Income Tax Assessment Act 1997

s 40-335 — Deduction for in ‑ house software where you will never use it

(1) You can deduct expenditure you incurred on * in ‑ house software if: (a) you incurred the expenditure with the intention of using the software for a * taxable purpose; and (b) the expenditure relates to a unit of software that you have not used or had * installed ready for use; and (c) the expenditure is not allocated to a software development pool (see Subdivision 40 ‑ E); and (d) in the * current year, you have decided that you will never use the software, or have it installed ready for use. (2) 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 (b) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 40-340 — Roll ‑ over relief

Automatic roll ‑ over relief (1) 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 (b) the disposal involves a * CGT event; and (c) the conditions in an item in this table are satisfied. CGT roll ‑ overs that qualify transferor for relief Item Type of CGT roll ‑ over Conditions 1 Disposal of asset to wholly ‑ owned company The transferor is able to choose a roll ‑ over under Subdivision 122 ‑ A for the * CGT event. 2 Disposal of asset by partnership to wholly ‑ owned company The transferor is a partnership, the property is partnership property and the partners are able to choose a roll ‑ over under Subdivision 122 ‑ B for the disposal by the partners of the * CGT assets consisting of their interests in the property. 2A Transfer of a * CGT asset of a trust to a company under a trust restructure The transferor and transferee are able to choose a roll ‑ over under Subdivision 124 ‑ N for the * CGT event. 3 Marriage or relationship breakdown There is a roll ‑ over under Subdivision 126 ‑ A for the * CGT event. 4 Disposal of asset to another member of the same wholly ‑ owned group The transferor is able to choose a roll ‑ over under Subdivision 126 ‑ B for the * CGT event. 5 * Disposal of asset between certain trusts The trustees of the trusts choose to obtain a roll ‑ over under Subdivision 126 ‑ G in relation to the disposal. 6 Disposal of asset as part of merger of superannuation funds The transferor chooses a roll ‑ over under Subdivision 310 ‑ D in relation to the disposal. 8 Transfer of asset under a small business restructure roll ‑ over A roll ‑ over under Subdivision 328 ‑ G would be available in relation to the asset if the asset were not a * depreciating asset. 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). (2) 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: (a) an exemption in Division 118 (which contains the general exemptions from CGT); and (b) subsection 122 ‑ 25(3) (which excludes certain assets from some kinds of CGT roll ‑ over); and (c) subsection 124 ‑ 870(5) (which excludes certain assets from roll ‑ over relief under Subdivision 124 ‑ N). Choosing roll ‑ over relief (3) There is also roll ‑ over relief if: (a) 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. (4) The choice must: (a) be in writing; and (b) 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 (c) 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. (5) 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. (6) The transferor must keep the choice or a copy of it for 5 years after the * balancing adjustment event occurred. Penalty: 30 penalty units. (7) 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 (8) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 119 of 2002, effective s 4, Sch 1 (items 2–5, 8), Sch 2 and Sch 3 (item 100): 2 Dec 2002 (s 2(1) items 1, 2, 10) Sch 1 (items 6, 7): ( see Sch 10 (item 242) of Act No. 41, 2005) Sch 3 (items 4–78): 30 June 2001 (s 2(1) items 3–8) | Amended by No 20 of 2004, effective Schedule 6: 1 July 2000 Remainder: Royal Assent | Amended by No 41 of 2005, effective s. 4, Schedule 1 (items 1–11), Schedule 2 (items 1–9, 11), Schedule 3 (items 17–22), Schedule 6 (items 1–3, 5, 12–15, 17–28), Schedule 7, Schedule 10 (items 36–221, 271–273) and Schedule 11 (items 4, 5): Royal Assent Sch 10 (item 247): 28 Dec 2002 (s 2(1) item 9) Sch 10 (items 248, 259, 260): 24 Oct 2002 (s 2(1) items 10, 14, 15) Sch 10 (items 249, 250–257, 263, 264): 29 June 2002 (s 2(1) items 11, 12, 17) Sch 10 (item 258): 30 June 2000 (s 2(1) item 13) Sch 10 (items 261, 262): 1 July 2000 (s 2(1) item 16) | Amended by No 80 of 2007, effective 21 June 2007 | Amended by No 144 of 2008, effective Schedule 14 (items 59–96): 10 Dec 2008 | Amended by No 14 of 2009, effective Schedule 1, Schedule 4 (items 11–34, 52) and Schedule 5 (items 7–13): Royal Assent Schedule 5 (items 2, 3, 14): 29 Jan 2009 Schedule 5 (items 5, 6): 1 July 2011 | Amended by No 19 of 2010, effective Sch 1 (items 1–13, 16–20), Sch 3 (items 11, 12), Sch 4 (items 3–6) and Sch 5 (item 6): 24 Mar 2010 (s 2(1) items 2, 9, 11, 14) Sch 2 (items 1–11): 25 Mar 2010 (s 2(1) item 3) Sch 2 (items 12–26):repealed before commencing (s 2(1) item 4) Sch 3 (items 1, 2): 30 June 2000 (s 2(1) item 5) Sch 3 (items 4–8): 15 Mar 2007 (s 2(1) item 7) Sch 4 (items 1, 2): 4 June 2009 (s 2(1) item 10) Sch 5 (items 2, 3): 25 Feb 2009 (s 2(1) item 12) Sch 5 (items 4, 5): 1 July 2011 (s 2(1) item 13) | Amended by No 12 of 2012, effective s 4, Sch 2 (items 1–23), Sch 5 and Sch 6 (items 3–6, 11–20, 25, 26, 35–67, 74–83, 94–96, 117–142, 157–178, 183, 200–203, 214–217, 235–240, 248): 21 Mar 2012 (s 2(1) items 1, 3, 5, 6, 10, 14, 18, 19, 27, 31) Sch 6 (item 7): 1 July 2007 (s 2(1) item 7) Sch 6 (item 10): 1 July 2010 (s 2(1) item 9) Sch 6 (items 106–116): 22 Mar 2012 (s 2(1) items 16, 17) Sch 6 (item 143): 22 Jan 2013 (s 2(1) item 20) Sch 6 (items 146–148): never commenced (s 2(1) item 23) Sch 6 (items 179, 181): 3 Oct 2008 (s 2(1) items 28, 30) Sch 6 (item 180): 3 June 2010 (s 2(1) item 29) | Amended by No 89 of 2013, effective Sch 1 (items 1–13): 28 June 2013 (s 2(1) items 2–5) Sch 1 (items 14–25): 2 July 2019 (s 2(1) items 6–8) | Amended by No 21 of 2015, effective s 4 and Sch 6 (items 1, 2, 16–25, 73): 19 Mar 2015 (s 2(1) items 1, 7–11, 13) Sch 1 (items 1–17, 49), Sch 3 and Sch 7 (items 13–21): 20 Mar 2015 (s 2(1) items 2, 4, 15) Sch 4 (items 1–5, 9–17): 1 July 2015 (s 2(1) item 5) Sch 6 (items 51–59, 74–79): never commences (s 2(1) items 12, 14) | Amended by No 18 of 2016, effective 1 Apr 2016 (s 2(1) item 1) | Amended by No 94 of 2017, effective Sch 2: 1 Oct 2017 (s 2(1) item 2)

s 40-345 — What the roll ‑ over relief is

(1) Section 40 ‑ 285 does not apply to the * balancing adjustment event for the transferor. (2) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-350 — Additional consequences

(1) For the purposes of Division 45: (a) 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 (b) 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 (c) 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. (2) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 40-360 — Notice to allow transferee to work out how this Division applies

(1) This section applies if there is roll ‑ over relief because of subsection 40 ‑ 340(1). (2) 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. (3) 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. (4) The transferee must keep the notice until the end of 5 years after the earlier of these events: (a) the transferee disposes of the property; (b) the property is lost or destroyed. Penalty: 30 penalty units.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-362 — Roll ‑ over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012

Circumstances giving rise to roll ‑ over relief (1) 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: (i) applies to that day; and (ii) is not a * shipping exempt income certificate; and (c) 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 ): (i) 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 (e) 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 (2) The choice must: (a) be in writing; and (b) 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 (3) If there is roll ‑ over relief under this section: (a) subsection 40 ‑ 285(1) does not apply to the * balancing adjustment event in relation to the original vessel; and (b) an amount is included in your assessable income if the original vessel’s * termination value exceeds the sum of: (i) the original vessel’s * adjustable value just before the balancing adjustment event occurred; and (ii) the * cost of the other vessel (disregarding paragraph (3)(c)); and (c) for the purpose of applying this Act to the other vessel, its cost is reduced (but not below zero) by the difference between: (i) the original vessel’s termination value; and (ii) the original vessel’s adjustable value just before the balancing adjustment event occurred. (4) 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.

Amendment history: Inserted by No 57 of 2012, effective Schedules 1–3: Royal Assent

s 40-363 — Roll ‑ over relief for interest realignment arrangements

Circumstances giving rise to roll ‑ over relief (1) There is roll ‑ over relief if: (a) 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 (b) the asset is a * mining, quarrying or prospecting right; and (c) the disposal occurs under an * interest realignment arrangement; and (d) you choose to apply roll ‑ over relief in relation to the asset. Choosing to apply roll ‑ over relief (2) The choice must: (a) be in writing; and (b) 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 (3) If there is roll ‑ over relief under this section: (a) 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: (i) paragraph (a) of this subsection did not apply; and (ii) 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 (c) in working out the * cost of a mining, quarrying or prospecting right that you receive under the arrangement, if: (i) some or all of the cost consists of a * non ‑ cash benefit that you provide; and (ii) 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. (4) 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: (a) that is entered into between entities: (i) that are undertaking jointly, or propose to undertake jointly, a project for carrying out * mining and quarrying operations; and (ii) that each * holds one or more * mining, quarrying or prospecting rights relating to the project; and (b) under which those entities exchange (or agree to exchange), with the effect set out in subsection (6), parts of those rights; and (c) 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. (6) The effect referred to in paragraphs (5)(b) and (c) must be that, for each of those entities, the following are equal: (a) the entity’s percentage interest in the project; (b) 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. (7) For the purposes of subsection (6): (a) 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 (b) 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)).

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-364 — Interest realignment adjustments

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: (a) the amount of the adjustment; or (b) 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 (2) If an * interest realignment adjustment is provided by you or on your behalf: (a) 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 (b) 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. 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. Tax effects of the right to an interest realignment adjustment (3) 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. (4) 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. (5) The creation of a right to an * interest realignment adjustment does not cause * CGT event D1 or CGT event D3 to happen. (6) 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: (a) is provided under an * interest realignment arrangement to a party to the arrangement by or on behalf of another party to the arrangement; and (b) 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.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-365 — Involuntary disposals

(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. (2) You can only make this choice if you stop * holding the asset because: (a) the original asset is lost or destroyed; or (b) the original asset is compulsorily acquired by an * Australian government agency; or (c) 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 (d) you dispose of the original asset to an entity (other than a foreign government agency) in circumstances meeting all of these conditions: (i) the disposal takes place after a notice was served on you by or on behalf of the entity; (ii) the notice invited you to negotiate with the entity with a view to the entity acquiring the asset by agreement; (iii) the notice informed you that if the negotiations were unsuccessful, the asset would be compulsorily acquired by the entity; (iv) the compulsory acquisition would have been under a power of compulsory acquisition conferred by a law covered under subsection (2A); or (e) 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: (i) a mining lease was compulsorily granted over the land; (ii) the lease significantly affected your use of the land; (iii) the lease was in force just before the disposal; (iv) the entity to which you dispose of the land was the lessee under the lease; or (f) 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: (i) a mining lease would have been compulsorily granted over the land if you had not disposed of it; (ii) that lease would have significantly affected your use of the land; (iii) the entity to which you dispose of the land would have been the lessee under the lease. (2A) 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 ). (3) 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: (a) no earlier than one year, or within a further period the Commissioner allows, before the * balancing adjustment event occurred; and (b) 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. (4) You can only make this choice for a replacement asset if: (a) 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 (b) you can deduct an amount for it. (5) For the purposes of applying this Act to the replacement asset: (a) its * cost is reduced by the amount covered by the choice for the income year in which the asset’s * start time occurs; and (b) 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. (6) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 119 of 2002, effective s 4, Sch 1 (items 2–5, 8), Sch 2 and Sch 3 (item 100): 2 Dec 2002 (s 2(1) items 1, 2, 10) Sch 1 (items 6, 7): ( see Sch 10 (item 242) of Act No. 41, 2005) Sch 3 (items 4–78): 30 June 2001 (s 2(1) items 3–8) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 40-370 — Balancing adjustments where there has been use of different car expense methods

(1) An amount is included in your assessable income or you can deduct an amount under this section instead of section 40 ‑ 285 if: (a) a * balancing adjustment event occurs for a * car you * held; and (b) you have deducted or can deduct an amount for the decline in value of the car for an income year under this Division; and (c) 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. (2) 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. (3) 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. (4) In working out the reduction in step 2 for the income years for which you chose the “cents per kilometre method”, assume that: (a) you had not chosen that method for the * car; and (b) Division 28 (about car expenses) had not applied to the car; and (c) 20% was the extent of your use of the car for * taxable purposes.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 162 of 2015, effective Sch 1 (items 1–3, 21–46) and Sch 4 (items 2, 27): 30 Nov 2015 (s 2(1) items 2, 3, 6)

s 40-420 — What this Subdivision is about

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

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-425 — Allocating assets to a low ‑ value pool

