Income Tax Assessment Act 1997

s 36-17 — How to deduct tax losses of corporate tax entities

(1) A * tax loss of an entity for a * loss year is deducted in a later income year as follows if the entity is a * corporate tax entity at any time during the later income year. Note 1: A tax loss can be deducted under this section only to the extent that it has not already been utilised: see subsection 960 ‑ 20(1). Note 2: A corporate tax entity may also, in the 2020 ‑ 21, 2021 ‑ 22 or 2022 ‑ 23 income year, be able to carry a loss back to the 2018 ‑ 19, 2019 ‑ 20, 2020 ‑ 21 or 2021 ‑ 2022 income year: see Division 160. If the entity has no net exempt income (2) If the entity’s total assessable income for the later income year exceeds the entity’s total deductions (except * tax losses), the entity is to deduct from that excess so much of the tax loss as the entity chooses. The entity may choose a nil amount. If the entity has net exempt income (3) If the entity has * net exempt income for the later income year and the entity’s total assessable income (if any) for that year exceeds the entity’s total deductions (except * tax losses), the entity is to: (a) first, deduct the tax loss from the net exempt income; and (b) secondly, deduct from the part of the total assessable income that exceeds those deductions so much of the undeducted amount of the tax loss (if any) as the entity chooses. The entity may choose a nil amount under paragraph (b). Note: To work out the corporate tax entity’s net exempt income: see section 36 ‑ 20. (4) However, if the entity has * net exempt income for the later income year and those deductions exceed the entity’s total assessable income, the entity is to: (a) subtract that excess from the net exempt income; and (b) deduct the * tax loss from any net exempt income that remains. Note: This means there is no choice available under this subsection. (4A) For subsection (3) or (4), if the entity has * exempt income under section 51 ‑ 100 (about shipping) for the later income year, disregard 90% of so much of the entity’s * net exempt income for the later income year as directly relates to that exempt income. Limit to how much the entity can choose (5) The choice that the entity has under subsection (2) or (3) for the later income year is subject to both of the following: (a) the entity must choose a nil amount if, disregarding the * tax loss and other tax losses of the entity, the entity would have an amount of * excess franking offsets for that year; (b) if, disregarding the tax loss and other tax losses of the entity, the entity would not have an amount of excess franking offsets for that year—the entity must not choose an amount that would result in the entity having an amount of excess franking offsets for that year. Example: For the 2017 ‑ 18 income year, Company A (which is not a base rate entity) has: a tax loss of $150 from a previous income year; and assessable income of $200 (franked distribution of $70, franking credit of $30 and $100 of income from other sources); and no deductions; and no net exempt income. The tax offset of $30 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules. Company A would not have an amount of excess franking offsets for that year if the tax loss were disregarded (see section 36 ‑ 55). This is because the tax offset of $30 is less than $60, the amount of income tax that Company A would have to pay if it did not have the tax offset and the tax loss. Paragraph (a) therefore does not apply. If Company A chooses to deduct the full amount of the tax loss, it would have an amount of excess franking offsets of $15: Company A therefore cannot make this choice because of paragraph (b). However, if Company A chooses to deduct $100 of the tax loss, it would not have an amount of excess franking offsets: Company A therefore can choose to deduct $100 of the tax loss. (6) The entity must state its choice under subsection (2) or (3) in its * income tax return for the later income year. General (7) If the entity has 2 or more * tax losses, the entity is to deduct them in the order in which the entity incurred them. Recalculation of amounts resulting in a choice or a change of a choice (10) Subsection (11) or (12) applies if at least one of the following amounts is recalculated after an entity has lodged its * income tax return for an income year: (a) the amount of a * tax loss that the entity can * utilise in that year; (b) the amount of the difference between the entity’s total assessable income for that year and the entity’s total deductions (other than * tax losses) for that year; (c) the amount of the entity’s * net exempt income for that year; whether or not the amount is recalculated in an amendment of the entity’s assessment for that year, and whether or not the amount was a nil amount before the recalculation (or has become a nil amount after the recalculation). (11) If: (a) before the recalculation, a choice under subsection (2) or (3) for the income year was not available to the entity; but (b) as a result of the recalculation, the choice has (apart from subsection (6)) become available to the entity; the entity can make that choice by written notice given to the Commissioner. (12) If: (a) the entity made a choice under subsection (2) or (3) for the income year; but (b) as a result of the recalculation, the entity wishes to change that choice; the entity can do so by written notice given to the Commissioner. (13) Subsections (10) to (12) have effect subject to section 170 of the Income Tax Assessment Act 1936 (about amendment of assessments).

