of the project amounts allocated to the pool for that year less the amount you could deduct for the pool for that year (apart from section 40-835); or

for a later income year—the sum of the pool’s closing pool value for the previous income year and any project amounts allocated to the pool for the later year less the amount you could deduct for the pool for the later year (apart from section 40-835).

Your deduction for an income year cannot be more than the amount of the component “pool value” in the formula in subsection (3) for that year.

You calculate your deduction for an income year for a project pool in this way if the project pool contains only *project amounts incurred on or after 10 May 2006 for projects that start to operate on or after that day:

where:

DV project pool life has the same meaning as in subsection 40-830(3).

pool value has the same meaning as in subsection 40-830(3).

If, in an income year, you abandon, sell or otherwise dispose of a project for which you have a project pool, you can deduct for that year the sum of the pool’s closing pool value for the previous income year and any *project amounts allocated to the pool for the income year.

Your assessable income for that income year includes any amount you receive for the abandonment, sale or other disposal.

Your assessable income for an income year includes other capital amounts that you *derive in that year in relation to a project amount allocated to your project pool or in relation to something on which the project amount is expended.

Your deduction for an income year cannot be more than the amount of the component “pool value” in the formula in subsection (1) for that year.

You must reduce your deduction under section 40-830 or 40-832 for an income year by a reasonable amount for the extent (if any) to which the project operates in the year for purposes other than *taxable purposes.

Note: If Division 250 applies to you and an asset:

if section 250-150 applies—you are taken not to be using the asset for taxable purposes to the extent specified under subsection 250-150(3); or

otherwise—you are taken not to be using the asset for such purposes.

(1) An amount of *mining capital expenditure or *transport capital expenditure you incur is a project amount if:

it does not form part of the *cost of a depreciating asset you *hold or held; and

you cannot deduct it under a provision of this Act outside this Subdivision; and

it is directly connected with:

for mining capital expenditure—carrying on the mining and quarrying operations in relation to which the expenditure is incurred; or

for transport capital expenditure—carrying on the business in relation to which the expenditure is incurred.

(2) Another amount of capital expenditure you incur is also a project amount so far as:

it does not form part of the *cost of a depreciating asset you *hold or held; and

you cannot deduct it under a provision of this Act outside this Subdivision; and

it is directly connected with a project you carry on or propose to carry on for a taxable purpose; and

it is one of these:

an amount paid to create or upgrade community infrastructure for a community associated with the project; or

an amount incurred for site preparation costs for depreciating assets (except, for *horticultural plants, in draining swamp or low-lying land or in clearing land); or

an amount incurred for feasibility studies for the project; or

an amount incurred for environmental assessments for the project; or

an amount incurred to obtain information associated with the project; or

an amount incurred in seeking to obtain a right to *intellectual property; or

an amount incurred for ornamental trees or shrubs.

You work out the project life of a project by estimating how long (in years, including fractions of years) it will be from when the project starts to operate until it stops operating.

You start to deduct amounts for a project pool for the first income year when the project starts to operate.

(1) Mining capital expenditure is capital expenditure you incur:

in carrying on mining and quarrying operations; or

in preparing a site for those operations; or

on buildings or other improvements necessary for you to carry on those operations; or

in providing, or in contributing to the cost of providing:

water, light or power for use on the site of those operations; or

access to, or communications with, the site of those operations; or

on buildings for use directly in connection with operating or maintaining plant that is primarily and principally for *treating *minerals, or quarry materials, that you obtain by carrying on such operations; or

on buildings or other improvements for use directly in connection with storing minerals or quarry materials or to facilitate minerals treatment of them (whether the storage happens before or after the treatment).

(2) Capital expenditure you incur on *housing and welfare in carrying on *mining and quarrying operations (except quarrying operations) is also mining capital expenditure, but only if:

for residential accommodation—the accommodation is provided by you, on or adjacent to a site where you carry on those operations, for the use of:

your employees, or someone else’s employees, who are employed or engaged in those operations, or in operations of yours that are connected with those operations; or

dependants of such employees; or

for health, education, recreation or other similar facilities, or facilities for meals—the facilities:

are on or adjacent to a site where you carry on those operations, and are principally for the benefit of the employees or dependants covered by paragraph (a); and

are not run for profit by any person, except in the case of facilities for meals (which may be run for profit); or

in the case of works, including works for providing water, light, power, access or communications—the works are carried out directly in connection with the accommodation or facilities covered by this section.

(3) However, expenditure on these is not mining capital expenditure:

railway lines, roads, pipelines or other facilities, for use wholly or partly for transporting *minerals or quarry materials, or their products, other than facilities used for transport wholly within the site of mining and quarrying operations you carry on;

works carried out in connection with, or buildings or other improvements constructed or acquired for use in connection with, establishing, operating or using a port facility or other facility for ships;

an office building that is not at or adjacent to the site of mining and quarrying operations you carry on;

*housing and welfare in relation to quarrying operations.