(1) 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. (3) You may also choose to allocate a * low ‑ value asset to a low ‑ value pool. (4) You cannot allocate a * depreciating asset to a low ‑ value pool if: (a) its * cost does not exceed $300; and (b) you use the asset predominantly for the * purpose of producing assessable income that is not income from carrying on a * business; and (c) 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 (d) 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: (a) 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 (b) that has an * opening adjustable value for the current year of less than $1,000 (worked out using the diminishing value method); and (c) that is not a * low ‑ cost asset. (6) A * depreciating asset: (a) to which Division 58 (about assets previously owned by an exempt entity) applied for an entity sale situation; and (b) for which you used the * diminishing value method; and (c) 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 (7) 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 (7A) 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 (8) 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 (9) You cannot allocate a * depreciating asset to a low ‑ value pool if, at the time you: (a) started to use it; or (b) had it * installed ready for use; you reasonably expected to use it mainly for the purpose of gaining or producing your * assessable labour income.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 170 of 2001, effective Sch 2 (items 28–44, 51): 12 pm (A.C.T.) 29 Jan 2001 (s 2(2)) Sch 2 (items 69–84, 92): 30 June 2001 (s 2(3)) Sch 3 (items 11–13, 19(1)): 1 Oct 2001 (s 2(1)) | Amended by No 129 of 2004, effective Schedules 1 and 3: 1 Oct 2004 Remainder: Royal Assent | Amended by No 80 of 2007, effective 21 June 2007 | Amended by No 88 of 2009, effective s. 4, Schedule 3 (items 1, 5–23), Schedule 4 (items 2–5) and Schedule 5 (items 113–204, 237, 238, 258, 282, 319–341, 344): 18 Sept 2009 Schedule 2 (items 4–15, 25–27, 30, 31): 1 Oct 2009 Schedule 2 (item 23): 1 Jan 2010 | Amended by No 93 of 2011, effective Schedule 1, Schedule 3 (items 1–4, 15–42, 54–107) and Schedule 4 (items 1–9): Royal Assent | Amended by No 51 of 2019, effective Sch 1 (items 1–7) and Sch 2: 1 July 2019 (s 2(1) item 1) | Amended by No 22 of 2020, effective Sch 1 (items 1–14), Sch 2 (items 1–6) and Sch 4 (items 12–22): 25 Mar 2020 (s 2(1) items 2, 4) Sch 3 (items 1, 2): 24 Mar 2020 (s 2(1) item 3) | Amended by No 49 of 2026, effective sch 1 (items 1-51, 54-59, 64-79A, 82-84), sch 3, sch 4 (items 1-17): 1 July 2026 (s 2(1) items 2-4, 6) sch 2 (items 1-5): 27 June 2026 (s 2(1) item 5)

s 40-430 — Rules for assets in low ‑ value pools

(1) 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. (2) Once you allocate any * depreciating asset to a low ‑ value pool, it must remain in the pool.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 41 of 2005, effective s. 4, Schedule 1 (items 1–11), Schedule 2 (items 1–9, 11), Schedule 3 (items 17–22), Schedule 6 (items 1–3, 5, 12–15, 17–28), Schedule 7, Schedule 10 (items 36–221, 271–273) and Schedule 11 (items 4, 5): Royal Assent Sch 10 (item 247): 28 Dec 2002 (s 2(1) item 9) Sch 10 (items 248, 259, 260): 24 Oct 2002 (s 2(1) items 10, 14, 15) Sch 10 (items 249, 250–257, 263, 264): 29 June 2002 (s 2(1) items 11, 12, 17) Sch 10 (item 258): 30 June 2000 (s 2(1) item 13) Sch 10 (items 261, 262): 1 July 2000 (s 2(1) item 16) | Amended by No 80 of 2007, effective 21 June 2007

s 40-435 — Private or exempt use of assets

(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: (a) for a * low ‑ cost asset—its * effective life; or (b) 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. (2) For the purposes of subsection (1), disregard a * taxable purpose that is the * purpose of producing assessable income: (a) from the use of * residential premises to provide residential accommodation; but (b) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 126 of 2017, effective Sch 1 and 2: 1 Jan 2018 (s 2(1) item 2)

s 40-440 — How you work out the decline in value of assets in low ‑ value pools

(1) 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 18 3 / 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 18 3 / 4 % of the taxable use percentage of any amounts included in the second element of the * cost for that year of: (a) assets allocated to the pool for an earlier income year; and (b) * low ‑ value assets allocated to the pool for the * current year. Step 3. Add to the step 2 amount 37 1 / 2 % of the sum of: (a) the * closing pool balance for the previous income year; and (b) 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: (a) the * closing pool balance of the pool for the previous income year; and (b) the taxable use percentage of the * costs of * low ‑ cost assets you allocated to the pool for that year; and (c) 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 (d) the taxable use percentage of any amounts included in the second element of the cost for the income year of: (i) assets allocated to the pool for an earlier income year; and (ii) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-445 — Balancing adjustment events

(1) 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. (2) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-450 — Software development pools

(1) 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. (2) 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. (3) 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. (4) 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).

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-455 — How to work out your deduction

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: Deductions allowed for software development pool Column 1 Column 2 Item Income year Amount of expenditure you can deduct for that year 1 Year 1 Nil 2 Year 2 30% 3 Year 3 30% 4 Year 4 30% 5 Year 5 10%

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-460 — Your assessable income includes consideration for pooled software

(1) 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. (2) However, subsection (1) does not apply if subsection 40 ‑ 340(3) (roll ‑ over relief) applies to the change.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 40-510 — What this Subdivision is about

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

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 129 of 2004, effective Schedules 1 and 3: 1 Oct 2004 Remainder: Royal Assent | Amended by No 67 of 2015, effective Sch 1 (items 1–8) and Sch 2: 22 June 2015 (s 2(1) items 2, 5) Sch 1 (items 10–14): repealed before commencing (s 2(1) items 3, 4)

s 40-515 — Water facilities, horticultural plants, fodder storage assets and fencing assets

(1) 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) a * water facility; (b) a * horticultural plant; (c) a * fodder storage asset; (d) 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 (2) However, the applicable condition in section 40 ‑ 525 must be satisfied for the * depreciating asset. Limit on deduction (3) You cannot deduct more in total than: (a) 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 (b) for a * horticultural plant—the amount of capital expenditure incurred on the plant; or (c) for a * fodder storage asset—the amount of capital expenditure incurred on the asset; or (d) for a * fencing asset—the amount of capital expenditure incurred on the asset. Reduction of deduction: water facilities, fodder storage assets and fencing assets (4) 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: (a) not wholly used in carrying on a * primary production business on land in Australia; or (b) not wholly used for a * taxable purpose. (5) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 129 of 2004, effective Schedules 1 and 3: 1 Oct 2004 Remainder: Royal Assent | Amended by No 23 of 2005, effective s. 4, Schedule 1 (items 2–8, 11, 13–19, 21–24, 26, 27, 29–32), Schedule 2 (items 1–11, 14), Schedule 3 (items 1–13, 75–102, 111(1)–(3)), Schedules 4–6, 8, 10 and Schedule 12 (items 2–6, 11(1)): Royal Assent Schedule 12 (item 1): 1 July 2000 | Amended by No 88 of 2013, effective s 4, Sch 1 (items 1–18), Sch 3 and Sch 7 (items 200–210, 236–242): 28 June 2013 (s 2(1) items 1, 2, 5, 21, 26) Sch 1 (items 33, 34): 1 July 2013 (s 2(1) item 3) Sch 5 (items 1–5, 7–9) and Sch 6 (items 3–41, 50–65): 29 June 2013 (s 2(1) items 8, 9, 14) Sch 7 (items 1–4): 1 July 2012 (s 2(1) item 15) | Amended by No 67 of 2015, effective Sch 1 (items 1–8) and Sch 2: 22 June 2015 (s 2(1) items 2, 5) Sch 1 (items 10–14): repealed before commencing (s 2(1) items 3, 4) | Amended by No 123 of 2018, effective Sch 1: 1 Jan 2019 (s 2(1) item 2)

s 40-520 — Meaning of water facility , horticultural plant , fodder storage asset and fencing asset

(1) A water facility is: (a) * 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 (b) 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: (a) an asset or a structural improvement that is a fence; or (b) a repair of a capital nature, or an alteration, addition or extension, to a fence.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 23 of 2005, effective s. 4, Schedule 1 (items 2–8, 11, 13–19, 21–24, 26, 27, 29–32), Schedule 2 (items 1–11, 14), Schedule 3 (items 1–13, 75–102, 111(1)–(3)), Schedules 4–6, 8, 10 and Schedule 12 (items 2–6, 11(1)): Royal Assent Schedule 12 (item 1): 1 July 2000 | Amended by No 67 of 2015, effective Sch 1 (items 1–8) and Sch 2: 22 June 2015 (s 2(1) items 2, 5) Sch 1 (items 10–14): repealed before commencing (s 2(1) items 3, 4) | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9)

s 40-525 — Conditions

Water facilities (1) The capital expenditure you incurred on the construction, manufacture, installation or acquisition of the * water facility must have been incurred: (a) 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 (b) 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: (a) 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 (b) otherwise—the condition in this subsection is taken not to be satisfied for the facility. Horticultural plants (2) One of the conditions in this table must be satisfied: Conditions relating to horticultural plants Item Condition 1 You own the * horticultural plant and any holder of a lease, lesser interest or licence relating to the land does not carry on a * business of * horticulture on the land 2 The * horticultural plant is attached to land you hold under a lease, or a * quasi ‑ ownership right granted by an * exempt Australian government agency or an * exempt foreign government agency, and: (a) the lease or quasi ‑ ownership right enables you to carry on a * business of * horticulture on the land; and (b) any holder of a lesser interest or licence relating to the land does not carry on a * business of * horticulture on the land. 3 You: (a) hold a licence relating to the land to which the * horticultural plant is attached; and (b) carry on a * business of * horticulture on the land as a result of holding the licence. Note: If Division 250 applies to you and an asset that is a horticultural plant: (a) 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 (b) otherwise—the conditions in this subsection are taken not to be satisfied for the horticultural plant. Fodder storage assets (3) 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: (a) 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 (b) otherwise—the condition in this subsection is taken not to be satisfied for the asset. Fencing assets (4) 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: (a) 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 (b) otherwise—the condition in this subsection is taken not to be satisfied for the asset.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 129 of 2004, effective Schedules 1 and 3: 1 Oct 2004 Remainder: Royal Assent | Amended by No 23 of 2005, effective s. 4, Schedule 1 (items 2–8, 11, 13–19, 21–24, 26, 27, 29–32), Schedule 2 (items 1–11, 14), Schedule 3 (items 1–13, 75–102, 111(1)–(3)), Schedules 4–6, 8, 10 and Schedule 12 (items 2–6, 11(1)): Royal Assent Schedule 12 (item 1): 1 July 2000 | Amended by No 164 of 2007, effective s. 4, Schedule 1 (items 1–24, 36–67, 71), Schedules 2–6, Schedule 7 (items 1–3, 5–12, 14), Schedule 8 (items 6–13), Schedule 9 and Schedule 10 (items 1, 7–25, 91, 92): Royal Assent Schedule 10 (items 57–88): 1 July 2010 Sch 12 (items 72–87): 27 Sept 2007 (s 2(1) item 9) | Amended by No 67 of 2015, effective Sch 1 (items 1–8) and Sch 2: 22 June 2015 (s 2(1) items 2, 5) Sch 1 (items 10–14): repealed before commencing (s 2(1) items 3, 4) | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9)

s 40-530 — When declines in value start

(1) 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. (2) A * horticultural plant starts to decline in value in: (a) 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 (b) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 129 of 2004, effective Schedules 1 and 3: 1 Oct 2004 Remainder: Royal Assent | Repealed and substituted by No 67 of 2015, effective Sch 1 (items 1–8) and Sch 2: 22 June 2015 (s 2(1) items 2, 5) Sch 1 (items 10–14): repealed before commencing (s 2(1) items 3, 4)

s 40-535 — Meaning of horticulture and commercial horticulture

(1) Horticulture includes: (a) propagation and cultivation of a * horticultural plant in any environment (whether natural or artificial); and (b) propagation and cultivation of seeds, bulbs, spores and similar things; and (c) propagation and cultivation of fungi. (2) Use for commercial horticulture means use for the * purpose of producing assessable income in a * business of * horticulture.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-540 — How you work out the decline in value for water facilities

(1) 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. (2) However, disregard expenditure that you cannot deduct because of section 26 ‑ 100 (about water infrastructure improvement expenditure).

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 88 of 2013, effective s 4, Sch 1 (items 1–18), Sch 3 and Sch 7 (items 200–210, 236–242): 28 June 2013 (s 2(1) items 1, 2, 5, 21, 26) Sch 1 (items 33, 34): 1 July 2013 (s 2(1) item 3) Sch 5 (items 1–5, 7–9) and Sch 6 (items 3–41, 50–65): 29 June 2013 (s 2(1) items 8, 9, 14) Sch 7 (items 1–4): 1 July 2012 (s 2(1) item 15) | Repealed and substituted by No 67 of 2015, effective Sch 1 (items 1–8) and Sch 2: 22 June 2015 (s 2(1) items 2, 5) Sch 1 (items 10–14): repealed before commencing (s 2(1) items 3, 4)

s 40-545 — How you work out the decline in value for horticultural plants

(1) 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. (2) 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. Write ‑ off rate for horticultural plant Item Effective life of: The write ‑ off rate is: 1 3 to fewer than 5 years 40% 2 5 to fewer than 6 2 / 3 years 27% 3 6 2 / 3 to fewer than 10 years 20% 4 10 to fewer than 13 years 17% 5 13 to fewer than 30 years 13% 6 30 years or more 7% Limit on write ‑ off days (3) 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 (b) extends for the time shown in this table (depending on the plant’s * effective life). Period after which you cannot count use of horticultural plant Item Effective life: Time limit: 1 3 to fewer than 5 years 2 years and 183 days 2 5 to fewer than 6 2 / 3 years 3 years and 257 days 3 6 2 / 3 to fewer than 10 years 5 years 4 10 to fewer than 13 years 5 years and 323 days 5 13 to fewer than 30 years 7 years and 253 days 6 30 years or more 14 years and 105 days

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-548 — How you work out the decline in value for fodder storage assets

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.

Amendment history: Inserted by No 67 of 2015, effective Sch 1 (items 1–8) and Sch 2: 22 June 2015 (s 2(1) items 2, 5) Sch 1 (items 10–14): repealed before commencing (s 2(1) items 3, 4) | Repealed and substituted by No 123 of 2018, effective Sch 1: 1 Jan 2019 (s 2(1) item 2)

s 40-551 — How you work out the decline in value for fencing assets

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.