Amendment history: Inserted by No 142 of 2003, effective s 4, Sch 1 (items 1–15, 18–40), Sch 2 (items 1, 2, 4–29, 33–49, 52, 53), Sch 3, Sch 7 (items 1–23) and Sch 8 (items 4–17, 17A, 17B, 18–21, 24(2), (3)): 17 Dec 2003 (s 2(1) items 1–5, 10, 11, 13) | 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 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) | Amended by No 57 of 2012, effective Schedules 1–3: 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) | 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 66 of 2015, effective Sch 1 (items 6–29, 32): 22 June 2015 (s 2(1) items 3, 5) | Amended by No 41 of 2017, effective Sch 2 (item 1), Sch 3 (items 1–21), Sch 4 (items 1–29) and Sch 5 (items 1, 2): 1 July 2016 (s 2(1) items 9, 14, 16, 18) Sch 2 (item 2) and Sch 5 (items 17, 18): repealed before commencing (s 2(1) items 10, 20) Sch 2 (item 3) and Sch 5 (items 19, 20): 1 July 2020 (s 2(1) items 11, 21) Sch 2 (item 4) and Sch 5 (items 21, 22): 1 July 2021 (s 2(1) items 12, 22) Sch 2 (item 5), Sch 3 (item 22) and Sch 4 (item 58): 19 May 2017 (s 2(1) items 13, 15, 17) Sch 5 (items 3–8): 1 July 2017 (s 2(1) item 19) | 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) | Amended by No 8 of 2022, effective sch 5 (items 1-4, 8-14): 1 July 2022 (s 2(1) item 4) sch 5 (items 15-19): repealed before commencing (s 2(1) item 5) sch 6 (items 1-22, 24), sch 7, sch 8 (items 33, 34), sch 10: 1 Apr 2022 (s 2(1) items 6-8, 10, 14)

s 36-20 — Net exempt income

(1) If you are an Australian resident, your net exempt income is the amount by which your total * exempt income from all sources exceeds the total of: (a) the losses and outgoings (except capital losses and outgoings) you incurred in deriving that exempt income; and (b) any taxes payable outside Australia on that exempt income. (2) If you are a foreign resident, your net exempt income is the amount (if any) by which the total of: (a) your * exempt income * derived from sources in Australia; and (b) your exempt income to which section 26AG (Certain film proceeds included in assessable income) of the Income Tax Assessment Act 1936 applies; exceeds the total of: (c) the losses and outgoings (except capital losses and outgoings) you incurred in deriving exempt income covered by paragraph (a) or (b); and (d) any taxes payable outside Australia on income covered by paragraph (b).

Amendment history: Amended by No 147 of 1997, effective s 4 and Sch 2 (items 2–7): 14 Oct 1997 (s 2(1)) Sch 6 (items 10–13): 1 July 1997 (s 2(3)) Sch 14 (items 43–60): 1 July 1997 (s 2(7)) Sch 15 (items 7–13): 1 July 1997 (s 2(9)) | 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 60 of 1999, effective 9 July 1999 ( see s. 2) | 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 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)