(1) Transport capital expenditure is capital expenditure you incur, in carrying on a *business for a *taxable purpose, on:

a transport facility; or

obtaining a right to construct or install a transport facility, or part of one, on land owned or leased by another entity or in an area referred to in subsection 960-505(2) (about offshore areas and installations); or

paying compensation for any damage or loss caused by constructing or installing a transport facility or part of one; or

earthworks, bridges, tunnels or cuttings that are necessary for a transport facility.

(2) Transport capital expenditure also includes capital expenditure you incur, in carrying on a *business for a *taxable purpose, by way of contribution to:

someone else’s capital expenditure on a transport facility or on anything else covered by a paragraph of subsection (1); or

an *exempt Australian government agency’s capital expenditure on railway rolling-stock.

(3) Transport capital expenditure does not include expenditure on:

road vehicles or ships; or

railway rolling-stock; or

(c) a thing covered by the definition of housing and welfare; or

works for providing water, light or power, in connection with a port facility or other facility for ships;

and does not include expenditure by way of contribution to that expenditure (except expenditure by way of contribution to an *exempt Australian government agency’s capital expenditure on railway rolling-stock).

(1) A transport facility is a railway, a road, a pipe-line, a port facility or other facility for ships, or another facility, that is used primarily and principally for transport of:

*minerals or quarry materials obtained by any entity in carrying on mining and quarrying operations; or

processed minerals produced from minerals or quarry materials.

(2) However, a facility used for these is not a transport facility:

transport wholly within the site of mining and quarrying operations;

transport of petroleum:

that has been treated at a refinery; or

that forms part of a system of reticulation to consumers; or

to a particular consumer or consumers.

(1) Processed minerals are any of the following:

materials resulting from minerals treatment of *minerals or quarry materials (except petroleum);

materials resulting from sintering or calcining;

pellets or other agglomerated forms of iron;

alumina and blister copper.

(2) Minerals treatment means:

cleaning, leaching, crushing, grinding, breaking, screening, grading or sizing; or

concentration by a gravity, magnetic, electrostatic or flotation process; or

any other treatment:

that is applied to *minerals, or to quarry materials, before that concentration; or

for a mineral or materials not requiring that concentration, that would, if the mineral or materials had required concentration, have been applied before the concentration;

but does not include:

sintering or calcining; or

producing alumina, or pellets or other agglomerated forms of iron, or processing connected with such production.

Object

The object of this section is to make certain business capital expenditure deductible over 5 years, or immediately in the case of some start-up expenses for small businesses, if:

the expenditure is not otherwise taken into account; and

a deduction is not denied by some other provision; and

the business is, was or is proposed to be carried on for a taxable purpose.

Note: If Division 250 applies to you and an asset:

if section 250-150 applies—you cannot deduct an amount for capital expenditure you incur in relation to the asset to the extent specified under subsection 250-150(3); or

otherwise—you cannot deduct an amount for such expenditure.

Deduction

You can deduct, in equal proportions over a period of 5 income years starting in the year in which you incur it, capital expenditure you incur:

in relation to your business; or

in relation to a business that used to be carried on; or

in relation to a business proposed to be carried on; or

to liquidate or deregister a company of which you were a *member, to wind up a partnership of which you were a partner or to wind up a trust of which you were a beneficiary, that carried on a business.

However, you can deduct the capital expenditure in the income year in which you incur it if:

the expenditure is incurred in relation to a business that is proposed to be carried on; and

the expenditure is incurred:

in obtaining advice or services relating to the proposed structure, or proposed operation of the business; or

in payment to an *Australian government agency of fees, taxes or charges relating to establishing the business or its operating structure; and

you are a small business entity, or an entity covered by subsection (2B), for the income year, or both of the following apply:

you are not carrying on a business in the income year;

you are not *connected with, or an affiliate of, another entity that carries on a business in the income year and that is neither a small business entity, nor an entity covered by subsection (2B), for the income year.

An entity is covered by this subsection for an income year if:

the entity is not a small business entity for the income year; and

the entity would be a small business entity for the income year if:

each reference in Subdivision 328-C (about what is a small business entity) to $10 million were instead a reference to $50 million; and

the reference in paragraph 328-110(5)(b) to a small business entity were instead a reference to an entity covered by this subsection.

Limitations and exceptions

You can only deduct the expenditure, for a business that you carry on, used to carry on or propose to carry on, to the extent that the business is carried on, was carried on or is proposed to be carried on for a taxable purpose.

You can only deduct the expenditure, for a business that another entity used to carry on or proposes to carry on, to the extent that:

the business was carried on or is proposed to be carried on for a taxable purpose; and

the expenditure is in connection with:

your deriving assessable income from the business; and

the business that was carried on or is proposed to be carried on.