Amendment history: Inserted by No 67 of 2015, effective Sch 1 (items 1–8) and Sch 2: 22 June 2015 (s 2(1) items 2, 5) Sch 1 (items 10–14): repealed before commencing (s 2(1) items 3, 4)

s 40-555 — Amounts you cannot deduct

Water facilities (1) 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: (a) the construction or manufacture of the facility; or (b) 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 (3) In working out your deduction under this Subdivision for a * horticultural plant, disregard expenditure incurred: (a) in draining swamp or low ‑ lying land; or (b) in clearing land. Fodder storage assets (4) 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: (a) the construction or manufacture of the asset; or (b) 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 (5) 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: (a) the construction or manufacture of the fencing asset; or (b) 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. (6) 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). (7) 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) a stockyard or pen; or (b) a portable fence.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 129 of 2004, effective Schedules 1 and 3: 1 Oct 2004 Remainder: Royal Assent | Amended by No 23 of 2005, effective s. 4, Schedule 1 (items 2–8, 11, 13–19, 21–24, 26, 27, 29–32), Schedule 2 (items 1–11, 14), Schedule 3 (items 1–13, 75–102, 111(1)–(3)), Schedules 4–6, 8, 10 and Schedule 12 (items 2–6, 11(1)): Royal Assent Schedule 12 (item 1): 1 July 2000 | Amended by No 67 of 2015, effective Sch 1 (items 1–8) and Sch 2: 22 June 2015 (s 2(1) items 2, 5) Sch 1 (items 10–14): repealed before commencing (s 2(1) items 3, 4)

s 40-560 — Non ‑ arm’s length transactions

If you incurred capital expenditure under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm’s length; and (b) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-565 — Extra deduction for destruction of a horticultural plant

(1) 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. (2) 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: (a) starting when the plant could first be used for * commercial horticulture; and (b) 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: (a) the result from step 1; and (b) any amount you received (under an insurance policy or otherwise) for the destruction. The remaining amount (if any) is your deduction under subsection (1). (3) This deduction is in addition to any deduction for the income year under section 40 ‑ 545.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 129 of 2004, effective Schedules 1 and 3: 1 Oct 2004 Remainder: Royal Assent

s 40-570 — How this Subdivision applies to partners and partnerships

(1) 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. (2) For the purposes of this Subdivision, you are taken to have incurred during that income year: (a) the amount of the expenditure that the partners agreed you should bear; or (b) 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 .

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-575 — Getting tax information if you acquire a horticultural plant

(1) 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: (a) the amount of establishment expenditure for the plant; (b) 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. (2) The notice must: (a) be given within 60 days of your beginning to satisfy that condition; and (b) specify a period of at least 60 days within which the information must be given; and (c) 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 (3) 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 (4) If the entity to whom the notice is given is a partnership: (a) 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 (b) 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. (5) 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 (6) Only one notice can be given in relation to the same * horticultural plant.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 129 of 2004, effective Schedules 1 and 3: 1 Oct 2004 Remainder: Royal Assent

s 40-625 — What this Subdivision is about

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

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-630 — Landcare operations

(1) You can deduct capital expenditure you incur at a time in an income year on a * landcare operation for: (a) land in Australia you use at the time for carrying on a * primary production business; or (b) 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: (a) 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 (b) otherwise—you are taken not to be using the land for such a purpose. (1A) A * rural land irrigation water provider can deduct capital expenditure it incurs at a time in an income year on a * landcare operation for: (a) land in Australia that other entities use at the time for carrying on * primary production businesses; or (b) 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: (a) an * irrigation water provider; or (b) 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 (2) However, you cannot deduct an amount under this Subdivision for capital expenditure on * plant, except: (a) 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. (2A) 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 (2B) 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 (2C) 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 (3) 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) a * primary production business; or (b) a * business for the * purpose of producing assessable income from the use of rural land (except a business of * mining and quarrying operations). (4) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 23 of 2005, effective s. 4, Schedule 1 (items 2–8, 11, 13–19, 21–24, 26, 27, 29–32), Schedule 2 (items 1–11, 14), Schedule 3 (items 1–13, 75–102, 111(1)–(3)), Schedules 4–6, 8, 10 and Schedule 12 (items 2–6, 11(1)): Royal Assent Schedule 12 (item 1): 1 July 2000 | Amended by No 164 of 2007, effective s. 4, Schedule 1 (items 1–24, 36–67, 71), Schedules 2–6, Schedule 7 (items 1–3, 5–12, 14), Schedule 8 (items 6–13), Schedule 9 and Schedule 10 (items 1, 7–25, 91, 92): Royal Assent Schedule 10 (items 57–88): 1 July 2010 Sch 12 (items 72–87): 27 Sept 2007 (s 2(1) item 9) | Amended by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012 | Amended by No 14 of 2012, effective Sch 2 (items 11–16): never commenced (s 2(1) item 4) Sch 3 (items 7–85, 91): 1 July 2012 (s 2(1) items 5, 7) | Amended by No 84 of 2013, effective s 4, Sch 1 (items 2–9, 19–23), Sch 2, Sch 3, Sch 6 and Sch 8 (items 27–32): 28 June 2013 (s 2(1) items 1, 2, 4) | Amended by No 96 of 2014, effective Sch 1 (items 14–45, 122–124), Sch 2 (items 1, 14–40, 42, 43) and Sch 3–5: 30 Sept 2014 (s 2(1) item 2) Sch 8 (items 15–22, 26) and Sch 9 (items 21, 22, 24): 31 Dec 2016 (s 2(1) items 7, 9) | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9)

s 40-635 — Meaning of landcare operation

(1) Landcare operation for land means: (a) erecting a fence to separate different land classes on the land in accordance with an * approved management plan for the land; or (b) erecting a fence on the land primarily and principally for the purpose of excluding animals from an area affected by land degradation: (i) to prevent or limit extension or worsening of land degradation in the area; and (ii) to help reclaim the area; or (c) constructing a levee or a similar improvement on the land; or (d) constructing drainage works on the land primarily and principally for the purpose of controlling salinity or assisting in drainage control; or (e) an operation primarily and principally for the purpose of: (i) eradicating or exterminating from the land animals that are pests; or (ii) eradicating, exterminating or destroying plant growth detrimental to the land; or (iii) preventing or fighting land degradation (except by erecting fences on the land); or (f) 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 (g) 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. (2) Paragraph (1)(d) does not apply to an operation draining swamp or low ‑ lying land.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 23 of 2005, effective s. 4, Schedule 1 (items 2–8, 11, 13–19, 21–24, 26, 27, 29–32), Schedule 2 (items 1–11, 14), Schedule 3 (items 1–13, 75–102, 111(1)–(3)), Schedules 4–6, 8, 10 and Schedule 12 (items 2–6, 11(1)): Royal Assent Schedule 12 (item 1): 1 July 2000

s 40-640 — Meaning of approved management plan

An approved management plan for * land is a plan that: (a) 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 (b) describes the kind of fencing and how it will prevent land degradation; and (c) has been prepared by, or approved in writing as a suitable plan for the land by: (i) an officer of an * Australian government agency responsible for land conservation who has authority to do so; or (ii) an individual who was at the time approved as a farm consultant under this Subdivision.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-645 — Electricity and telephone lines

(1) You can deduct amounts for capital expenditure you incur on * connecting power to land or upgrading the connection if, when you incur the expenditure: (a) you have an interest in the land or are a share ‑ farmer carrying on a * business on the land; and (b) 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. (2) 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) a * primary production business was carried on the land; and (b) you had an interest in the land or you were a share ‑ farmer carrying on a primary production business on the land. (3) The amount you can deduct is 10% of the expenditure: (a) for the income year in which you incur it; and (b) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 40-650 — Amounts you cannot deduct under this Subdivision

(1) 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. (3) You cannot deduct an amount for capital expenditure you incur on * connecting power to land or upgrading the connection for: (a) expenditure in providing water, light or power for use on, access to or communication with the site of * mining and quarrying operations; or (b) a contribution to the cost of providing water, light or power for those operations. (4) You cannot deduct an amount for any income year for your capital expenditure on a part of a telephone line if: (a) 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 (b) the cost of that part has been, or must be, taken into account in working out: (i) 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 . (5) However, you can deduct an amount under this Subdivision for your expenditure on a part of a telephone line even if: (a) 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 (b) the cost of that part has been, or must be, taken into account: (i) 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. (6) Subsection (5) has effect whether the entity did the work itself or through one or more employees or * agents. (7) If you can deduct, or have deducted, an amount for any income year under section 40 ‑ 645 for your expenditure: (a) an entity cannot deduct an amount for any income year under a provision of this Act (except this Subdivision) for the expenditure; and (b) 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 .

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 14 of 2012, effective Sch 2 (items 11–16): never commenced (s 2(1) item 4) Sch 3 (items 7–85, 91): 1 July 2012 (s 2(1) items 5, 7) | Amended by No 84 of 2013, effective s 4, Sch 1 (items 2–9, 19–23), Sch 2, Sch 3, Sch 6 and Sch 8 (items 27–32): 28 June 2013 (s 2(1) items 1, 2, 4) | Amended by No 96 of 2014, effective Sch 1 (items 14–45, 122–124), Sch 2 (items 1, 14–40, 42, 43) and Sch 3–5: 30 Sept 2014 (s 2(1) item 2) Sch 8 (items 15–22, 26) and Sch 9 (items 21, 22, 24): 31 Dec 2016 (s 2(1) items 7, 9)

s 40-655 — Meaning of connecting power to land or upgrading the connection and metering point

(1) Each of these operations is connecting power to land or upgrading the connection : (a) 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); (b) providing or installing equipment designed to measure the amount of electricity supplied through a mains electricity cable to a metering point on the land; (c) 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; (d) work to increase the amount of electricity that can be supplied through a mains electricity cable to a metering point on the land; (e) 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; (f) 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; (g) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-660 — Non ‑ arm’s length transactions

If you incurred capital expenditure under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm’s length; and (b) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-665 — How this Subdivision applies to partners and partnerships

(1) 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. (2) For the purposes of this Subdivision, you are taken to have incurred during that income year: (a) the amount of the expenditure that the partners agreed you should bear; or (b) 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 .

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 119 of 2002, effective s 4, Sch 1 (items 2–5, 8), Sch 2 and Sch 3 (item 100): 2 Dec 2002 (s 2(1) items 1, 2, 10) Sch 1 (items 6, 7): ( see Sch 10 (item 242) of Act No. 41, 2005) Sch 3 (items 4–78): 30 June 2001 (s 2(1) items 3–8)

s 40-670 — Approval of persons as farm consultants

(1) A person may be approved in writing as a farm consultant by: (a) the * Agriculture Secretary; or (b) 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 . (2) The following matters must be taken into account when deciding whether to approve a person as a farm consultant: (a) the person’s qualifications, experience and knowledge relating to * land conservation and farm management; (b) the person’s standing in the professional community; (c) any other relevant matters.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 88 of 2009, effective s. 4, Schedule 3 (items 1, 5–23), Schedule 4 (items 2–5) and Schedule 5 (items 113–204, 237, 238, 258, 282, 319–341, 344): 18 Sept 2009 Schedule 2 (items 4–15, 25–27, 30, 31): 1 Oct 2009 Schedule 2 (item 23): 1 Jan 2010

s 40-675 — Review of decisions relating to approvals

A person may apply to the * ART for review of a decision (as defined in the Administrative Review Tribunal Act 2024 ): (a) to refuse to approve the person as a farm consultant; or (b) to revoke the approval of the person as a farm consultant.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 38 of 2024, effective sch 1 (items 31 ‑ 37, 64): 14 Oct 2024 (s 2(1) item 2)

s 40-725 — What this Subdivision is about

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

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 14 of 2012, effective Sch 2 (items 11–16): never commenced (s 2(1) item 4) Sch 3 (items 7–85, 91): 1 July 2012 (s 2(1) items 5, 7) | Amended by No 96 of 2014, effective Sch 1 (items 14–45, 122–124), Sch 2 (items 1, 14–40, 42, 43) and Sch 3–5: 30 Sept 2014 (s 2(1) item 2) Sch 8 (items 15–22, 26) and Sch 9 (items 21, 22, 24): 31 Dec 2016 (s 2(1) items 7, 9)

s 40-730 — Deduction for expenditure on exploration or prospecting

(1) 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: (a) you carried on mining and quarrying operations; (b) it would be reasonable to conclude you proposed to carry on such operations; (c) 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: (a) 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 (b) otherwise—you cannot deduct such expenditure. (2) However, you cannot deduct expenditure under subsection (1) if it is expenditure on: (a) development drilling for * petroleum; or (b) operations in the course of working a mining property, quarrying property or petroleum field. (3) 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: (a) for mining in general, and quarrying: (i) 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 (ii) search for ore within, or near, an ore ‑ body or search for quarry materials by drives, shafts, cross ‑ cuts, winzes, rises and drilling; and (b) for petroleum mining: (i) geological, geophysical and geochemical surveys; and (ii) exploration drilling and appraisal drilling; and (c) feasibility studies to evaluate the economic feasibility of mining minerals or quarry materials once they have been discovered; and (d) 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: (a) any naturally occurring hydrocarbon or naturally occurring mixture of hydrocarbons, whether in a gaseous, liquid or solid state; or (b) any naturally occurring mixture of: (i) one or more hydrocarbons, whether in a gaseous, liquid or solid state; and (ii) 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: (a) mining operations on a mining property for extracting * minerals (except * petroleum) from their natural site; or (b) mining operations for the purpose of obtaining petroleum; or (c) 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: (a) relates to the presence, absence or extent of deposits of * minerals or quarry materials in an area; or (b) is likely to help in determining the presence, absence or extent of such deposits in an area.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 66 of 2003, effective s 4, Sch 2 (items 1–5, 17), Sch 3 (items 49–70, 71–128, 129–131, 140, 141), Sch 4, Sch 6 (items 1, 3) and Sch 7 (items 6–9): 30 June 2003 (s 2(1) items 1, 3, 6–8, 8B–12, 12B, 14, 15, 17, 18) Sch 3 (items 70A, 128A): 2 Apr 2003 (s 2(1) items 8A, 12A) | Amended by No 164 of 2007, effective s. 4, Schedule 1 (items 1–24, 36–67, 71), Schedules 2–6, Schedule 7 (items 1–3, 5–12, 14), Schedule 8 (items 6–13), Schedule 9 and Schedule 10 (items 1, 7–25, 91, 92): Royal Assent Schedule 10 (items 57–88): 1 July 2010 Sch 12 (items 72–87): 27 Sept 2007 (s 2(1) item 9) | Amended by No 14 of 2012, effective Sch 2 (items 11–16): never commenced (s 2(1) item 4) Sch 3 (items 7–85, 91): 1 July 2012 (s 2(1) items 5, 7) | Amended by No 84 of 2013, effective s 4, Sch 1 (items 2–9, 19–23), Sch 2, Sch 3, Sch 6 and Sch 8 (items 27–32): 28 June 2013 (s 2(1) items 1, 2, 4) | Amended by No 96 of 2014, effective Sch 1 (items 14–45, 122–124), Sch 2 (items 1, 14–40, 42, 43) and Sch 3–5: 30 Sept 2014 (s 2(1) item 2) Sch 8 (items 15–22, 26) and Sch 9 (items 21, 22, 24): 31 Dec 2016 (s 2(1) items 7, 9) | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9)

s 40-735 — Deduction for expenditure on mining site rehabilitation

(1) You can deduct for an income year expenditure you incur in that year to the extent it is on * mining site rehabilitation of: (a) a site on which you: (i) carried on * mining and quarrying operations; or (ii) conducted * exploration or prospecting; or (iii) conducted * ancillary mining activities; or (b) 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: (a) 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 (b) otherwise—you cannot deduct such expenditure. (2) 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. (3) 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). (6) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 164 of 2007, effective s. 4, Schedule 1 (items 1–24, 36–67, 71), Schedules 2–6, Schedule 7 (items 1–3, 5–12, 14), Schedule 8 (items 6–13), Schedule 9 and Schedule 10 (items 1, 7–25, 91, 92): Royal Assent Schedule 10 (items 57–88): 1 July 2010 Sch 12 (items 72–87): 27 Sept 2007 (s 2(1) item 9) | Amended by No 14 of 2012, effective Sch 2 (items 11–16): never commenced (s 2(1) item 4) Sch 3 (items 7–85, 91): 1 July 2012 (s 2(1) items 5, 7) | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9)

s 40-740 — Meaning of ancillary mining activities and mining building site

(1) Any of the following are ancillary mining activities : (a) preparing a site for you to carry on * mining and quarrying operations; (b) 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; (c) * minerals treatment of * minerals or minerals treatment of quarry materials, obtained by you in carrying on mining and quarrying operations; (d) 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; (e) 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 .