s 36-25 — Special rules about tax losses

Tax losses of individuals Item For the special rules about this situation ... See: 1. You go bankrupt, or you are released from debts under a bankruptcy law: your right to deduct tax losses of an earlier income year may be affected. Subdivision 36 ‑ B Tax losses of companies Item For the special rules about this situation ... See: 1. A company has had a change of ownership or control during the income year, and has not satisfied the business continuity test: it works out its taxable income and its tax loss in a special way. Subdivision 165 ‑ B 2. A company wants to deduct a tax loss. It cannot do so unless: • the same people owned the company during the loss year, the income year and any intervening year; and Subdivision 165 ‑ A • no person controlled the company’s voting power at any time during the income year who did not also control it during the whole of the loss year and any intervening year; or the company has satisfied the business continuity test. 3. One or more of these things happen: • income is injected into a company; • a tax benefit is obtained from available losses or deductions; • a deduction is injected into a company; • a tax benefit is obtained because of available income. The Commissioner can disallow tax losses or current year deductions. Division 175 4. A company can transfer a surplus amount of its tax loss to another company so that the other company can deduct the amount in the income year of the transfer. (Both companies must be members of the same wholly ‑ owned group.) Subdivision 170 ‑ A See also: Tax losses of pooled development funds (PDFs) below 5. A life insurance company Subdivision 320 ‑ D 6. A company is a designated infrastructure project entity. Subdivision 415 ‑ B Tax losses of corporate tax entities Item For the special rules about this situation... See: 1. A corporate tax entity that has an amount of excess franking offsets for an income year: it works out its tax loss in a special way. Subdivision 36 ‑ C See also Division 160 (loss carry back tax offset for 2020 ‑ 21, 2021 ‑ 22 or 2022 ‑ 23 for businesses with turnover under $5 billion) Tax losses of entities generally Item For the special rules about this situation ... See: 3. You have deductions in relation to deriving income under section 26AG of the Income Tax Assessment Act 1936 from the proceeds of a film: your tax loss may have a film component, which is deductible from your film income only. Former Subdivision 375 ‑ G Tax losses of pooled development funds (PDFs) Item For the special rules about this situation ... See: 1. A company is a pooled development fund (PDF) at the end of an income year for which it has a tax loss: it can only: (a) deduct the loss while it is a PDF; or (b) carry back the loss to an income year in which it was a PDF. Sections 195 ‑ 5 and 195 ‑ 37 2. A company becomes a PDF during an income year: special rules affect how it works out a tax loss and how the loss is utilised. Section 195 ‑ 15 Tax losses of VCLPs, ESVCLPs, AFOFs and VCMPs Item For the special rules about this situation ... See: 1. A limited partnership that has a tax loss becomes a VCLP, an ESVCLP, an AFOF or a VCMP: it cannot: (a) deduct the loss while it is a VCLP, an ESVCLP, an AFOF or a VCMP; or (b) carry back the loss to an income year in which it was not a VCLP, an ESVCLP, an AFOF or a VCMP. Subdivision 195 ‑ B Tax losses of entities that become foreign hybrids Item For the special rules about this situation... See: 1. An entity that has a tax loss becomes a foreign hybrid: it cannot deduct the loss while it is a foreign hybrid. Section 830 ‑ 115 Tax losses of trusts Item For the special rules about this subsection... See: 1. A trust has had a change of ownership or control or there has been an abnormal trading in its units: • if this happens in the income year, it works out its net income and tax loss in a special way; or • if this happens at any time from the start of a loss year until the end of the income year, it cannot deduct a tax loss from the loss year. This will not be the case if the trust is an excepted trust. However, if it became one by making a family trust election, a special tax may be payable on certain distributions and other amounts. Divisions 266, 267 and 268 in Schedule 2F to the Income Tax Assessment Act 1936 2. A trust is involved in a scheme to take advantage of deductions. The trust may be prevented from making full use of them. Division 270 in Schedule 2F to the Income Tax Assessment Act 1936 3. A trust is a designated infrastructure project entity. Subdivision 415 ‑ B Tax losses of greenfields minerals explorers Item For the special rules about this situation... See: 1. A greenfields minerals explorer creates exploration credits. Section 418 ‑ 95

