Private ruling: Small business entity depreciation
Published: August 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is a shed on your farm classed as 'plant' and therefore a depreciating asset for the purposes of Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Can the shed be included as a depreciable asset in the general small business pool under Subdivision 328 D of the ITAA 1997 in the year ended 30 June 2013? | A2: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 45-40 | Income Tax Assessment Act 1997 Section 40-45 | Income Tax Assessment Act 1997 Section 328-175 | Income Tax Assessment Act 1997 Section 328-185 | Income Tax Assessment Act 1997 Section 43-70 | Income Tax (Transitional Provisions) Act 1997 Section 328-200

Reasons for decision: Summary: The uniform capital allowance system in Division 40 of the ITAA 1997 replaced the deduction for depreciation of 'plant' which was previously available under former Division 42 of the ITAA 1997. However, the concept of 'plant' is still relevant to other provisions. In particular, the cost of plant is excluded from expenditure deductible under the capital works provisions of Division 43 of the ITAA 1997 and is therefore subject to the uniform capital allowances system. The definition of plant in section 40-45 includes: fences, dams, and other structural improvement, other than those used for domestic purposes, on land that is used for agricultural or pastoral operations. Therefore your shed which is used as a machinery workshop and for machinery storage in a primary production business would be considered plant and deductible under the uniform capital allowance system in Division 40 of the ITAA 1997. The Simplified Tax System (STS) was an optional system that began on 1 July 2001. Under that system there were simplified capital allowances (depreciation) rules, with an immediate write-off for depreciating assets costing less than $1,000, a general STS pool for items with an effective life of less than 25 years and a long life pool for assets with an effective life of 25 years or more. If an asset was a depreciating asset under Division 40, the rules in Subdivision 328 could apply for small business entities to that asset. Therefore potentially Subdivision 328 could apply to the shed. If you entered into STS prior to 1 July 2007, Subdivision 328-D automatically applied, therefore all of the depreciating assets should have been allocated to the relevant pool. There was a discretion for long life assets acquired before 1 July 2001 to be kept outside the pool. In your situation you have stated that you elected to go into the STS before the date the shed was erected, therefore the shed should have been included in your long life pool. From the 2012-13 income year amendments to the legislation in Subdivision 328-D allows small business entities to allocate depreciating assets costing $6,500 or more to the general small business pool and there is no longer a long life small business pool. There are transitional provisions in subsection 328-200(2) of the Income Tax (Transitional Provisions) Act 1997 , that allow for depreciating assets that had been allocated to your long life small business pool, to be treated as being allocated to your general small business pool. The closing pool balance of the long life pool for the 2011-12 income year (after taking into account any necessary adjustments) can be included in the opening balance of the general small business pool in the 2012-13 income year. Your shed should have been included in the long life small business pool and therefore it would now be eligible to be allocated to the general small business pool.

Relevant facts: You conduct a business as a primary producer. | You are a small business with a turnover of less than $2 million. | You erected a shed and it is used as a machinery workshop and for machinery storage as part of your business. | The shed had not been put in a long life pool but has been written off at a rate of 2.5% per annum. | You chose to apply the Simplified Tax System (STS) rules prior to the erection of the shed.