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2.

3 Capital allowances for depreciating assets (Div 40)


Cost
1st element: Expense incurred when TP starts to hold asset (s40-180)
2nd element: $ incurred to bring asset to present condition and location (s40-190)
-freight & delivery
-customs duty and other import levies
-cost of minor rearrangements within the relevant premises
Second element exclusions:
-$ incurred in demolishing existing plant (Mount Isa Mines)
-$ incurred in making structural alterations to building where P&E are housed
(may qualify for Div 43 capital works)

Calculation of
decline in value

Excludes:
-GST
-amts incurred before 1/07/2001 on dep asset that is not plant
-otherwise deductible s40-215
-amts deductible for mining/quarrying/information prospecting s40-80
-expenses not capital s40-220
Other rules:
-assets brought to partnership, cost=MV s40-180(2) Item 5
-asset acq > arms length value, cost=MV s40-180(2) Item 8
-amt taken to have paid usually MV for non-cash benefits s40-185
-car limit = $57009 s40-230
-when car acq @ discount via a trade-in disposed @ <MV, cost will increase by
the discount s40-225
-cost of depn assets are reasonably allocated when acquire in a lum with other
assets s40-195, s40-115, s40-205

Prime cost or
Prime Cost
diminishing value?
-choice made on an
item-by-item basis,
cannot be changed Diminishing value

-need to use for inhouse software, intellectual


property, spectrum license, datacasting
transmitter licence

Low value assets


Immediate deduction s40-80(2)
1) <$300;
2) Predominately used for nonbusiness income (eg salary);
3) Not part of a set of assets with total
cost >$300; AND
4) Not acq with any other substantially
identical assets with total cost >$300

Change effective life s40-110


-no longer accurate due to change in nature
of use of asset
-cost increase by 10% (eg improvements)
-where there are shorter capped effective
useful lives per commissioners det
*could not be changed before 21/09/99

Start Time
When asset is first used or installed
ready for use for any purpose
**tax deduction only available for
taxable purposes need to apportion

Business capital expenditures s40-880


Conditions
-business capital expenditure was or proposed for
taxable purpose s40-880(3)
-5yr deduction available s40-880(2), beginning at time
expenditure was incurred
Types of deductions:
- establish your bus structure
- convert your bus structure into a diff structure
-raise equity
-defend from takeover
-costs to bus of unsuccessfully attempting a takeover
-stop carrying on your business
-liquidation/deregistration costs
-feasibility studies/market research

CGT and Capital Allowance Regime


Rates for software development
pools

Low cost assets (18.75%)


-<$1000
- if election made, need to
pool all low cost assets
Low Value Pool

Yes
Low value assets (37.5%)
-declined in value under
diminishing value with
WDV<$1000
-allocated on item-by-item basis
(no need to pool everything)

Add to LVP
-depreciate o/bal @ 37.5%
-add only proportion for taxable
purpose (% cannot be adjusted later)
Disposal
-deduct termination value from pool
(adj for taxable purpose %)

CGT event K7 s104-235


-capital gains/losses when depn
asset used for purposes other than a
taxable purpose

Calculation
Formula for CG and CL below.
Balancing adj = decline in value for taxable
purpose (if TV>cost) s40-285(1)
*refer to CLP98 for worked example

Capital gain

STS taxpayers
Write-off General STSP
Criteria
<$1000 <25 yrs UL
O/bal
100%
30%
Additions
15%

Effective Life
1) Self-assess assuming it was kept
in good working condition s40-105
or
2) Commissioners determination
s40-100
*refer to s40-95(7) for intangibles

Long-life STSP
>=25 yrs UL
5%
2.50%

Exceptions to STS regime s328-175


1) Primary producers
can chose
STS, 40-F or 40-G
2) Buildings
excl unless qualifies for
Div 40
3) Leases
excl under subdiv 328-D
4) LVP and software dev pools

Capital loss

Ken Choi 2007