Amendment history: Amended by No 17 of 1998, effective 16 Apr 1998 | Amended by No 136 of 2002, effective Sch 1 (items 1, 5): 31 May 2000 (s 2(1) items 2, 4) Sch 1 (items 2–4, 6–27), Sch 2 (items 18–28), Sch 3 (items 2–18) and Sch 4 (items 1, 2): 19 Dec 2002 (s 2(1) items 3, 5, 6) | Amended by No 142 of 2003, effective s 4, Sch 1 (items 1–15, 18–40), Sch 2 (items 1, 2, 4–29, 33–49, 52, 53), Sch 3, Sch 7 (items 1–23) and Sch 8 (items 4–17, 17A, 17B, 18–21, 24(2), (3)): 17 Dec 2003 (s 2(1) items 1–5, 10, 11, 13) | Amended by No 83 of 2004, effective s 4, Sch 1 (items 116–124), Sch 2 (items 1, 2, 5–8, 10–18, 20–33, 36–50, 52–64, 67–74), Sch 3 (items 4–7), Sch 5 (items 1, 2), Sch 6, Sch 8 (items 9–11), Sch 10 (items 43, 44) and Sch 12: 25 June 2004 (s 2(1) items 1, 12–14, 16, 17, 20, 27, 29, 30) Sch 1 (items 2–79): 30 June 2000 (s 2(1) item 2) Sch 1 (items 85–94): 30 June 2001 (s 2(1) items 3–5) Sch 1 (items 95–99): 24 Oct 2002 (s 2(1) item 6) Sch 1 (item 100): 19 Dec 2002 (s 2(1) item 7) Sch 1 (items 101–104) and Sch 10 (items 23–29, 30–42): 30 June 2003 (s 2(1) items 8, 9, 24–26) Sch 1 (items 105, 106): 17 Dec 2003 (s 2(1) item 10) Sch 10 (items 3–22): 29 June 2002 (s 2(1) item 23) | 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 147 of 2005, effective Schedule 1 (items 4–168, 169(2), 170–176), Schedule 2 (items 1, 12–24, 26–28), Schedule 3, Schedule 4 (items 4–12), Schedule 5 (items 13, 14, 20), Schedule 6 (items 1, 2, 10(1)) and Schedule 7 (items 14–16, 20): Royal Assent | Amended by No 78 of 2007, effective Schedule 7 (items 2–14): 1 July 2005 Schedule 8 (items 350–353): 19 Dec 2002 (s 2(1) item 7) Remainder: Royal Assent | Amended by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | 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 41 of 2011, effective Schedule 1 (items 1–3): 1 Jan 2011 Schedule 1 (items 4–6) and Schedule 5 (items 25–29, 33, 36–50, 74–78, 80–145, 148–167, 173–175, 383–396, 400, 414–418): Royal Assent Schedule 5 (items 9, 18–20): 28 June 2011 Schedule 5 (items 51–54): 1 July 2011 | 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 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 124 of 2013, effective Sch 1 (items 37–45), Sch 5 (items 7, 8(1)), Sch 7, Sch 8, Sch 10 (items 1–11, 13): 29 June 2013 (s 2(1) items 2, 10–12) Sch 2 (items 2–6, 21–42, 48): 11 July 2013 (s 2(1) item 3) Sch 2 (item 66): 11 July 2013 (s 2(1) item 5) Sch 10 (item 14): never commenced (s 2(1) item 13) Sch 11 (items 1–3): 3 Dec 2012 (s 2(1) item 15) Sch 11 (items 5, 6, 9): 28 June 2013 (s 2(1) item 16) Sch 11 (items 28, 32(1), 35–56): 30 June 2013 (s 2(1) items 18, 20, 22) | 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 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 7 of 2019, effective Sch 1 (items 1–13, 33–164): 1 Apr 2019 (s 2(1) item 1) | 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) | Amended by No 8 of 2022, effective sch 5 (items 1-4, 8-14): 1 July 2022 (s 2(1) item 4) sch 5 (items 15-19): repealed before commencing (s 2(1) item 5) sch 6 (items 1-22, 24), sch 7, sch 8 (items 33, 34), sch 10: 1 Apr 2022 (s 2(1) items 6-8, 10, 14)

s 36-30 — What this Subdivision is about

After you become bankrupt, you cannot deduct a tax loss that you incurred beforehand. However, you may be able to deduct repayments of debts you incurred in the loss year. Table of sections Operative provisions 36 ‑ 35 No deduction for tax loss incurred before bankruptcy 36 ‑ 40 Deduction for amounts paid for debts incurred before bankruptcy 36 ‑ 45 Limit on deductions for amounts paid

