Guide to depreciating assets 2013 - Australian Taxation Office

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As a general rule, the table of effective lives accompanyingTaxation Ruling IT 2685 should be used only for depreciatingassets:n acquired under a contract entered inton otherwise acquired, orn started to be constructed before 1 January 2001.Taxation Ruling IT 2685 contains depreciation rates(accelerated rates and broadbanded rates) which you shoulduse only for plant that was acquired before 11.45am (by legaltime in the ACT) on 21 September 1999 or by certain smallbusiness taxpayers before 1 July 2001; see Accelerateddepreciation on page 8.For an extract from Taxation Ruling TR 2012/2 showing theeffective lives of some commonly used depreciating assets,see Examples of effective lives from Taxation RulingTR 2012/2 (from 1 July 2012), on page 37.Statutory caps on the Commissioner’sdetermination of effective lifeFrom 1 July 2002 there are statutory caps on theCommissioner’s determined effective life for certaindepreciating assets. This means if you choose to use theCommissioner’s determination of effective life for an asset witha capped life, you must use the capped life if it is shorter thanthe Commissioner’s determination.Assets with capped lives include aeroplanes; helicopters;certain shipping vessels, certain buses, light commercialvehicles, trucks and trailers; and certain assets used in the oiland gas industries. For more information, see Taxation RulingTR 2012/2.From the 2012/13 income year, there are also statutory capson certain eligible shipping vessels. For more information,refer to the 2013 effective life of depreciating assets ruling,expected to be published in late June 2013, or the Tax LawsAmendment (Shipping Reform) Act 2012 and the ShippingReform (Tax Incentives) Act 2012.Effective life of intangible depreciating assetsThe effective life of most intangible depreciating assets isprescribed under the UCA.AssetEffective life in years1 Standard patent 202 Innovation patent 83 Petty patent 64 Registered design 155 Copyright (exceptcopyright in a film)6 A licence (except onerelating to a copyrightor in‐house software)7 A licence relating toa copyright (exceptcopyright in a film)The shorter of 25 yearsfrom when you acquireit or the period until thecopyright endsThe term of the licenceThe shorter of 25 yearsfrom when you become thelicensee or the period untilthe licence ends8 In-house software 4*9 Spectrum licence The term of the licenceAsset10 Datacasting transmitterlicence11 Telecommunications siteaccess right* See In‐house software on page 24 for more informationEffective life in years15The term of the rightYou do not have the choice of either working out theeffective life yourself or using an effective life determinedby the Commissioner for the intangible depreciating assetsin the table above and other intangible depreciating assets.In addition, the effective life of these depreciating assetscannot be recalculated.The effective life of an indefeasible right to use atelecommunications cable system is the effective life of thetelecommunications cable over which the right is granted.The effective life of any other intangible depreciating assetcannot be longer than the term of the asset as extended byany reasonably assured extension or renewal of that term.If you acquire any of the intangible assets listed in the abovetable (except items 5, 7 or 8) from a former holder and youchoose to calculate the asset’s decline in value using theprime cost method, in the formula you must use the numberof years remaining in that effective life at the start of theincome year you acquired the asset, not the effective lifeshown in the table.Effective life of intangible depreciating assetsthat are mining, quarrying or prospecting rightsThe effective life of a mining, quarrying or prospecting right isprovided in the table below:AssetA mining, quarrying orprospecting right relating tomining operations (exceptobtaining petroleum orquarry materials)A mining, quarrying orprospecting right relatingto mining operations toobtain petroleumA mining, quarrying orprospecting right relatingto mining operations toobtain quarry materialsEffective life in yearsThe life of the mine orproposed mine or, if there ismore than one, the life of themine that has the longest lifeThe life of the petroleum fieldor proposed petroleum fieldThe life of the quarry orproposed quarry or, if thereis more than one, the lifeof the quarry that has thelongest estimated lifeIf you acquire a mining, quarrying or prospecting right listedin the above table, you will need to work out the effective lifeyourself. You will do this by estimating the period until the endof the life of the mine or proposed mine to which the rightrelates or, if there is more than one such mine, the life of themine that has the longest estimated life.You will have a choice of using either the prime cost ordiminishing value method to work out the decline in valueof the mining, quarrying or prospecting right.You will also be able to recalculate the effective life of themining, quarrying or prospecting right if there are changedcircumstances.12 ato.gov.au GUIDE TO DEPRECIATING ASSETS 2013
