Private ruling: Deductions
Date of advice: 20 May 2026
Published: 3 August 2026
Ruling period: Income year ended 30 June 2xxx

Ruling: Q1: Are the Second-Hand Assets (fodder storage assets, water facilities and fencing assets) purchased as part of a property purchase, classified as depreciating assets under section 40-30 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Are the Second-Hand Assets deductible by a Small Business Entity (SBE) using the simplified depreciation rules under section 328-185 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: 1. The Taxpayer purchased an agricultural property in the income year ended 30 June 2xxx. 2. The Taxpayer is a small business entity. 3. The property included fodder storage assets, water facilities and fencing assets (Second-Hand Assets). 4. The sale contract for the property includes these assets but is silent on the allocation or identification of plant and equipment. 5. The Taxpayer cannot prove that no other entity has deducted (or can deduct) an amount for the Second-Hand Assets. Assumptions 6. The Taxpayer is running a primary production business in the income year ended 30 June 2xxx. 7. The Taxpayer's aggregate turnover for the income year ended 30 June 2xxx and previous income year was less than $X. 8. Deductions under Subdivision 40-F of the ITAA 1997 are not available for the Second-Hand Assets.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 Subdivision 40-F | Income Tax Assessment Act 1997 Subdivision 40-G | Income Tax Assessment Act 1997 section 40-30 | Income Tax Assessment Act 1997 section 40-30(1) | Income Tax Assessment Act 1997 section 40-195 | Income Tax Assessment Act 1997 section 40-555 | Income Tax Assessment Act 1997 Subdivision 328-D | Income Tax Assessment Act 1997 section 328-175 | Income Tax Assessment Act 1997 section 328-175(1) | Income Tax Assessment Act 1997 section 328-175(2) | Income Tax Assessment Act 1997 section 328-175(3) | Income Tax Assessment Act 1997 section 328-175(4) | Income Tax Assessment Act 1997 section 328-175(5) | Income Tax Assessment Act 1997 section 328-175(6) | Income Tax Assessment Act 1997 section 328-175(7) | Income Tax Assessment Act 1997 section 328-175(8) | Income Tax Assessment Act 1997 section 328-175(9) | Income Tax Assessment Act 1997 section 328-175(9A) | Income Tax Assessment Act 1997 section 328-175(10) | Income Tax Assessment Act 1997 section 328-185 | Income Tax Assessment Act 1936 section 167 | Income Tax Assessment Act 1936 section 262A

Reasons for decision: Summary: The Second-Hand Assets acquired as part of the property purchase are depreciating assets for the purposes of section 40-30. | Detailed Reasoning - Detailed reasoning: 1. Subsection 40-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997) broadly defines a depreciating asset as 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, trading stock or an intangible asset. 2. It is expected that the Second-Hand Assets will have a limited effective life and can reasonably be expected to decline in value over the time they are used. They are not land, trading stock or intangible assets. Therefore, they are depreciating assets under subsection 40-30(1). | Summary: The Second-Hand Assets are deductible by the Taxpayer using the simplified depreciation rules under section 328-185. | Detailed Reasoning - Overview of the law - Subdivision 328-D: 3. Subdivision 328-D sets out the simplified depreciation rules for a small business entity (SBE). It is intended to: a. simplify calculations b. reduce compliance costs and c. provide accelerated depreciation for SBEs. 4. Subdivision 328-D operates as a standalone deprecation regime. Subdivision 328-D does not incorporate all limitations or denial rules that apply under Division 40 unless explicitly stated. | Detailed Reasoning - Core eligibility - section 328-175(1): 5. Subdivision 328-D applies if: a. the taxpayer is an SBE for the income year and b. the taxpayer starts to use the asset, or has it installed ready for use, for a taxable purpose. 