s 36-35 — No deduction for tax loss incurred before bankruptcy

(1) If: (a) you became bankrupt; or (b) you were released from a debt by the operation of an Act relating to bankruptcy; before the income year, you cannot deduct a * tax loss that you incurred before the day on which you either became bankrupt or were released. (2) If: (a) you became bankrupt before the income year; and (b) the bankruptcy is later annulled under section 74 of the Bankruptcy Act 1966 because your creditors have accepted your proposal for a composition or scheme of arrangement; and (c) under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy; you cannot deduct a * tax loss that you incurred before the day on which you became bankrupt.

s 36-40 — Deduction for amounts paid for debts incurred before bankruptcy

Tax losses generally (1) If: (a) you pay an amount in the income year for a debt that you incurred in an earlier income year; and (b) you have a * tax loss covered by section 36 ‑ 35 for that earlier income year; you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the tax loss. Film losses (2) If: (a) you pay an amount in the income year for a debt that you incurred in an earlier income year; and (b) you incurred the debt in the course of deriving or gaining * assessable film income or * exempt film income; and (c) you also incurred a * film loss covered by section 36 ‑ 35 in that earlier income year; you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the film loss. (3) A film loss is the * film component (if any) of a * tax loss. (4) Your * tax loss for an income year has a film component if your * film deductions for the year exceed the sum of: (a) your * assessable film income for the year; and (b) your * net exempt film income for the year. The amount of the film component is the excess or the tax loss, whichever is lesser. (5) However, if your * tax loss worked out under a provision listed in the table, the film component is what that tax loss would have been if: (a) your * film deductions for the * loss year had been your only deductions; and (b) your * assessable film income for the loss year had been your only assessable income; and (c) your * net exempt film income for the loss year had been your only * net exempt income. However, the film component cannot exceed the actual tax loss. Working out film component of tax loss Item Provision Type of entity 1 165 ‑ 70 Company—income year when ownership or control changed 2 175 ‑ 35 Company—deductions that have been used to obtain a tax benefit disallowed 3 268 ‑ 60 in Schedule 2F to the Income Tax Assessment Act 1936 Trust—income year when ownership or control changed

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 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)

s 36-45 — Limit on deductions for amounts paid

Tax losses generally (1) The total of your deductions under subsection 36 ‑ 40(1) for amounts paid in the income year for debts incurred in the * loss year cannot exceed the amount of the * tax loss reduced by the sum of: (a) your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and (b) any amounts of the tax loss * utilised in earlier income years; and (c) any amounts of the tax loss that, apart from section 36 ‑ 35, would have been deductible from your * net exempt income for the income year or earlier income years. Film losses (2) The total of your deductions under subsection 36 ‑ 40(2) for amounts paid in the income year for debts incurred in the * loss year cannot exceed the amount of the * film loss reduced by the sum of: (a) your deductions under that subsection for amounts paid in earlier income years for debts incurred in the loss year; and (b) any amounts of the film loss deducted in earlier income years; and (c) any amounts of the film loss that, apart from section 36 ‑ 35, would have been deductible from your * net exempt film income for the income year or earlier income years.

Amendment history: 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)

s 36-50 — What this Subdivision is about

Amounts of tax offsets to which a corporate tax entity is entitled under Division 207 and Subdivision 210 ‑ H may in some circumstances be converted into an amount of a tax loss for the entity. Table of sections Operative provision 36 ‑ 55 Converting excess franking offsets into tax loss