You cannot deduct anything under this section for an amount of expenditure you incur to the extent that:

it forms part of the *cost of a depreciating asset that you *hold, used to hold or will hold; or

you can deduct an amount for it under a provision of this Act other than this section; or

it forms part of the cost of land; or

it is in relation to a lease or other legal or equitable right; or

it would, apart from this section, be taken into account in working out:

a profit that is included in your assessable income (for example, under section 6-5 or 15-15); or

a loss that you can deduct (for example, under section 8-1 or 25-40); or

it could, apart from this section, be taken into account in working out the amount of a *capital gain or *capital loss from a CGT event; or

a provision of this Act other than this section would expressly make the expenditure non-deductible if it were not of a capital nature; or

a provision of this Act other than this section expressly prevents the expenditure being taken into account as described in paragraphs (a) to (f) for a reason other than the expenditure being of a capital nature; or

it is expenditure of a private or domestic nature; or

it is incurred in relation to gaining or producing exempt income or non-assessable non-exempt income.

The exceptions in paragraphs (5)(d) and (f) do not apply to expenditure you incur to preserve (but not enhance) the value of goodwill if the expenditure you incur is in relation to a legal or equitable right and the value to you of the right is solely attributable to the effect that the right has on goodwill.

You cannot deduct an amount under paragraph (2)(c) in relation to a business proposed to be carried on unless, having regard to any relevant circumstances, it is reasonable to conclude that the business is proposed to be carried on within a reasonable time.

You cannot deduct anything under this section for an amount of expenditure that, because of a market value substitution rule, was excluded from the *cost of a depreciating asset or the *cost base or reduced cost base of a *CGT asset.

Note: Some examples of market value substitution rules are subsection 40-180(2) (table item 8), subsection 40-190(3) (table item 1) and sections 40-765 and 112-20.

You cannot deduct anything under this section for an amount of expenditure you incur:

by way of returning an amount you have received (except to the extent that the amount was included in your assessable income or taken into account in working out an amount so included); or

to the extent that, for another entity, the amount is a *return on or of:

an *equity interest; or

a *debt interest that is an obligation of yours.

If you incurred capital expenditure, or received an amount, under an arrangement and:

there is at least one other party to the arrangement with whom you did not deal at *arm’s length; and

apart from this section:

the amount of the expenditure would be more than the *market value of what it was for; or

the amount you received would be less than the market value of what it was for;

the amount of expenditure, or the amount received, you take into account under this Subdivision is that market value.

You can deduct amounts for capital expenditure incurred for establishing trees that meet the requirements for constituting a carbon sink forest.

Table of sections

Operative provisions

40-1005 Deduction for expenditure for establishing trees in carbon sink forests

40-1010 Expenditure for establishing trees in carbon sink forests

40-1015 Carbon sequestration by trees

40-1020 Certain expenditure disregarded

40-1025 Non-arm’s length transactions

40-1030 Extra deduction for destruction of trees in carbon sink forest

40-1035 Getting information if you acquire a carbon sink forest

Operative provisions

You can deduct an amount for an income year if:

you or another entity incurred capital expenditure that is covered under section 40-1010 in relation to particular trees; and

you satisfy a condition in subsection (5) for the trees for at least part of the income year; and

you are carrying on a business in the income year; and

you use the land occupied by the trees for the primary and principal purpose of carbon sequestration by the trees (see section 40-1015); and

your purposes in using the land occupied by the trees do not include any of the following:

felling the trees;

using the trees for commercial horticulture; and

you do not use the land in connection with:

a managed investment scheme; or

a forestry managed investment scheme.

The amount of the deduction is worked out under this formula:

where:

establishment expenditure is the amount of expenditure mentioned in subsection (1).

write-off days in income year is the number of days in the income year:

that occur within the period:

starting on the first day of the income year in which the trees are established; and

ending 14 years and 105 days after that day; and

on which you use the land occupied by the trees for the primary and principal purpose of carbon sequestration by the trees; and

on which you satisfy a condition in subsection (5) for the trees.

write-off rate is 7%.

You cannot deduct more in total than the amount of capital expenditure incurred for establishing the trees up to the time at which they are established.

The conditions are as follows:

Expenditure is covered under this section in relation to particular trees if:

the trees are established in an income year; and

you incur or another entity incurs the expenditure in the income year or an earlier income year for establishing the trees; and

(c) the entity incurring the expenditure (the establishing entity) is carrying on a *business in the income year; and

the establishing entity’s primary and principal purpose for establishing the trees is carbon sequestration by the trees (see section 40-1015); and

the establishing entity’s purposes for establishing the trees do not include any of the following:

felling the trees;

using the trees for commercial horticulture; and

the establishing entity does not incur the expenditure under:

a managed investment scheme; or

a forestry managed investment scheme; and

all of the conditions in subsection (2) are satisfied for the trees; and

the establishing entity gives the Commissioner, in accordance with subsection (4), a statement that:

sets out all information necessary to determine whether all of the conditions in subsection (2) are satisfied for the trees; and

is in the approved form.

The conditions are as follows:

at the end of the income year, the trees occupy a continuous land area in Australia of 0.2 hectares or more;

at the time the trees are established, it is more likely than not that they will:

attain a crown cover of 20% or more; and