6. Where both requirements are satisfied, the taxpayer may choose to apply Subdivision 328-D instead of Division 40 for that income year. | Detailed Reasoning - Assets to which Subdivision 328-D does not apply - section 328-175(2)-(10): 7. Subdivision 328-D does not apply to specific categories of assets expressly excluded by section 328-175, including: a. assets excluded from Division 40 (subsection 328-175(2)) b. horticultural plants (subsection 328-175(5)) c. assets subject to depreciating asset leases (subsection 328-175(6)) d. assets already allocated to a low-value or software development pool (subsection 328-175(7)) e. R&D assets where a tax offset was claimed in (subsection 328-175(9)) and f. second-hand assets in residential property caught by section 40-27 (subsection 328-175(9A)). | Detailed Reasoning - Interaction with primary production provisions - section 328-175(3): 8. Subsection 328-175(3) concerns depreciating assets used in a primary production business that would otherwise fall within: a. subdivision 40-F (primary production depreciating assets) or b. subdivision 40-G (capital expenditure of primary producers and landholders). 9. This provision gives an SBE an asset-by-asset choice between: a. applying the primary production depreciation provisions in Subdivision 40-F or 40-G or b. applying the simplified depreciation rules in Subdivision 328-D. 10. Subsection 328-175(3) does not make eligibility under Divisions 40-F or 40-G a precondition to Subdivision 328-D applying. Rather, it preserves the availability of those provisions where an SBE would otherwise prefer to rely on them. 11. Where a deduction is unavailable under Subdivision 40-F (for example, because the asset is second-hand and section 40-555 applies), Subdivision 328-D may still apply, provided no exclusion in section 328-175 operates. | Detailed Reasoning - Application to your circumstances: 12. The Taxpayer is an SBE for the income year ended 30 June 20YY, satisfying section 328-175(1)(a). 13. The Second-Hand Assets are depreciating assets used in carrying on a primary production business and were installed ready for use for a taxable purpose, satisfying section 328-175(1)(b). 14. None of the exclusions in section 328-175(2)-(10) apply to: a. water facilities b. fencing c. fodder storage assets d. second-hand primary production assets or e. assets acquired as part of a non-itemised property purchase contract. 15. Although deductions under Subdivision 40-F are unavailable due to the assets being second-hand and the operation of section 40-555, this does not prevent the Taxpayer from claiming deductions under Subdivision 328-D. 16. Subdivision 328-D does not import the second-hand denial rules contained in Subdivision 40-F. All depreciating assets are deductible under Subdivision 328-D unless a specific exclusion in section 328-175 applies. 17. Therefore, the Second-Hand Assets are deductible under the simplified depreciation rules in Subdivision 328-D, including section 328-185. | Detailed Reasoning - Record-keeping and cost attribution: 18. Although Subdivision 328-D contains no specific substantiation provisions, the Taxpayer must satisfy the Commissioner that the amount of any deduction claimed is correct. | Detailed Reasoning - General record-keeping obligations - section 262A of the ITAA 1936: 19. Section 262A of the ITAA 1936 requires taxpayers to keep records that explain all transactions and acts relevant to their tax affairs. 20. In the depreciation context, this includes records evidencing: a. the existence of the depreciating assets b. their use for a taxable purpose c. their cost and d. the basis on which that cost was determined. | Detailed Reasoning - Undissected purchase price - ATO ID 2002/818: 21. Where multiple depreciating assets are acquired for a single undissected amount, section 40-195 of the ITAA 1997 requires the taxpayer to attribute to each asset the portion of the purchase price that is reasonably attributable to that asset. 22. ATO ID 2002/818 confirms that a reasonable method of attribution is to apportion the total purchase price among the depreciating assets based on their respective market values at the time of acquisition. 23. Where contract allocates consideration only to a class of assets or makes no allocation at all (as in this case), the taxpayer must make their own reasonable apportionment, having regard to evidence such as comparable market values, replacement costs, or expert valuation material. 24. The adjustable value of a depreciating asset does not necessarily equate to its market value, and the Commissioner will not accept arbitrary or unsupported allocations.