Amendment history: Inserted by No 142 of 2003, effective s 4, Sch 1 (items 1–15, 18–40), Sch 2 (items 1, 2, 4–29, 33–49, 52, 53), Sch 3, Sch 7 (items 1–23) and Sch 8 (items 4–17, 17A, 17B, 18–21, 24(2), (3)): 17 Dec 2003 (s 2(1) items 1–5, 10, 11, 13)

s 36-55 — Converting excess franking offsets into tax loss

Excess franking offsets (1) An entity that is a * corporate tax entity at any time during an income year has an amount of excess franking offsets for that year if: (a) the total amount of * tax offsets to which the entity is entitled for that year under Division 207 and Subdivision 210 ‑ H (except those that are subject to the refundable tax offset rules because of section 67 ‑ 25); exceeds: (b) the amount of income tax that the entity would have to pay on its taxable income for that year if: (i) it did not have those tax offsets; and (ii) it did not have any tax offsets that are subject to the tax offset carry forward rules or the refundable tax offset rules; and (iii) it did not have any tax offset under section 205 ‑ 70; but had all its other tax offsets. The excess is the amount of excess franking offsets . Note: Division 65 sets out the tax offset carry forward rules. Division 67 sets out which tax offsets are subject to the refundable tax offset rules. Example: For the 2017 ‑ 18 income year, Company E (which is not a base rate entity) has: assessable income of $200 (franked distribution of $140 and franking credit of $60); and $100 of deductions that are allowable. The tax offset of $60 from the franking credit is not stated in Division 67 to be subject to the refundable tax offset rules. Disregarding the tax offset of $60 from the franking credit, the amount of income tax that Company E would have to pay is $30: This amount is $30 less than the tax offset of $60. Company E therefore has an amount of excess franking offsets of $30 for that year. How to work out the amount of the tax loss (2) For the purposes of this Act, if: (a) an entity has an amount of * excess franking offsets for an income year; and (b) the result of applying the following method statement is a positive amount; then: (c) the entity is taken to have a * tax loss for that year equal to that positive amount (instead of an amount of tax loss worked out under section 36 ‑ 10, 165 ‑ 70, 175 ‑ 35 or 701 ‑ 30); and (d) that year is taken to be a * loss year for the entity if the entity would not otherwise have a tax loss for that year. Method statement Step 1. Work out the amount (if any) that would have been the entity’s * tax loss for that year under section 36 ‑ 10, 165 ‑ 70, 175 ‑ 35 or 701 ‑ 30 if the entity’s * net exempt income for that year (if any) were disregarded. Note: See section 36 ‑ 20 for the calculation of net exempt income. Step 2. Divide the amount of * excess franking offsets by the entity’s * corporate tax rate for imputation purposes for that year. Step 3. Add the results of steps 1 and 2. Step 4. Reduce the result of step 3 by the entity’s * net exempt income for that year (if any). The result of this step is taken to be the entity’s * tax loss for that year. However, if the result of this step is nil or a negative amount, the company does not have any tax loss for that year. Example: Assume that company E did not derive any exempt income for the 2017 ‑ 2018 income year and that it would not otherwise have any tax loss for that year under section 36 ‑ 10, 165 ‑ 70, 175 ‑ 35 or 701 ‑ 30. Applying the method statement, the amount of excess franking offsets of $30 generates a tax loss of $100 for that year, which can be deducted in a later income year under section 36 ‑ 15 or 36 ‑ 17. Income Tax Assessment Act 1997 No. 38, 1997 Compilation No. 266 Compilation date: 1 July 2026 Includes amendments: Act No. 17, 2025, Act No. 57, 2025, Act No. 49, 2026 and Act No. 58, 2026 This compilation is in 12 volumes Volume 1: Chapter 1, Part 1 ‑ 1 to Chapter 2, Part 2 ‑ 5 sections 1 ‑ 1 to 36 ‑ 55 Volume 2: Chapter 2, Part 2 ‑ 10 to Chapter 2, Part 2 ‑ 20 sections 40 ‑ 1 to 67 ‑ 30 Volume 3: Chapter 2, Part 2 ‑ 25 to Chapter 3, Part 3 ‑ 1 sections 70 ‑ 1 to 121 ‑ 35 Volume 4: Chapter 3, Part 3 ‑ 3 to Chapter 3, Part 3 ‑ 5 sections 122 ‑ 1 to 197 ‑ 85 Volume 5: Chapter 3, Part 3 ‑ 6 to Chapter 3, Part 3 ‑ 10 sections 200 ‑ 1 to 253 ‑ 15 Volume 6: Chapter 3, Part 3 ‑ 25 to Chapter 3, Part 3 ‑ 30 sections 275 ‑ 1 to 313 ‑ 85 Volume 7: Chapter 3, Part 3 ‑ 32 to Chapter 3, Part 3 ‑ 50 sections 315 ‑ 1 to 421 ‑ 85 Volume 8: Chapter 3, Part 3 ‑ 80 to Chapter 3, Part 3 ‑ 90 sections 615 ‑ 1 to 721 ‑ 40 Volume 9: Chapter 3, Part 3 ‑ 95 to Chapter 4, Part 4 ‑ 5 sections 723 ‑ 1 to 880 ‑ 205 Volume 10: Chapter 5, Part 5 ‑ 30 to Chapter 6, Part 6 ‑ 5 sections 900 ‑ 1 to 995 ‑ 1 Volume 11: Endnotes 1 to 3 Volume 12: Endnote 4 Each volume has its own contents About this compilation This compilation This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 1 July 2026 (the compilation date ). The notes at the end of this compilation (the endnotes ) include information about amending laws and the amendment history of provisions of the compiled law. Uncommenced amendments The effect of uncommenced amendments is not shown in the text of the compiled law. The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. Any uncommenced amendments affecting the law are accessible on the Register (www.legislation.gov.au). Application, saving and transitional provisions If the operation of a provision or amendment of the compiled law is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes. Editorial changes For more information about any editorial changes made in this compilation, see the endnotes. Presentational changes The Legislation Act 2003 provides for First Parliamentary Counsel to make presentational changes to a compilation. Presentational changes are applied to give a more consistent look and feel to legislation published on the Register, and enable the user to more easily navigate those documents. Modifications If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. Any modifications affecting the law are accessible on the Register. Self ‑ repealing provisions If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes. Contents