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 12 of 2012, effective s 4, Sch 2 (items 1–23), Sch 5 and Sch 6 (items 3–6, 11–20, 25, 26, 35–67, 74–83, 94–96, 117–142, 157–178, 183, 200–203, 214–217, 235–240, 248): 21 Mar 2012 (s 2(1) items 1, 3, 5, 6, 10, 14, 18, 19, 27, 31) Sch 6 (item 7): 1 July 2007 (s 2(1) item 7) Sch 6 (item 10): 1 July 2010 (s 2(1) item 9) Sch 6 (items 106–116): 22 Mar 2012 (s 2(1) items 16, 17) Sch 6 (item 143): 22 Jan 2013 (s 2(1) item 20) Sch 6 (items 146–148): never commenced (s 2(1) item 23) Sch 6 (items 179, 181): 3 Oct 2008 (s 2(1) items 28, 30) Sch 6 (item 180): 3 June 2010 (s 2(1) item 29) | Amended by No 14 of 2012, effective Sch 2 (items 11–16): never commenced (s 2(1) item 4) Sch 3 (items 7–85, 91): 1 July 2012 (s 2(1) items 5, 7)

s 40-745 — No deduction for certain expenditure

Expenditure on these things is not deductible under section 40 ‑ 735: (a) acquiring land or an interest in land or a right, power or privilege to do with land; (b) a bond or security, however described, for performing * mining site rehabilitation; (c) * housing and welfare.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-750 — Deduction for payments of petroleum resource rent tax

(1) 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: (a) 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 (b) 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 . (3) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 164 of 2007, effective s. 4, Schedule 1 (items 1–24, 36–67, 71), Schedules 2–6, Schedule 7 (items 1–3, 5–12, 14), Schedule 8 (items 6–13), Schedule 9 and Schedule 10 (items 1, 7–25, 91, 92): Royal Assent Schedule 10 (items 57–88): 1 July 2010 Sch 12 (items 72–87): 27 Sept 2007 (s 2(1) item 9) | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9)

s 40-755 — Environmental protection activities

(1) 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: (a) 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 (b) otherwise—you cannot deduct such expenditure. (2) Environmental protection activities are any of the following activities that are carried on by or for you: (a) preventing, fighting or remedying: (i) pollution resulting, or likely to result, from * your earning activity; or (ii) pollution of or from the site of your earning activity; or (iii) 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; (b) treating, cleaning up, removing or storing: (i) waste resulting, or likely to result, from your earning activity; or (ii) waste that is on or from the site of * your earning activity; or (iii) 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: (a) for the * purpose of producing assessable income for an income year (except a * net capital gain); or (b) for the purpose of * exploration or prospecting; or (c) for the purpose of * mining site rehabilitation; or (d) for purposes that include one or more of those purposes. (4) If * your earning activity is: (a) leasing a site you own; or (b) granting a * right to use a site you own or control; or (c) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 164 of 2007, effective s. 4, Schedule 1 (items 1–24, 36–67, 71), Schedules 2–6, Schedule 7 (items 1–3, 5–12, 14), Schedule 8 (items 6–13), Schedule 9 and Schedule 10 (items 1, 7–25, 91, 92): Royal Assent Schedule 10 (items 57–88): 1 July 2010 Sch 12 (items 72–87): 27 Sept 2007 (s 2(1) item 9) | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4) | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9)

s 40-760 — Limits on deductions from environmental protection activities

Expenditure you cannot deduct (1) You cannot deduct an amount under section 40 ‑ 755 for an income year for: (a) expenditure for acquiring land; or (b) capital expenditure for constructing a building, structure or structural improvement; or (c) capital expenditure for constructing an extension, alteration or improvement to a building, structure or structural improvement; or (d) a bond or security (however described) for performing * environmental protection activities; or (e) 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). (2) 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. (3) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-765 — Non ‑ arm’s length transactions

If you incurred capital expenditure under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm’s length; and (b) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-825 — What this Subdivision is about

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

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 32 of 2006, effective 6 Apr 2006 | Amended by No 114 of 2015, effective Sch 1 and 2: 26 Aug 2015 (s 2(1) item 1)

s 40-830 — Project pools

(1) You can allocate * project amounts to a project pool. (2) You can deduct amounts for * project amounts that are allocated to the project pool. (3) You calculate your deduction for an income year for a project pool in this way: where: DV project pool life is: (a) the * project life of the project; or (b) if its project life has been recalculated—its most recently recalculated project life. pool value is: (a) 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 (b) 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. (4) 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. (5) Your assessable income for that income year includes any amount you receive for the abandonment, sale or other disposal. (6) 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: (a) 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 (b) 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). (8) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 55 of 2006, effective Schedules 1, 3 and 4: 1 July 2006 Remainder: Royal Assent | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 40-832 — Project pools for post ‑ 9 May 2006 projects

(1) 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). (2) 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. (3) Your assessable income for that income year includes any amount you receive for the abandonment, sale or other disposal. (4) 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. (5) 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.

Amendment history: Inserted by No 55 of 2006, effective Schedules 1, 3 and 4: 1 July 2006 Remainder: Royal Assent

s 40-835 — Reduction of deduction

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: (a) 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 (b) otherwise—you are taken not to be using the asset for such purposes.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 55 of 2006, effective Schedules 1, 3 and 4: 1 July 2006 Remainder: Royal Assent | Amended by No 164 of 2007, effective s. 4, Schedule 1 (items 1–24, 36–67, 71), Schedules 2–6, Schedule 7 (items 1–3, 5–12, 14), Schedule 8 (items 6–13), Schedule 9 and Schedule 10 (items 1, 7–25, 91, 92): Royal Assent Schedule 10 (items 57–88): 1 July 2010 Sch 12 (items 72–87): 27 Sept 2007 (s 2(1) item 9) | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9)

s 40-840 — Meaning of project amount

(1) An amount of * mining capital expenditure or * transport capital expenditure you incur is a project amount if: (a) it does not form part of the * cost of a * depreciating asset you * hold or held; and (b) you cannot deduct it under a provision of this Act outside this Subdivision; and (c) it is directly connected with: (i) for mining capital expenditure—carrying on the * mining and quarrying operations in relation to which the expenditure is incurred; or (ii) 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: (a) it does not form part of the * cost of a * depreciating asset you * hold or held; and (b) you cannot deduct it under a provision of this Act outside this Subdivision; and (c) it is directly connected with a project you carry on or propose to carry on for a * taxable purpose; and (d) it is one of these: (i) an amount paid to create or upgrade community infrastructure for a community associated with the project; or (ii) 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 (iii) an amount incurred for feasibility studies for the project; or (iv) an amount incurred for environmental assessments for the project; or (v) an amount incurred to obtain information associated with the project; or (vi) an amount incurred in seeking to obtain a right to * intellectual property; or (vii) an amount incurred for ornamental trees or shrubs.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 129 of 2004, effective Schedules 1 and 3: 1 Oct 2004 Remainder: Royal Assent | Amended by No 14 of 2012, effective Sch 2 (items 11–16): never commenced (s 2(1) item 4) Sch 3 (items 7–85, 91): 1 July 2012 (s 2(1) items 5, 7)

s 40-845 — Project life

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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-855 — When you start to deduct amounts for a project pool

You start to deduct amounts for a project pool for the first income year when the project starts to operate.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-860 — Meaning of mining capital expenditure

(1) Mining capital expenditure is capital expenditure you incur: (a) in carrying on * mining and quarrying operations; or (b) in preparing a site for those operations; or (c) on buildings or other improvements necessary for you to carry on those operations; or (d) in providing, or in contributing to the cost of providing: (i) water, light or power for use on the site of those operations; or (ii) access to, or communications with, the site of those operations; or (e) 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 (f) 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: (a) 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: (i) 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 (ii) dependants of such employees; or (b) for health, education, recreation or other similar facilities, or facilities for meals—the facilities: (i) 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 (ii) are not run for profit by any person, except in the case of facilities for meals (which may be run for profit); or (c) 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 : (a) 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; (b) 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; (c) an office building that is not at or adjacent to the site of mining and quarrying operations you carry on; (d) * housing and welfare in relation to quarrying operations.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 14 of 2012, effective Sch 2 (items 11–16): never commenced (s 2(1) item 4) Sch 3 (items 7–85, 91): 1 July 2012 (s 2(1) items 5, 7)

s 40-865 — Meaning of transport capital expenditure

(1) Transport capital expenditure is capital expenditure you incur, in carrying on a * business for a * taxable purpose, on: (a) a * transport facility; or (b) 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 (c) paying compensation for any damage or loss caused by constructing or installing a transport facility or part of one; or (d) 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: (a) someone else’s capital expenditure on a * transport facility or on anything else covered by a paragraph of subsection (1); or (b) an * exempt Australian government agency’s capital expenditure on railway rolling ‑ stock. (3) Transport capital expenditure does not include expenditure on: (a) road vehicles or ships; or (b) railway rolling ‑ stock; or (c) a thing covered by the definition of housing and welfare ; or (d) 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).

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 17 of 2006, effective Sch 2 (items 41, 42): 1 July 2008 (s 2(1) item 2) | Amended by No 2 of 2015, effective Sch 2 (items 1, 73, 111) and Sch 4 (items 1–8, 79): 25 Feb 2015 (s 2(1) items 3, 5, 6) Sch 2 (items 29–33): 1 July 2015 (s 2(1) item 4) | Amended by No 59 of 2019, effective Sch 1 and Sch 2 (items 9–20): 30 Aug 2019 (s 2(1) item 2)

s 40-870 — Meaning of transport facility

(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: (a) * minerals or quarry materials obtained by any entity in carrying on * mining and quarrying operations; or (b) * processed minerals produced from minerals or quarry materials. (2) However, a facility used for these is not a transport facility : (a) transport wholly within the site of * mining and quarrying operations; (b) transport of * petroleum: (i) that has been treated at a refinery; or (ii) that forms part of a system of reticulation to consumers; or (iii) to a particular consumer or consumers.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 14 of 2012, effective Sch 2 (items 11–16): never commenced (s 2(1) item 4) Sch 3 (items 7–85, 91): 1 July 2012 (s 2(1) items 5, 7)

s 40-875 — Meaning of processed minerals and minerals treatment

(1) Processed minerals are any of the following: (a) materials resulting from * minerals treatment of * minerals or quarry materials (except * petroleum); (b) materials resulting from sintering or calcining; (c) pellets or other agglomerated forms of iron; (d) alumina and blister copper. (2) Minerals treatment means: (a) cleaning, leaching, crushing, grinding, breaking, screening, grading or sizing; or (b) concentration by a gravity, magnetic, electrostatic or flotation process; or (c) any other treatment: (i) that is applied to * minerals, or to quarry materials, before that concentration; or (ii) 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: (d) sintering or calcining; or (e) producing alumina, or pellets or other agglomerated forms of iron, or processing connected with such production.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-880 — Business related costs