Some examples of circumstances that could cause a variationinclude:n a considerable structural price change for the mineralbeing extracted which leads to the mine’s prematurepermanent closuren previously uneconomically mineable geologies becomingeconomically mineablen a noticeable improvement in extraction methods or transportarrangements from the mine which leads to faster extractionof the mineral and a consequential shortening of theremaining life of the minen new information becoming available as a result of furtherexploration or prospecting on the mining tenement as tothe presence of minerals likely to be recoverable which leadsto an increase in the remaining life of the mine, orn a change to the accepted industry practice that affects theestimation of the life of the mine.Choice of recalculating effective lifeYou may choose to recalculate the effective life of adepreciating asset if the effective life you have been usingis no longer accurate because the circumstances relatingto the nature of the asset’s use have changed.You can recalculate an asset’s effective life each time thosecircumstances change. It can be done in any income yearafter the one in which the asset’s start time occurs, andwhether you worked out the previous effective life yourself oryou used the effective life determined by the Commissioner.Some examples of changed circumstances relating to thenature of the use of an asset are:n your use of the asset turns out to be more or less rigorousthan expectedn there is a downturn in the demand for the goods or servicesthat the asset is used to produce that will result in the assetbeing scrappedn legislation prevents the asset’s continued usen changes in technology make the asset redundant, orn there is an unexpected demand, or lack of success, for a film.You cannot choose to recalculate the effective life of anydepreciating asset for which you:n used accelerated rates of depreciation before 1 July 2001;see Accelerated depreciation on page 8, orn could have used accelerated rates of depreciationbefore 1 July 2001 if you had used the asset to produceassessable income or had it installed ready for that use.In addition, the effective life of certain intangible depreciatingassets cannot be recalculated; see Effective life of intangibledepreciating assets on the previous page.Requirement to recalculate effective lifeIn some circumstances, you must recalculate the effective lifeof a depreciating asset.You must recalculate the effective life of a depreciating assetif its cost is increased by 10% or more in an income year afterthe one in which its start time occurs and you either:n worked out the effective life of the asset yourself, orn used the Commissioner’s determination of effective life (ora capped life) and the prime cost method to work out theasset’s decline in value.Even though you may be required to recalculate the effectivelife of an asset, you may conclude that the effective liferemains the same.You may also be required to recalculate the effective life ofa depreciating asset:n which you acquired from an associate who claimed orcould have claimed deductions for the asset’s declinein value; see Depreciating asset acquired from anassociate on page 9, orn for which you became the holder, where the user of theasset does not change or is an associate of the former user,for example, under a sale and leaseback arrangement; seeSale and leaseback arrangements on page 9.How to recalculate effective lifeYou work out the recalculated effective life from thedepreciating asset’s start time. You use the same principlesto recalculate the effective life of a depreciating asset thatyou would to work out the original effective life yourself;see Working out the effective life yourself on page 11.Effect of recalculating effective lifeIf you recalculate the effective life of a depreciating asset, thenew effective life starts to apply for the income year for whichyou make the recalculation.If you are using the diminishing value method to work outthe decline in value of a depreciating asset, you use the newestimate of effective life in the formula as the asset’s effectivelife. Under the prime cost method, you must use the adjustedprime cost formula from the year for which you recalculate theasset’s effective life; see Methods of working out declinein value on page 6 for information about the adjusted primecost formula.DEPRECIATING ASSETS AND TAXATIONOF FINANCIAL ARRANGEMENTS (TOFA)The key provisions of the TOFA rules are found in Division 230of the Income Tax Assessment Act 1997.When do the TOFA rules start to apply to you?If the TOFA rules apply to you, they will apply to the financialarrangements that you start to have from the beginning of yourincome year commencing on or after 1 July 2010 (unless youelected for the rules to apply a year earlier).Do the TOFA rules apply to you?The TOFA rules will apply to you if you are:n an authorised deposit-taking institution, securitisationvehicle or financial sector entity with an aggregated annualturnover of $20 million or moren a superannuation entity, approved deposit fund, pooledsuperannuation fund, managed investment scheme or entitywith a similar status under foreign law relating to foreignregulation, with assets of $100 million or moren any other entity (other than an individual) which satisfiesone or more of the following– an aggregated turnover of $100 million or more– assets of $300 million or more– financial assets of $100 million or more.GUIDE TO DEPRECIATING ASSETS 2013 ato.gov.au 13
Page 1 and 2: Guide for taxpayers with depreciati
Page 3 and 4: CONTENTSAbout this guide 2Abbreviat
Page 5: THE UNIFORM CAPITAL ALLOWANCE SYSTE
Page 8 and 9: use it for a taxable purpose, you n
Page 10 and 11: Accelerated depreciationFor plant a
Page 12 and 13: Used mainly to produce non-business
Page 16 and 17: If you do not meet these requiremen
Page 18 and 19: Similar rules apply to the second e
Page 20 and 21: There are situations where these ge
Page 22 and 23: EXAMPLE: Sale of a depreciating ass
Page 24 and 25: Limited recourse debt arrangementsI
Page 26 and 27: The closing balance of a low-value
Page 28 and 29: value or claim the immediate deduct
Page 30 and 31: CAPITAL EXPENDITUREDEDUCTIBLE UNDER
Page 32 and 33: A recoupment of the expenditure may
Page 34 and 35: of feasibility studies, market rese
Page 36 and 37: Example: the amount of the deductio
Page 38 and 39: The opening adjustable value of an
Page 40 and 41: Accelerated rates of depreciationYo
Page 42 and 43: WORKSHEET 2: LOW-VALUE POOLDescript
Page 44: Guide to depreciating assets 2013

Guide to depreciating assets 2013 - Australian Taxation Office

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