Amendment history: Amended by No 107 of 2003, effective Sch 6: 1 July 2003 (s 2(1) item 3) Sch 7 (items 6–8): 30 June 2003 (s 2(1) item 5) Sch 7 (item 15): 17 Dec 2003 (s 2(1) item 7) Remainder: 21 Oct 2003 (s 2(1) items 1, 2, 4, 6, 8) | Inserted by No 142 of 2003, effective s 4, Sch 1 (items 1–15, 18–40), Sch 2 (items 1, 2, 4–29, 33–49, 52, 53), Sch 3, Sch 7 (items 1–23) and Sch 8 (items 4–17, 17A, 17B, 18–21, 24(2), (3)): 17 Dec 2003 (s 2(1) items 1–5, 10, 11, 13) | 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 66 of 2015, effective Sch 1 (items 6–29, 32): 22 June 2015 (s 2(1) items 3, 5) | Amended by No 41 of 2017, effective Sch 2 (item 1), Sch 3 (items 1–21), Sch 4 (items 1–29) and Sch 5 (items 1, 2): 1 July 2016 (s 2(1) items 9, 14, 16, 18) Sch 2 (item 2) and Sch 5 (items 17, 18): repealed before commencing (s 2(1) items 10, 20) Sch 2 (item 3) and Sch 5 (items 19, 20): 1 July 2020 (s 2(1) items 11, 21) Sch 2 (item 4) and Sch 5 (items 21, 22): 1 July 2021 (s 2(1) items 12, 22) Sch 2 (item 5), Sch 3 (item 22) and Sch 4 (item 58): 19 May 2017 (s 2(1) items 13, 15, 17) Sch 5 (items 3–8): 1 July 2017 (s 2(1) item 19)

s 40-1 — What this Division is about

You can deduct an amount equal to the decline in value of a depreciating asset (an asset that has a limited effective life and that is reasonably expected to decline in value over the time it is used) that you hold. That decline is generally measured by reference to the effective life of the asset. You can also deduct amounts for certain other capital expenditure.