Object (1) 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: (a) the expenditure is not otherwise taken into account; and (b) a deduction is not denied by some other provision; and (c) 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: (a) 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 (b) otherwise—you cannot deduct an amount for such expenditure. Deduction (2) 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: (a) in relation to your * business; or (b) in relation to a business that used to be carried on; or (c) in relation to a business proposed to be carried on; or (d) 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. (2A) However, you can deduct the capital expenditure in the income year in which you incur it if: (a) the expenditure is incurred in relation to a business that is proposed to be carried on; and (b) the expenditure is incurred: (i) in obtaining advice or services relating to the proposed structure, or proposed operation of the business; or (ii) in payment to an * Australian government agency of fees, taxes or charges relating to establishing the business or its operating structure; and (c) you are a * small business entity, or an entity covered by subsection (2B), for the income year, or both of the following apply: (i) you are not carrying on a * business in the income year; (ii) 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. (2B) An entity is covered by this subsection for an income year if: (a) the entity is not a * small business entity for the income year; and (b) the entity would be a small business entity for the income year if: (i) each reference in Subdivision 328 ‑ C (about what is a small business entity) to $10 million were instead a reference to $50 million; and (ii) 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 (3) 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. (4) 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: (a) the business was carried on or is proposed to be carried on for a * taxable purpose; and (b) the expenditure is in connection with: (i) your deriving assessable income from the business; and (ii) the business that was carried on or is proposed to be carried on. (5) You cannot deduct anything under this section for an amount of expenditure you incur to the extent that: (a) it forms part of the * cost of a * depreciating asset that you * hold, used to hold or will hold; or (b) you can deduct an amount for it under a provision of this Act other than this section; or (c) it forms part of the cost of land; or (d) it is in relation to a lease or other legal or equitable right; or (e) it would, apart from this section, be taken into account in working out: (i) a profit that is included in your assessable income (for example, under section 6 ‑ 5 or 15 ‑ 15); or (ii) a loss that you can deduct (for example, under section 8 ‑ 1 or 25 ‑ 40); or (f) 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 (g) 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 (h) 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 (i) it is expenditure of a private or domestic nature; or (j) it is incurred in relation to gaining or producing * exempt income or * non ‑ assessable non ‑ exempt income. (6) 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. (7) 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. (8) 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. (9) You cannot deduct anything under this section for an amount of expenditure you incur: (a) 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 (b) to the extent that, for another entity, the amount is a * return on or of: (i) an * equity interest; or (ii) a * debt interest that is an obligation of yours.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 119 of 2002, effective s 4, Sch 1 (items 2–5, 8), Sch 2 and Sch 3 (item 100): 2 Dec 2002 (s 2(1) items 1, 2, 10) Sch 1 (items 6, 7): ( see Sch 10 (item 242) of Act No. 41, 2005) Sch 3 (items 4–78): 30 June 2001 (s 2(1) items 3–8) | Repealed and substituted by No 32 of 2006, effective 6 Apr 2006 | Amended by No 164 of 2007, effective s. 4, Schedule 1 (items 1–24, 36–67, 71), Schedules 2–6, Schedule 7 (items 1–3, 5–12, 14), Schedule 8 (items 6–13), Schedule 9 and Schedule 10 (items 1, 7–25, 91, 92): Royal Assent Schedule 10 (items 57–88): 1 July 2010 Sch 12 (items 72–87): 27 Sept 2007 (s 2(1) item 9) | Amended by No 70 of 2015, effective Sch 1 (items 65–108, 188–192, 195–205): 1 July 2015 (s 2(1) items 3, 4, 6) Sch 2 (items 17, 24–29, 34–39), Sch 6 (items 13–30, 32–38) and Sch 7 (items 1, 5–11): 25 June 2015 (s 2(1) items 7, 11, 13, 20) Sch 4 (items 1, 2) and Sch 5 (item 1): 26 June 2015 (s 2(1) items 7A, 8) Sch 4 (items 3, 4): 1 July 2025 (s 2(1) item 7B) Sch 6 (item 31): 29 June 2013 (s 2(1) item 12) The commencement date for amendments made by the Tax and Superannuation Laws Amendment (2015 Measures No. 1) Act 2015 Sch 4 (items 1, 2) was retrospectively changed from 25 June 2015 to 26 June 2015 | Amended by No 114 of 2015, effective Sch 1 and 2: 26 Aug 2015 (s 2(1) item 1) | Amended by No 15 of 2017, effective Sch 1 (item 1): 1 Mar 2017 (s 2(1) item 2) Sch 2 and Sch 4 (items 26–69, 71–83): 1 Apr 2017 (s 2(1) items 3, 8, 10) Sch 4 (item 70): 19 Mar 2015 (s 2(1) item 9) | Amended by No 92 of 2020, effective Sch 1 (items 18–21, 24): 15 Oct 2020 (s 2(1) item 4) Sch 1 (items 25–27): 1 July 2022 (s 2(1) item 5) Sch 2 (items 1–3, 16–35), Sch 3 (items 25–36, 40), Sch 4 (items 1–11, 14), Sch 5 (items 11–38, 56) and Sch 7 (items 5–8, 12–25): 1 Jan 2021 (s 2(1) item 7)

s 40-885 — Non ‑ arm’s length transactions

If you incurred capital expenditure, or received an amount, under an * arrangement and: (a) there is at least one other party to the arrangement with whom you did not deal at * arm’s length; and (b) apart from this section: (i) the amount of the expenditure would be more than the * market value of what it was for; or (ii) 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.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-1000 — What this Subdivision is about

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

Amendment history: Inserted by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012

s 40-1005 — Deduction for expenditure for establishing trees in carbon sink forests

(1) You can deduct an amount for an income year if: (a) you or another entity incurred capital expenditure that is covered under section 40 ‑ 1010 in relation to particular trees; and (b) you satisfy a condition in subsection (5) for the trees for at least part of the income year; and (c) you are carrying on a * business in the income year; and (d) 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 (e) your purposes in using the land occupied by the trees do not include any of the following: (i) felling the trees; (ii) using the trees for * commercial horticulture; and (f) you do not use the land in connection with: (i) a * managed investment scheme; or (ii) a * forestry managed investment scheme. (2) 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: (a) that occur within the period: (i) starting on the first day of the income year in which the trees are established; and (ii) ending 14 years and 105 days after that day; and (b) on which you use the land occupied by the trees for the primary and principal purpose of * carbon sequestration by the trees; and (c) on which you satisfy a condition in subsection (5) for the trees. write ‑ off rate is 7%. (3) 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. (5) The conditions are as follows: Conditions for deduction for establishing trees in carbon sink forest Item Condition 1 You own the trees and any holder of a lease, lesser interest or licence relating to the land occupied by the trees does not use the land for the primary and principal purpose of * carbon sequestration by the trees. 2 The trees occupy land you hold under a lease, or a * quasi ‑ ownership right granted by an * exempt Australian government agency or an * exempt foreign government agency, and: (a) the lease or quasi ‑ ownership right enables you to use the land for the primary and principal purpose of * carbon sequestration by the trees; and (b) any holder of a lesser interest or licence relating to the land does not use the land for the primary and principal purpose of carbon sequestration by the trees. 3 You: (a) hold a licence relating to the land occupied by the trees; and (b) use the land for the primary and principal purpose of * carbon sequestration by the trees, as a result of holding the licence.

Amendment history: Inserted by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012 | Amended by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012

s 40-1010 — Expenditure for establishing trees in carbon sink forests

(1) Expenditure is covered under this section in relation to particular trees if: (a) the trees are established in an income year; and (b) 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 (d) the establishing entity’s primary and principal purpose for establishing the trees is * carbon sequestration by the trees (see section 40 ‑ 1015); and (e) the establishing entity’s purposes for establishing the trees do not include any of the following: (i) felling the trees; (ii) using the trees for * commercial horticulture; and (f) the establishing entity does not incur the expenditure under: (i) a * managed investment scheme; or (ii) a * forestry managed investment scheme; and (g) all of the conditions in subsection (2) are satisfied for the trees; and (h) the establishing entity gives the Commissioner, in accordance with subsection (4), a statement that: (i) sets out all information necessary to determine whether all of the conditions in subsection (2) are satisfied for the trees; and (ii) is in the * approved form. (2) The conditions are as follows: (a) at the end of the income year, the trees occupy a continuous land area in Australia of 0.2 hectares or more; (b) at the time the trees are established, it is more likely than not that they will: (i) attain a crown cover of 20% or more; and (ii) reach a height of at least 2 metres; (c) on 1 January 1990, the area occupied by the trees was clear of other trees that: (i) attained, or were more likely than not to attain, a crown cover of 20% or more; and (ii) reached, or were more likely than not to reach, a height of at least 2 metres; (d) the establishment of the trees meets the requirements of the guidelines mentioned in subsection (3). (3) The * Climate Change Minister must, by legislative instrument, make guidelines about environmental and natural resource management in relation to the establishment of trees for the purposes of * carbon sequestration. (4) The statement mentioned in paragraph (1)(h) is to be given to the Commissioner no later than: (a) if the establishing entity lodges its * income tax return for the income year within 5 months after the end of the income year—the day the establishing entity lodges that income tax return; or (b) otherwise—5 months after the end of the income year. (5) However, expenditure is not covered under this section if the * Climate Change Secretary gives the Commissioner a notice under subsection (6) in relation to the trees. (6) The * Climate Change Secretary must give the Commissioner a notice in writing under this subsection if the Climate Change Secretary is satisfied that one or more of the conditions in subsection (2) have not been satisfied for the trees. (7) A person may apply to the * ART for review of a decision (as defined in the Administrative Review Tribunal Act 2024 ) of the * Climate Change Secretary to give a notice under subsection (6). (8) The Commissioner may give the * Climate Change Secretary a copy of the statement mentioned in paragraph (1)(h), for the purposes of subsections (5), (6) and (7).

Amendment history: Inserted by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012 | Amended by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012 | Amended by No 38 of 2024, effective sch 1 (items 31 ‑ 37, 64): 14 Oct 2024 (s 2(1) item 2)

s 40-1015 — Carbon sequestration by trees

Carbon sequestration by trees means the process by which trees absorb carbon dioxide from the atmosphere.

Amendment history: Inserted by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012

s 40-1020 — Certain expenditure disregarded

In working out a deduction under this Subdivision in relation to the establishment of trees, disregard expenditure incurred: (a) in draining swamp or low ‑ lying land; or (b) in clearing land.

Amendment history: Inserted by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012

s 40-1025 — Non ‑ arm’s length transactions

If an entity incurred capital expenditure under an * arrangement and: (a) there is at least one other party to the arrangement with whom the entity did not deal at * arm’s length; and (b) 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 taken into account under this Subdivision is that market value.

Amendment history: Inserted by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012

s 40-1030 — Extra deduction for destruction of trees in carbon sink forest

(1) You can deduct the amount worked out under subsection (2) for an income year if: (a) you or another entity incurred capital expenditure that is covered under section 40 ‑ 1010 in relation to particular trees; and (b) you use the land occupied by the trees for the primary and principal purpose of * carbon sequestration by the trees; and (c) the trees are destroyed during the income year; and (d) you satisfy a condition in subsection 40 ‑ 1005(5) for the trees just before they are destroyed. (2) Work out the amount of the deduction as follows: Method statement Step 1. Work out the total of the amounts you could have deducted under this Subdivision in relation to the trees for the period: (a) starting on the first day of the income year in which the trees are established; and (b) ending when the trees were destroyed; assuming that, during that period, you satisfied a condition in the table in subsection 40 ‑ 1005(5). Step 2. Subtract from the expenditure that is covered under section 40 ‑ 1010 in relation to the trees: (a) the result from step 1; and (b) any amount you received (under an insurance policy or otherwise) for the destruction. The remaining amount (if positive) is your deduction under subsection (1). (3) This deduction is in addition to any deduction for the income year under section 40 ‑ 1005.

Amendment history: Inserted by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012

s 40-1035 — Getting information if you acquire a carbon sink forest

(1) This section applies if: (a) you or another entity incurred capital expenditure; and (b) the expenditure is covered under section 40 ‑ 1010 in relation to particular trees; and (c) you begin to satisfy a condition in the table in subsection 40 ‑ 1005(5) for the trees. (2) You may give the last entity (if any) that satisfied a condition mentioned in subsection 40 ‑ 1005(5) for the trees a written notice requiring the entity to give you any or all of the following information: (a) the amount of the expenditure covered under section 40 ‑ 1010 in relation to the trees; (b) the income year in which the trees were established. (3) The notice must: (a) be given within 60 days of your beginning to satisfy the condition mentioned in paragraph (1)(c); and (b) specify a period of at least 60 days within which the information must be given; and (c) set out the effect of subsection (4). Note: Subsections (5), (6) and (7) explain how this subsection operates if the entity to which the notice is to be given is a partnership. Requirement to comply with notice (4) 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 (5) If the entity to whom the notice is given is a partnership: (a) 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 (b) 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. (6) A partner must not intentionally refuse or fail to comply with that obligation. Penalty: 10 penalty units. (7) Subsection (6) does not apply if another partner has already complied with that obligation. Note: A defendant bears an evidential burden in relation to the matters in subsection (7), see subsection 13.3(3) of the Criminal Code . Limits on giving a notice (8) Only one notice can be given in relation to the same trees.

Amendment history: Inserted by No 38 of 2008, effective Schedule 1, Schedules 3–6, Schedule 7 (items 1–3, 5), Schedule 8 (items 1–11), Schedule 9 (items 2–4), Schedule 10, Schedule 12 and Schedule 13: 24 June 2008 Schedule 8 (items 12–21): 1 July 2012

s 40-1095 — What this Subdivision is about

The costs and termination values of parts of interests in mining, quarrying or prospecting rights that are transferred under farm ‑ in farm ‑ out arrangements are reduced by the market value of the exploration benefits conferred under the arrangements. Table of sections Farm ‑ in farm ‑ out arrangements and exploration benefits 40 ‑ 1100 Meaning of farm ‑ in farm ‑ out arrangement and exploration benefit Consequences for transferors 40 ‑ 1105 Treatment of certain exploration benefits received under farm ‑ in farm ‑ out arrangements 40 ‑ 1110 Cost of split interests resulting from farm ‑ in farm ‑ out arrangements 40 ‑ 1115 Deductions relating to receipt of exploration benefits 40 ‑ 1120 Cost base and reduced cost base of exploration benefits etc. 40 ‑ 1125 Effect of exploration benefits on the cost of mining, quarrying or prospecting information Consequences for transferees 40 ‑ 1130 Consequences of certain exploration benefits provided under farm ‑ in farm ‑ out arrangements

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-1100 — Meaning of farm ‑ in farm ‑ out arrangement and exploration benefit

(1) A farm ‑ in farm ‑ out arrangement is an * arrangement under which: (a) an entity (the transferor ) transfers, or agrees to transfer, part of the entity’s interest in a * mining, quarrying or prospecting right to another entity (the transferee ); and (b) in exchange for the transfer, the transferee provides to the transferor one or more * exploration benefits. (2) The transferee provides an exploration benefit to the transferor if: (a) the transferee: (i) conducts * exploration or prospecting for * minerals, or quarry materials, obtainable by * mining and quarrying operations; or (ii) undertakes to conduct exploration or prospecting for minerals, or quarry materials, obtainable by mining and quarrying operations; or (iii) funds, on the transferor’s behalf, expenditure that the transferor incurs in relation to exploration or prospecting by the transferor or another entity (other than the transferee); or (iv) undertakes to fund, on the transferor’s behalf, expenditure that the transferor incurs in relation to exploration or prospecting by the transferor or another entity (other than the transferee); and (b) the exploration or prospecting relates to the part of the transferor’s interest in the * mining, quarrying or prospecting right that the transferor does not transfer, or agree to transfer, under the arrangement; and (c) in a case where the transferor conducts the exploration or prospecting—expenditure incurred by the transferor relating to the exploration or prospecting is: (i) included in the * cost of * mining, quarrying or prospecting information * held by the transferor; or (ii) included in any other * depreciating asset, held by the transferor, for which the decline in value is provided under section 40 ‑ 80; or (iii) expenditure, of a kind referred to in subsection 40 ‑ 730(1), that meets the requirements of subsection (3) of this section; and (d) in a case where the transferor does not conduct the exploration or prospecting—were the transferor to conduct the exploration or prospecting, expenditure incurred by the transferor relating to the exploration or prospecting would: (i) be included in the cost of mining, quarrying or prospecting information held by the transferor; or (ii) be included in any other depreciating asset, held by the transferor, for which the decline in value is provided under section 40 ‑ 80; or (iii) be expenditure, of a kind referred to in subsection 40 ‑ 730(1), that meets the requirements of subsection (3) of this section. (3) Expenditure meets the requirements of this subsection if: (a) for that expenditure, the transferor satisfies, or would satisfy, one or more of paragraphs 40 ‑ 730(1)(a) to (c); and (b) the expenditure is not of a kind referred to in subsection 40 ‑ 730(2) or (3); and (c) the expenditure is not of a kind that another provision of this Act provides is not deductible.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-1105 — Treatment of certain exploration benefits received under farm ‑ in farm ‑ out arrangements

If, under a * farm ‑ in farm ‑ out arrangement, you receive an * exploration benefit in relation to the transfer of part of your interest in a * mining, quarrying or prospecting right, the * termination value of the part of the interest is reduced by the * market value of the exploration benefit.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-1110 — Cost of split interests resulting from farm ‑ in farm ‑ out arrangements

Despite section 40 ‑ 205, if: (a) under a * farm ‑ in farm ‑ out arrangement, you provide a part of your interest in a * mining, quarrying or prospecting right; and (b) because of subsection 40 ‑ 115(2), this Division applies as if you had split your interest into the part you stopped * holding and the rest of your interest; then: (c) the first element of the * cost of the asset that consists of the part you stopped holding is a reasonable proportion of the amount you are taken to have paid under section 40 ‑ 185 for any economic benefit involved in splitting your interest; and (d) the first element of the cost of the asset that consists of the rest of your interest is the sum of: (i) the * adjustable value of your interest just before it was split; and (ii) a reasonable proportion of the amount you are taken to have paid under section 40 ‑ 185 for any economic benefit involved in splitting your interest.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-1115 — Deductions relating to receipt of exploration benefits

(1) If: (a) under a * farm ‑ in farm ‑ out arrangement, you receive an * exploration benefit in exchange for providing a part of your interest in a * mining, quarrying or prospecting right; and (b) because of section 40 ‑ 1105, the * termination value of the interest you provide is reduced (including reduced to nil); you are not entitled to a deduction under a provision of this Act in relation to your expenditure consisting of the provision of that part. (2) If: (a) under a * farm ‑ in farm ‑ out arrangement, you receive an * exploration benefit in exchange for providing a part of your interest in a * mining, quarrying or prospecting right; and (b) because of section 40 ‑ 1105, the * termination value of the interest you provide is reduced (including reduced to nil); and (c) the exploration benefit consists of another party to the arrangement funding on your behalf, or undertaking to fund on your behalf, expenditure that you incur in relation to exploration or prospecting; your entitlement (if any) to a deduction under a provision of this Act in relation to that expenditure is reduced to the same extent as the extent to which the expenditure is reasonably attributable to the exploration benefit.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-1120 — Cost base and reduced cost base of exploration benefits etc.

If: (a) under a * farm ‑ in farm ‑ out arrangement, you receive an * exploration benefit; and (b) the benefit involves one or more undertakings of the kinds referred to in subparagraphs 40 ‑ 1100(2)(a)(ii) and (iv); the first element of the * cost base and the * reduced cost base of the benefit are reduced by the * market value of the undertakings.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-1125 — Effect of exploration benefits on the cost of mining, quarrying or prospecting information

If: (a) you * hold a * depreciating asset that is * mining, quarrying or prospecting information; and (b) under a * farm ‑ in farm ‑ out arrangement, you receive an * exploration benefit; and (c) an amount or expenditure would, apart from this section, be included in the second element of the * cost of the asset; do not include that amount or expenditure in the second element to the extent (if any) that it is reasonably attributable to the exploration benefit.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 40-1130 — Consequences of certain exploration benefits provided under farm ‑ in farm ‑ out arrangements

(1) If, under a * farm ‑ in farm ‑ out arrangement, you provide an * exploration benefit in relation to the transfer to you of part of another entity’s interest in a * mining, quarrying or prospecting right: (a) the first element of the * cost of the part of the interest is reduced by the * market value of the exploration benefit; and (b) if, for providing the exploration benefit, you receive a reward as a result of which an amount would, apart from this paragraph, be included in your assessable income—the entire amount of the reward is not assessable income and is not * exempt income; and (c) subsection 40 ‑ 730(3) does not apply in relation to expenditure that you incur under the arrangement if the reduction in market value under paragraph (a) took into account your liability to incur that expenditure. (2) A reduction under paragraph(1)(a) may be a reduction to nil.

Amendment history: Inserted by No 130 of 2015, effective s 4, Sch 1 (items 1–3, 5–21) and Sch 3 (items 1–5): 16 Sept 2015 (s 2(1) items 1, 2, 4) Sch 2: 1 July 2015 (s 2(1) item 3) Sch 4 (items 1–52, 54–58): 17 Sept 2015 (s 2(1) item 5)

s 41-1 — What this Division is about

You may be able to deduct an amount in relation to a depreciating asset for the 2008 ‑ 09, 2009 ‑ 10, 2010 ‑ 11 or 2011 ‑ 12 income year if: (a) you can deduct an amount for the decline in value for the asset for the relevant year under Subdivision 40 ‑ B; and (b) you make certain new investments in respect of the asset in the period starting on 13 December 2008 and ending on 31 December 2009; and (c) the total of those new investments is at least $1000 (for small businesses) or $10,000 (for other businesses). Table of sections Operative provisions 41 ‑ 5 Object of Division 41 ‑ 10 Entitlement to deduction for investment 41 ‑ 15 Amount of deduction 41 ‑ 20 Recognised new investment amount 41 ‑ 25 Investment commitment time 41 ‑ 30 First use time 41 ‑ 35 New investment threshold

Amendment history: Inserted by No 31 of 2009, effective 22 May 2009

s 41-5 — Object of Division

The object of this Division is to provide a temporary business tax break for Australian businesses using assets in Australia, with a view to encouraging business investment and economic activity.

Amendment history: Amended by No 121 of 1997, effective s 4: 8 July 1997 (s 2(1)) Sch 1, Sch 2 (items 3–17), Sch 3 (items 3–30), Sch 4 (items 5–62, Sch 5 (items 3–42), Sch 6 (items 3–67), Sch7 (items 2–4), Sch 8 (items 2–31), Sch 9 (items 3–15), Sch 10 (items 2–11), Sch 11 (items 2–36) and Sch 12 (items 1–14): 1 July 1997 (s 2(2), (3), (4) (5)) | Amended by No 16 of 1998, effective s 4, Sch 3–5, Sch 10 (items 1–19) and Sch 11: 16 Apr 1998 (s 2(1)) | Amended by No 46 of 1998, effective s 4, Sch 1, Sch 2 (items 4–48), Sch 3 (items 3–12), Sch 4 (items 2–11), Sch 5 (items 3–5), Sch 6 (items 2–7), Sch 7 (items 2–11), Sch 9 (items 2–6, 8) and Sch 10: 22 June 1998 (s 2(1)–(4)) | Amended by No 39 of 1999, effective 31 May 1999 | Amended by No 54 of 1999, effective 5 July 1999 (s 2(1), (2)) | Amended by No 164 of 1999, effective Sch 1, Sch 2 (items 1–16, 19–23), Sch 3 (items 1–10, 14) and Sch 4–6: 10 Dec 1999 (s 2(1)) Sch 2 (items 17, 18): never commenced (s 2(2)) | Amended by No 72 of 2001, effective 30 June 2001 | Repealed by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Inserted by No 31 of 2009, effective 22 May 2009

s 41-10 — Entitlement to deduction for investment

(1) You can deduct an amount for an income year in relation to an asset if: (a) the asset is a * depreciating asset, other than an intangible asset; and (b) you can deduct an amount under section 40 ‑ 25 in relation to the asset for the income year; and (c) the income year is the 2008 ‑ 09, 2009 ‑ 10, 2010 ‑ 11 or 2011 ‑ 12 income year; and (d) the total of the * recognised new investment amounts for the income year in relation to the asset equals or exceeds the * new investment threshold for the income year in relation to the asset. (2) Subsection 355 ‑ 715(2) (tax offset for assets used for R&D activities) does not apply to a deduction under subsection (1). (3) For the purposes of paragraph (1)(b), in determining whether you can deduct the amount in relation to the asset under section 40 ‑ 25 for the income year: (aa) disregard section 40 ‑ 90 (reduction in cost where debt is forgiven); and (ab) disregard subsection 40 ‑ 365(5) (reduction in cost for replacement asset where involuntary disposal); and (b) disregard Subdivision 328 ‑ D (capital allowances for small business entities); and (c) disregard subsection 355 ‑ 715(2) (tax offset for assets used for R&D activities). Counting additional recognised new investment amounts for the purposes of meeting the threshold (4) For the purposes of paragraph (1)(d), treat each of the following as a * recognised new investment amount for the income year in relation to the asset (the relevant asset ): (a) a recognised new investment amount for a previous income year in relation to the relevant asset; (b) a recognised new investment amount for the income year or a previous income year in relation to another asset, if: (i) the other asset is part of a set of assets including the relevant asset; or (ii) the other asset is identical, or substantially identical, to the relevant asset; (c) a recognised new investment amount for the income year or a previous income year in relation to an asset * held by another entity, if: (i) subsection 40 ‑ 35(1) (jointly held depreciating assets) applies in relation to the relevant asset because it is your interest in an asset (the underlying asset ); and (ii) the asset held by the other entity is the other entity’s interest in the underlying asset.

Amendment history: Amended by No 46 of 1998, effective s 4, Sch 1, Sch 2 (items 4–48), Sch 3 (items 3–12), Sch 4 (items 2–11), Sch 5 (items 3–5), Sch 6 (items 2–7), Sch 7 (items 2–11), Sch 9 (items 2–6, 8) and Sch 10: 22 June 1998 (s 2(1)–(4)) | Repealed by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Inserted by No 31 of 2009, effective 22 May 2009 | Amended by No 93 of 2011, effective Schedule 1, Schedule 3 (items 1–4, 15–42, 54–107) and Schedule 4 (items 1–9): Royal Assent | Amended by No 162 of 2015, effective Sch 1 (items 1–3, 21–46) and Sch 4 (items 2, 27): 30 Nov 2015 (s 2(1) items 2, 3, 6)

s 41-15 — Amount of deduction

(1) The amount that you can deduct is: (a) if the * new investment threshold for the income year in relation to the asset is $1000 (small business entities)—50% of the total of the * recognised new investment amounts for the income year in relation to the asset; or (b) if paragraph (a) does not apply but subsection (3), (4) or (5) applies—10% of that total; or (c) otherwise—the sum of: (i) 30% of the total of the recognised new investment amounts for the income year in relation to the asset that meet the condition in subsection (2); and (ii) 10% of the total of the other recognised new investment amounts for the income year in relation to the asset. (2) A * recognised new investment amount meets the condition in this subsection if: (a) the * investment commitment time for the amount occurred before 1 July 2009; and (b) the * first use time for the amount occurred before 1 July 2010. (3) This subsection applies if the income year is the 2011 ‑ 12 income year. (4) This subsection applies if: (a) you can deduct the amount because of paragraph 41 ‑ 10(4)(a); and (b) the * new investment threshold for the income year in relation to the asset exceeds the total of the * recognised new investment amounts for the income year in relation to the asset that meet the condition in subsection (2). (5) This subsection applies if: (a) you can deduct the amount because of paragraph 41 ‑ 10(4)(b) or (c); and (b) the * new investment threshold for the income year in relation to the asset exceeds the sum of: (i) the total of the * recognised new investment amounts for the income year in relation to the asset that meet the condition in subsection (2); and (ii) the total of the amounts treated under paragraph 41 ‑ 10(4)(b) or (c) (as the case requires) as recognised new investment amounts for the income year in relation to the asset that meet the condition in subsection (2).

Amendment history: Repealed and substituted by No 121 of 1997, effective s 4: 8 July 1997 (s 2(1)) Sch 1, Sch 2 (items 3–17), Sch 3 (items 3–30), Sch 4 (items 5–62, Sch 5 (items 3–42), Sch 6 (items 3–67), Sch7 (items 2–4), Sch 8 (items 2–31), Sch 9 (items 3–15), Sch 10 (items 2–11), Sch 11 (items 2–36) and Sch 12 (items 1–14): 1 July 1997 (s 2(2), (3), (4) (5)) | Repealed by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Inserted by No 31 of 2009, effective 22 May 2009

s 41-20 — Recognised new investment amount

(1) An amount is a recognised new investment amount for the income year in relation to the asset if: (a) either: (i) the amount is included in the first element of the asset’s * cost (worked out in accordance with Subdivision 40 ‑ C); or (ii) the amount is included in the second element of the asset’s cost under paragraph 40 ‑ 190(2)(a); and (b) the * investment commitment time for the amount occurs in the period: (i) starting at 12.01 am, by legal time in the Australian Capital Territory, on 13 December 2008; and (ii) ending on 31 December 2009; and (c) the * first use time for the amount occurs: (i) no later than the end of the income year; and (ii) no later than 31 December 2010; and (d) at the first use time for the amount, it is reasonable to conclude that you will use the asset principally in Australia for the principal purpose of carrying on a * business; and (e) if the amount is included in the first element of the asset’s cost—the first use time for the amount is the first time you or any other entity have used the asset, or have it installed ready for use, for any purpose; and (f) you have not been entitled to a deduction under this Division for any previous income year in relation to the amount. (2) Treat the requirements in paragraph (1)(d) as not being met if, at the first use time for the amount, it is reasonable to conclude that the asset will never be located in Australia. (3) For the purposes of paragraph (1)(e), disregard any previous use of the asset that was merely for the purposes of reasonable testing or trialling. (4) Treat the requirements in paragraph (1)(e) as not being met if the amount becomes included in the first element of the asset’s * cost at a time because of paragraph 40 ‑ 205(a) (splitting depreciating assets) or 40 ‑ 210(a) (merging depreciating assets). (5) In determining the amount of a * recognised new investment amount, disregard: (a) subsection 40 ‑ 90(2) (reduction in cost where debt is forgiven); and (b) paragraph 40 ‑ 365(5)(a) (reduction in cost for replacement asset where involuntary disposal).

Amendment history: Amended by No 121 of 1997, effective s 4: 8 July 1997 (s 2(1)) Sch 1, Sch 2 (items 3–17), Sch 3 (items 3–30), Sch 4 (items 5–62, Sch 5 (items 3–42), Sch 6 (items 3–67), Sch7 (items 2–4), Sch 8 (items 2–31), Sch 9 (items 3–15), Sch 10 (items 2–11), Sch 11 (items 2–36) and Sch 12 (items 1–14): 1 July 1997 (s 2(2), (3), (4) (5)) | Amended by No 46 of 1998, effective s 4, Sch 1, Sch 2 (items 4–48), Sch 3 (items 3–12), Sch 4 (items 2–11), Sch 5 (items 3–5), Sch 6 (items 2–7), Sch 7 (items 2–11), Sch 9 (items 2–6, 8) and Sch 10: 22 June 1998 (s 2(1)–(4)) | Repealed by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Inserted by No 31 of 2009, effective 22 May 2009 | Amended by No 70 of 2015, effective Sch 1 (items 65–108, 188–192, 195–205): 1 July 2015 (s 2(1) items 3, 4, 6) Sch 2 (items 17, 24–29, 34–39), Sch 6 (items 13–30, 32–38) and Sch 7 (items 1, 5–11): 25 June 2015 (s 2(1) items 7, 11, 13, 20) Sch 4 (items 1, 2) and Sch 5 (item 1): 26 June 2015 (s 2(1) items 7A, 8) Sch 4 (items 3, 4): 1 July 2025 (s 2(1) item 7B) Sch 6 (item 31): 29 June 2013 (s 2(1) item 12) The commencement date for amendments made by the Tax and Superannuation Laws Amendment (2015 Measures No. 1) Act 2015 Sch 4 (items 1, 2) was retrospectively changed from 25 June 2015 to 26 June 2015

s 41-25 — Investment commitment time

(1) The investment commitment time for the amount is: (a) if the amount is included in the first element of the asset’s * cost—the time at which you: (i) enter into a contract under which you * hold the asset at that time, or will hold the asset at a later time; or (ii) start to construct the asset; or (iii) start to hold the asset in some other way; or (b) if the amount is included in the second element of the asset’s cost—the time at which you enter into a contract, or start construction, for the economic benefit in relation to which the amount becomes, or will become, included in that element under paragraph 40 ‑ 190(2)(a). Integrity rule (2) Subsection (3) applies in relation to an amount if: (a) at a time, you: (i) enter into a contract under which you * hold an asset at that time, or will hold the asset at a later time; or (ii) start to construct an asset; or (iii) start to hold an asset in some other way; and (b) at a later time, you engage in conduct that results in you: (i) entering into a contract under which you hold the asset mentioned in paragraph (a) (or an identical or substantially similar asset) at that later time, or will hold that asset (or an identical or substantially similar asset) at an even later time; or (ii) starting to construct an asset that is identical or substantially similar to the asset mentioned in paragraph (a); or (iii) starting to hold the asset mentioned in paragraph (a) (or an identical or substantially similar asset) in some other way; and (c) you engage in that conduct for the purpose, or for purposes that include the purpose, of becoming entitled to a deduction under this Division. (3) Despite paragraph (1)(a), the investment commitment time for an amount to which that paragraph would otherwise apply is the time mentioned in paragraph (2)(a). (3A) For the purposes of paragraph (1)(a) and subsection (2), treat yourself as having started to construct an asset at a time if you first incur expenditure in respect of the construction of the asset at that time. (3B) For the purposes of paragraph (1)(b), treat yourself as having started construction for an economic benefit at a time if you first incur expenditure in respect of the construction for the benefit at that time. Options (4) To avoid doubt, for the purposes of this section, you do not enter into a contract under which you * hold an asset merely because you acquire an option to enter into such a contract.

Amendment history: Amended by No 121 of 1997, effective s 4: 8 July 1997 (s 2(1)) Sch 1, Sch 2 (items 3–17), Sch 3 (items 3–30), Sch 4 (items 5–62, Sch 5 (items 3–42), Sch 6 (items 3–67), Sch7 (items 2–4), Sch 8 (items 2–31), Sch 9 (items 3–15), Sch 10 (items 2–11), Sch 11 (items 2–36) and Sch 12 (items 1–14): 1 July 1997 (s 2(2), (3), (4) (5)) | Amended by No 16 of 1998, effective s 4, Sch 3–5, Sch 10 (items 1–19) and Sch 11: 16 Apr 1998 (s 2(1)) | Repealed by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Inserted by No 31 of 2009, effective 22 May 2009

s 41-30 — First use time

The first use time for the amount is: (a) if the amount is included in the first element of the asset’s * cost—the time at which you start to use the asset, or have it * installed ready for use; or (b) if the amount is included in the second element of the asset’s cost—the later of: (i) the time at which it becomes included in that element under paragraph 40 ‑ 190(2)(a); or (ii) the time mentioned in paragraph (a).

Amendment history: Amended by No 121 of 1997, effective s 4: 8 July 1997 (s 2(1)) Sch 1, Sch 2 (items 3–17), Sch 3 (items 3–30), Sch 4 (items 5–62, Sch 5 (items 3–42), Sch 6 (items 3–67), Sch7 (items 2–4), Sch 8 (items 2–31), Sch 9 (items 3–15), Sch 10 (items 2–11), Sch 11 (items 2–36) and Sch 12 (items 1–14): 1 July 1997 (s 2(2), (3), (4) (5)) | Amended by No 54 of 1999, effective 5 July 1999 (s 2(1), (2)) | Repealed by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Inserted by No 31 of 2009, effective 22 May 2009

s 41-35 — New investment threshold

The new investment threshold for an income year (the relevant income year ) in relation to an asset means: (a) $1000 if you are a * small business entity during any of the following income years: (i) the income year in which occurs the * investment commitment time for any * recognised new investment amount for the asset in relation to the relevant income year; (ii) the income year in which occurs the * first use time for any such amount; (iii) the relevant income year; or (b) otherwise—$10,000.

Amendment history: Repealed and substituted by No 121 of 1997, effective s 4: 8 July 1997 (s 2(1)) Sch 1, Sch 2 (items 3–17), Sch 3 (items 3–30), Sch 4 (items 5–62, Sch 5 (items 3–42), Sch 6 (items 3–67), Sch7 (items 2–4), Sch 8 (items 2–31), Sch 9 (items 3–15), Sch 10 (items 2–11), Sch 11 (items 2–36) and Sch 12 (items 1–14): 1 July 1997 (s 2(2), (3), (4) (5)) | Repealed by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Inserted by No 31 of 2009, effective 22 May 2009

s 43-1 — What this Division is about

You can deduct certain capital expenditure on assessable income producing buildings and other capital works. This Division sets out the rules for working out those deductions. Table of sections 43 ‑ 2 Key concepts used in this Division

s 43-2 — Key concepts used in this Division

The following graphic introduces the key concepts used in this Division and shows the relationships between them.

s 43-5 — What this Subdivision is about

This Subdivision contains the key operative provisions for this Division, including all of the deduction entitlement provisions. You should read all of this Subdivision to understand how this Division works. Table of sections Operative provisions 43 ‑ 10 Deductions for capital works 43 ‑ 15 Amount you can deduct 43 ‑ 20 Capital works to which this Division applies 43 ‑ 25 Rate of deduction 43 ‑ 30 No deduction until construction is complete 43 ‑ 35 Requirement for registration under the Industry Research and Development Act 43 ‑ 40 Deduction for destruction of capital works 43 ‑ 45 Certain anti ‑ avoidance provisions 43 ‑ 50 Links and signposts to other parts of the Act 43 ‑ 55 Anti ‑ avoidance—arrangement etc. with tax ‑ exempt entity

s 43-10 — Deductions for capital works

(1) You can deduct an amount for capital works for an income year. (2) You can only deduct the amount if: (a) the capital works have a * construction expenditure area; and (b) there is a * pool of construction expenditure for that area; and (c) you use * your area in the income year in the way set out in Table 43 ‑ 140 (Current year use). Note 1: The deduction is limited to capital works to which this Division applies, see section 43 ‑ 20. Note 2: Amongst other things, the definition of your area ensures that only owners and certain lessees of capital works, and certain holders of quasi ‑ ownership rights over land on which capital works are constructed, can deduct an amount under this Division.

s 43-15 — Amount you can deduct

(1) The amount you can deduct is a portion of * your construction expenditure. However, it cannot exceed the amount of * undeducted construction expenditure for * your area. Note: The limit in this subsection has 2 effects: • It ensures that not more than 100% of your construction expenditure can be deducted. • It imposes a time limit on the period over which your construction expenditure can be deducted. For capital works begun before 27 February 1992, that period will be 25 years if the rate of deduction is 4% or 40 years if the rate is 2.5%. For other capital works, the period will be 25 years or 40 years or some period between 25 and 40 years depending on their use. (2) Your deduction is calculated under section 43 ‑ 210 or 43 ‑ 215.

s 43-20 — Capital works to which this Division applies

Buildings (1) This Division applies to capital works being a building, or an extension, alteration or improvement to a building: (a) begun in Australia after 21 August 1979; or (b) begun outside Australia after 21 August 1990. Note: Section 43 ‑ 80 explains when capital works begin. Structural improvements (2) This Division also applies to capital works (other than capital works referred to in subsection (1)) begun after 26 February 1992 that are structural improvements, or extensions, alterations or improvements to structural improvements, whether they are in or outside Australia. (3) Some examples of structural improvements are: (a) sealed roads, sealed driveways, sealed car parks, sealed airport runways, bridges, pipelines, lined road tunnels, retaining walls, fences, concrete or rock dams and artificial sports fields; and (b) earthworks that are integral to the construction of a structural improvement (other than a structural improvement described in subsection (4)), for example, embankments, culverts and tunnels associated with a runway, road or railway. (4) This Division does not apply to structural improvements being: (a) earthworks that: (i) are not integral to the installation or construction of a structure; and (ii) are permanent (assuming they are maintained in reasonably good order and condition); and (iii) can be economically maintained in reasonably good order and condition for an indefinite period; for example, unlined channels, unlined basins, earth tanks and dirt tracks; or (b) earthworks that merely create artificial landscapes, for example, grass golf course fairways and greens, gardens, and grass sports fields. Environment protection earthworks (5) This Division also applies to capital works being earthworks, or extensions, alterations or improvements to earthworks, if: (a) they are constructed as a result of carrying out of * environmental protection activities; and (b) they can be economically maintained in reasonably good order and condition for an indefinite period; and (c) they are not integral to the construction of capital works; and (d) the expenditure on the capital works was incurred after 18 August 1992. Note: This subsection allows you to deduct an amount for some earthworks that are excluded by paragraph (4)(a) if the earthworks are constructed in carrying out an environmental protection activity.

Amendment history: Amended by No 46 of 1998, effective s 4, Sch 1, Sch 2 (items 4–48), Sch 3 (items 3–12), Sch 4 (items 2–11), Sch 5 (items 3–5), Sch 6 (items 2–7), Sch 7 (items 2–11), Sch 9 (items 2–6, 8) and Sch 10: 22 June 1998 (s 2(1)–(4)) | Amended by No 77 of 2001, effective Sch 2 (items 149–476, 488): 30 June 2001 (s 2(1))

s 43-25 — Rate of deduction

(1) For capital works begun after 26 February 1992, there is a basic entitlement to a rate of 2.5% for parts used as described in Table 43 ‑ 140 (Current year use). The rate increases to 4% for parts used as described in Table 43 ‑ 145 (Use in the 4% manner). (2) For capital works begun before 27 February 1992 and used as described in Table 43 ‑ 140, the rate is: (a) 4% if the capital works were begun after 21 August 1984 and before 16 September 1987; or (b) 2.5% in any other case. Note: Section 43 ‑ 80 explains when capital works begin.

s 43-30 — No deduction until construction is complete

You cannot deduct an amount for any period before the completion of construction of the capital works even though you used them, or part of them, before completion.

s 43-35 — Requirement for registration under the Industry Research and Development Act

You may deduct an amount under this Division on the basis of using capital works for the purpose of conducting * R&D activities only if: (a) you are registered under section 27A (registering R&D activities) of the Industry Research and Development Act 1986 for the R&D activities for an income year; or (b) if you are an * R&D partnership—an * R&D entity, who was a partner of the R&D partnership at some time while the R&D activities were conducted, is registered under that section for the R&D activities for an income year. Note 1: R&D activities must be conducted in connection with a business carried on for the purpose of producing assessable income, see section 43 ‑ 195. Note 2: You may still deduct an amount under this Division if you were registered for the R&D activities under former section 39J (Registration of eligible companies) of the Industry Research and Development Act 1986 (see section 355 ‑ 200 of the Income Tax (Transitional Provisions) Act 1997 ).

Amendment history: Repealed and substituted by No 93 of 2011, effective Schedule 1, Schedule 3 (items 1–4, 15–42, 54–107) and Schedule 4 (items 1–9): Royal Assent

s 43-40 — Deduction for destruction of capital works

(1) You can deduct an amount if all or a part of * your area is destroyed in an income year and: (a) you have been allowed, or can claim, a deduction under this Division, or former Division 10C or 10D of Part III of the Income Tax Assessment Act 1936 , for your area; and (b) there is an amount of * undeducted construction expenditure for your area; and (c) you were using your area in the way that applies to it under Table 43 ‑ 140 (Current year use) immediately before the destruction or, if not, neither you nor any other entity used your area for any purpose since it was last used by you in that way. (2) The deduction is allowable in the income year in which the destruction occurs, and is calculated under section 43 ‑ 250. Note: The effect of this provision is to allow you to deduct an amount in the income year in which the capital works are destroyed for all of your construction expenditure that has not yet been deducted. However, you must reduce the deduction by any insurance and salvage receipts.

Amendment history: Amended by No 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent

s 43-45 — Certain anti ‑ avoidance provisions

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 ; (b) Division 16D (Certain arrangements relating to the use of property) of Part III of that Act; apply to your deductions under this Division for an asset as if you were the owner of the asset instead of any other person.

Amendment history: Repealed and substituted by No 77 of 2001, effective Sch 2 (items 149–476, 488): 30 June 2001 (s 2(1))

s 43-50 — Links and signposts to other parts of the Act

Links (1) No part of a * pool of construction expenditure can be a deduction, or taken into account in working out the amount of a deduction, under a provision of this Act other than this Division. (2) No part of an amount incurred by an entity in acquiring capital works for which there is a * pool of construction expenditure can be a deduction, or taken into account in working out the amount of a deduction, under a provision of this Act other than this Division. (3) You will be taken not to be the owner of any part of capital works that are the subject of a lease to which you have chosen to apply section 104 ‑ 115 (CGT event F2). The lessee or sublessee will be taken to be the owner of that part. Note 1: Choosing to apply section 104 ‑ 115 results in the lease being treated for CGT purposes more like an outright disposal. Note 2: See subsection 43 ‑ 180(3) for the effect of the rule in subsection (3) of this section on the need to own 10 apartments, units or flats in an apartment building. Signposts (6) There are special record ‑ keeping rules that apply to this Division in subsection 262A(4AJA) of the Income Tax Assessment Act 1936 . (7) Your deductions under this Division may be reduced if any of your commercial debts have been forgiven in the income year: see Subdivision 245 ‑ E. (8) 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.

Amendment history: Amended by No 121 of 1997, effective s 4: 8 July 1997 (s 2(1)) Sch 1, Sch 2 (items 3–17), Sch 3 (items 3–30), Sch 4 (items 5–62, Sch 5 (items 3–42), Sch 6 (items 3–67), Sch7 (items 2–4), Sch 8 (items 2–31), Sch 9 (items 3–15), Sch 10 (items 2–11), Sch 11 (items 2–36) and Sch 12 (items 1–14): 1 July 1997 (s 2(2), (3), (4) (5)) | Amended by No 16 of 1998, effective s 4, Sch 3–5, Sch 10 (items 1–19) and Sch 11: 16 Apr 1998 (s 2(1)) | Amended by No 46 of 1998, effective s 4, Sch 1, Sch 2 (items 4–48), Sch 3 (items 3–12), Sch 4 (items 2–11), Sch 5 (items 3–5), Sch 6 (items 2–7), Sch 7 (items 2–11), Sch 9 (items 2–6, 8) and Sch 10: 22 June 1998 (s 2(1)–(4)) | Amended by No 72 of 2001, effective 30 June 2001 | Amended by No 14 of 2009, effective Schedule 1, Schedule 4 (items 11–34, 52) and Schedule 5 (items 7–13): Royal Assent Schedule 5 (items 2, 3, 14): 29 Jan 2009 Schedule 5 (items 5, 6): 1 July 2011 | Amended by No 79 of 2010, effective Sch 1 (items 3–5, 27–32), Sch 2 (items 2–8, 17–45), Sch 3 (items 2–59), Sch 4 (items 2–6, 38–46, 51) and Sch 5 (items 2, 6–13): 1 July 2010 (s 2(1) items 2–4)

s 43-55 — Anti ‑ avoidance—arrangement etc. with tax ‑ exempt entity

(1) You will not be allowed a deduction under this Division for an income year if the Commissioner is satisfied that: (a) you entered into an * arrangement with: (i) an entity to which section 50 ‑ 5, 50 ‑ 10, 50 ‑ 15, 50 ‑ 25, 50 ‑ 30, 50 ‑ 40 or 50 ‑ 45 (dealing with * exempt income) applies; or (ii) an STB (within the meaning of Division 1AB of Part III of the Income Tax Assessment Act 1936 ) whose * ordinary income and * statutory income is exempt from income tax; under which you were to pay an amount, or transfer property, directly or indirectly, to the entity; and (b) the amount of the payment or the value of the property is calculated by reference to the amount of a deduction allowable to you under this Division; and (c) a purpose of the arrangement that is not a merely incidental purpose is to ensure that the benefit of the deduction would pass wholly or substantially to the entity, whether directly or indirectly. (2) Subsection (1) applies to * arrangements entered into with an entity referred to in subparagraph (1)(a)(i) after 1 May 1980 that relate to deductions for * hotel buildings or * apartment buildings begun before 1 July 1997. (3) Subsection (1) also applies to * arrangements entered into with an entity referred to in subparagraph (1)(a)(ii) after 30 June 1994 that relate to deductions for * hotel buildings or * apartment buildings begun before 1 July 1997.

Amendment history: Amended by No 121 of 1997, effective s 4: 8 July 1997 (s 2(1)) Sch 1, Sch 2 (items 3–17), Sch 3 (items 3–30), Sch 4 (items 5–62, Sch 5 (items 3–42), Sch 6 (items 3–67), Sch7 (items 2–4), Sch 8 (items 2–31), Sch 9 (items 3–15), Sch 10 (items 2–11), Sch 11 (items 2–36) and Sch 12 (items 1–14): 1 July 1997 (s 2(2), (3), (4) (5)) | Amended by No 101 of 2004, effective s. 4, Schedule 1 (items 2–4), Schedule 9, Schedule 10 (items 7–37) and Schedule 11 (items 144–146): Royal Assent Sch 2 and Sch 7 (items 1–8): 30 June 2003 (s 2(1) items 3, 8) Sch 3: 1 July 2003 (s 2(1) item 4) Sch 11 (item 35): 30 June 2000 (s 2(1) item 13) Sch 11 (items 52–59, 88, 89): 1 July 2000 (s 2(1) item 14) Sch 11 (items 141–143): 1 July 2001 (s 2(1) item 16) | Amended by No 63 of 2005, effective Schedule 1 (items 5–23): Royal Assent | Amended by No 96 of 2013, effective Sch 1 (items 23–37): 1 Jan 2014 (s 2(1) item 2)

s 43-60 — What this Subdivision is about

This Subdivision explains the meaning of the terms construction expenditure , construction expenditure area and pool of construction expenditure . Table of sections 43 ‑ 65 Explanatory material Operative provisions 43 ‑ 70 What is construction expenditure? 43 ‑ 72 Meaning of forestry road , timber operation and timber mill building 43 ‑ 75 Construction expenditure area 43 ‑ 80 When capital works begin 43 ‑ 85 Pools of construction expenditure 43 ‑ 90 Table of intended use at time of completion of construction 43 ‑ 95 Meaning of hotel building and apartment building 43 ‑ 100 Certificates by Industry Innovation and Science Australia

s 43-65 — Explanatory material

Expenditure in respect of the construction of capital works is only eligible for a deduction under this Division if there is a construction expenditure area for the capital works. The area defined as the construction expenditure area may comprise the whole of the capital works or only part of them. Whether there is a construction expenditure area for capital works and how it is identified depends on the following factors: the type of expenditure incurred; the time when the capital works began; the area of the capital works that is to be owned, leased or held by the entity that incurred the expenditure; for capital works begun before 1 July 1997, the area of the capital works that was to be used in a particular manner. A pool of construction expenditure is that part of an amount of construction expenditure that is attributable to a particular construction expenditure area.

Amendment history: Amended by No 16 of 1998, effective s 4, Sch 3–5, Sch 10 (items 1–19) and Sch 11: 16 Apr 1998 (s 2(1))

s 43-70 — What is construction expenditure?

(1) Construction expenditure is capital expenditure incurred in respect of the construction of capital works. (2) Construction expenditure does not include: (a) expenditure on acquiring land; or (b) expenditure on demolishing existing structures; or (c) expenditure on clearing, levelling, filling, draining or otherwise preparing the construction site prior to carrying out excavation works; or (d) expenditure on landscaping; or (e) expenditure on * plant; or (f) expenditure on property for which a deduction is allowable, or would be allowable if the property were for use for the * purpose of producing assessable income, under: (i) Subdivision 40 ‑ F (about primary production depreciating assets), Subdivision 40 ‑ G (about capital expenditure of primary producers and other landholders), Subdivision 40 ‑ H (about capital expenditure that is immediately deductible) or Subdivision 40 ‑ I (about capital expenditure that is deductible over time); or (ii) the former Division 330 of this Act or the former Division 10, 10AAA or 10AA of Part III of the Income Tax Assessment Act 1936 (all of which dealt with mining and/or quarrying); or (iii) section 73A of the Income Tax Assessment Act 1936 (about expenditure on scientific research); or (iv) the former Subdivision 387 ‑ A of this Act or the former section 75D of the Income Tax Assessment Act 1936 (both of which allowed deductions for capital expenditure to prevent land degradation); or (v) the former Subdivision 387 ‑ B of this Act or the former section 75B of the Income Tax Assessment Act 1936 (both of which allowed deductions for capital expenditure on facilities to conserve or convey water); or (vi) the former Subdivision 387 ‑ G of this Act or the former section 124F or 124JA of the Income Tax Assessment Act 1936 (all of which allowed deductions for capital expenditure on forestry roads and/or timber mill buildings); or (fa) any of these kinds of expenditure if a deduction is allowable for the expenditure, or would be allowable if property had been used for the purpose of producing assessable income: (i) * mining capital expenditure or * transport capital expenditure; (ii) expenditure on a * forestry road in connection with carrying on a * timber operation for a * taxable purpose; (iii) expenditure for the construction or acquisition of a * timber mill building; (iv) expenditure on a * depreciating asset you can deduct under subsection 40 ‑ 80(1) (about exploration and prospecting); or (g) expenditure on property for which a deduction under section 355 ‑ 305 or 355 ‑ 520 is allowable for the property, or would be allowable if the property were for use for conducting * R&D activities; or (h) eligible heritage conservation expenditure within the meaning of the former Subdivision AAD of Division 17 of Part III of the Income Tax Assessment Act 1936 ; or (i) expenditure that you cannot deduct because of section 26 ‑ 100 (about water infrastructure improvement expenditure).

Amendment history: Amended by No 121 of 1997, effective s 4: 8 July 1997 (s 2(1)) Sch 1, Sch 2 (items 3–17), Sch 3 (items 3–30), Sch 4 (items 5–62, Sch 5 (items 3–42), Sch 6 (items 3–67), Sch7 (items 2–4), Sch 8 (items 2–31), Sch 9 (items 3–15), Sch 10 (items 2–11), Sch 11 (items 2–36) and Sch 12 (items 1–14): 1 July 1997 (s 2(2), (3), (4) (5)) | Amended by No 77 of 2001, effective Sch 2 (items 149–476, 488): 30 June 2001 (s 2(1)) | Amended by No 170 of 2001, effective Sch 2 (items 28–44, 51): 12 pm (A.C.T.) 29 Jan 2001 (s 2(2)) Sch 2 (items 69–84, 92): 30 June 2001 (s 2(3)) Sch 3 (items 11–13, 19(1)): 1 Oct 2001 (s 2(1)) | Amended by No 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent | Amended by No 93 of 2011, effective Schedule 1, Schedule 3 (items 1–4, 15–42, 54–107) and Schedule 4 (items 1–9): Royal Assent | Amended by No 84 of 2013, effective s 4, Sch 1 (items 2–9, 19–23), Sch 2, Sch 3, Sch 6 and Sch 8 (items 27–32): 28 June 2013 (s 2(1) items 1, 2, 4) | Amended by No 88 of 2013, effective s 4, Sch 1 (items 1–18), Sch 3 and Sch 7 (items 200–210, 236–242): 28 June 2013 (s 2(1) items 1, 2, 5, 21, 26) Sch 1 (items 33, 34): 1 July 2013 (s 2(1) item 3) Sch 5 (items 1–5, 7–9) and Sch 6 (items 3–41, 50–65): 29 June 2013 (s 2(1) items 8, 9, 14) Sch 7 (items 1–4): 1 July 2012 (s 2(1) item 15) | Amended by No 96 of 2014, effective Sch 1 (items 14–45, 122–124), Sch 2 (items 1, 14–40, 42, 43) and Sch 3–5: 30 Sept 2014 (s 2(1) item 2) Sch 8 (items 15–22, 26) and Sch 9 (items 21, 22, 24): 31 Dec 2016 (s 2(1) items 7, 9)

s 43-72 — Meaning of forestry road , timber operation and timber mill building

(1) A forestry road is a road constructed primarily and principally for the purpose of providing access to an area to enable: (a) trees to be planted or tended in the area; or (b) timber felled in the area to be removed. For this purpose, a road includes any bridge, culvert or similar work forming part of the road. (2) A timber operation is: (a) planting or tending trees for felling; or (b) felling standing timber; or (c) removing felled timber; or (d) milling felled timber or processing it in another way. (3) A timber mill building is a building: (a) for use primarily and principally: (i) in carrying on your * business of milling timber for a * taxable purpose; or (ii) as residential accommodation for your employees engaged in connection with the business, or for their dependants; and (b) located in a forest, and in or adjacent to the area where timber milled in the business is, or is to be, felled.

Amendment history: Inserted by No 77 of 2001, effective Sch 2 (items 149–476, 488): 30 June 2001 (s 2(1))

s 43-75 — Construction expenditure area

(1) The construction expenditure area of capital works begun after 30 June 1997 is the part of the capital works on which the * construction expenditure was incurred that, at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a * quasi ‑ ownership right over land granted by an * exempt Australian government agency or an * exempt foreign government agency. Note: Section 43 ‑ 80 explains when capital works begin. (2) The construction expenditure area of capital works begun before 1 July 1997 is the part of the capital works on which the * construction expenditure was incurred that: (a) at the time when it was incurred by an entity, was to be owned or leased by the entity or held by the entity under a * quasi ‑ ownership right over land granted by an * exempt Australian government agency or an * exempt foreign government agency; and (b) at the time of completion of construction, was to be used in the way described in Column 3 of Table 43 ‑ 90 (intended use at completion) for the time period when the capital works began as set out in Column 1. (3) There is taken to be a construction expenditure area for capital works purchased by an entity from another entity if: (a) the capital works would have had a construction expenditure area but for the fact that the other entity did not incur capital expenditure in constructing the capital works; and (b) the other entity is not an * associate of the entity; and (c) the other entity constructed the capital works on land that it owned or leased in the course of a business that included the construction and sale of capital works of that kind. Note: Subsection (3) makes capital works purchased from a speculative builder eligible for deduction in the hands of the first and subsequent purchasers. (4) The construction of the capital works must be complete before the * construction expenditure area is determined. (5) Only one * construction expenditure area is created each time an entity constructs capital works. Example: An entity undertakes the construction of a building. During the course of construction, the entity makes 3 progress payments to the builder. There is still only one construction expenditure area. (6) A separate * construction expenditure area will be created each time an entity undertakes the construction of capital works. Example: In the diagram below, area 1 relates to the original construction of a building which gives rise to one construction expenditure area . Area 2 is a subsequent extension of the same building which gives rise to another, while area 3 is a later renovation of the entire building which gives rise to another.

s 43-80 — When capital works begin

Capital works are taken to begin when the first step in the construction phase starts. For example, the pouring of foundations or sinking of pilings for a building. Note 1: Capital works begun after 15 September 1987 are taken to have begun before 16 September 1987 in certain circumstances. See section 43 ‑ 220. Note 2: The time when capital works begin is relevant for determining whether the capital works qualify for deduction, the use to which those works must be put, the rate of deduction and the calculation mechanism used. However, the time when capital works begin does not limit what qualifies as construction expenditure.