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

s 40-10 — Simplified outline of this Division

The key concepts about depreciating assets and certain other capital expenditure are outlined below (in bold italics ). Simplified outline of this Division Item Major topic Subordinate topics Rules Provisions 1 Rules about depreciating assets 1.1 Core provisions Depreciating assets are assets with a limited effective life that are reasonably expected to decline in value. Broadly, the effective life of a depreciating asset is the period it can be used to produce income. The decline in value is based on the cost and effective life of the depreciating asset, not its actual change in value. It begins at start time , when you begin to use the asset (or when you have it installed ready for use). It continues while you use the asset (or have it installed). Usually, the owner of a depreciating asset holds the asset and can therefore claim deductions for its decline in value. Sometimes the economic owner will be different to the legal owner and the economic owner will be the holder. Subdivision 40 ‑ B 1.2 Cost The cost of a depreciating asset includes both: expenses you incur to start holding the asset; and additional expenses that contribute to its present condition and location (e.g. improvements). Subdivision 40 ‑ C 1.3 Balancing adjustments When you stop holding a depreciating asset you may have to include an amount in your assessable income, or deduct an amount under a balancing adjustment . The adjustment reconciles the decline with the actual change in value. Subdivision 40 ‑ D 1.4 Low ‑ value and software development pools Low ‑ cost assets and assets depreciated to a low value may be placed in a low value pool , which is treated as a single depreciating asset. You can also pool in ‑ house software expenditure in a software development pool . Subdivision 40 ‑ E 1.5 Primary production depreciating assets You can deduct amounts for capital expenditure on: water facilities immediately; or horticultural plants over a period that relates to the effective life of the plant; or fodder storage assets immediately; or fencing assets immediately. Subdivision 40 ‑ F 2 Rules about other capital expenditure 2.1 Capital expenditure of primary producers and other landholders You can deduct amounts for capital expenditure on: landcare operations immediately; or electricity and telephone lines over 10 income years. Subdivision 40 ‑ G 2.2 Capital expenditure that is immediately deductible You can get an immediate deduction for certain capital expenditure on: exploration or prospecting ; and rehabilitation of mine and quarry sites ; and paying petroleum taxes ; and environmental protection activities . Subdivision 40 ‑ H 2.3 Capital expenditure that is deductible over time You can deduct amounts for certain capital expenditure associated with projects you carry on. You deduct the amount over the life of the project using a project pool . You can also deduct amounts for certain business related costs over 5 years where the amounts are not otherwise taken into account and are not denied a deduction. Subdivision 40 ‑ I 2.4 Capital expenditure for establishing trees in carbon sink forests You can deduct amounts for capital expenditure for the establishment of trees in carbon sink forests. Subdivision 40 ‑ J

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)) | Repealed and substituted by No 91 of 1998, effective Sch 1 (items 1–13, 19): 14 July 1998 (s 2(1)) | Repealed and substituted 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 32 of 2006, effective 6 Apr 2006 | 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 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 141 of 2020, effective Sch 1 (item 1) and Sch 4 (items 82–101): 1 Jan 2021 (s 2(1) items 2, 7) Sch 4 (item 146): 18 Dec 2020 (s 2(1) item 16)

s 40-15 — Objects of Division

The objects of this Division are: (a) to allow you to deduct the * cost of a * depreciating asset; and (b) to spread the deduction over a period that reflects the time for which the asset can be used to obtain benefits; and (c) to provide deductions for certain other capital expenditure that is not otherwise deductible. Note 1: This Division does not apply to some depreciating assets: see section 40 ‑ 45. Note 2: The application of this Division to a life insurance company is affected by sections 320 ‑ 200 and 320 ‑ 255.

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 and substituted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Amended by No 83 of 2004, effective s 4, Sch 1 (items 116–124), Sch 2 (items 1, 2, 5–8, 10–18, 20–33, 36–50, 52–64, 67–74), Sch 3 (items 4–7), Sch 5 (items 1, 2), Sch 6, Sch 8 (items 9–11), Sch 10 (items 43, 44) and Sch 12: 25 June 2004 (s 2(1) items 1, 12–14, 16, 17, 20, 27, 29, 30) Sch 1 (items 2–79): 30 June 2000 (s 2(1) item 2) Sch 1 (items 85–94): 30 June 2001 (s 2(1) items 3–5) Sch 1 (items 95–99): 24 Oct 2002 (s 2(1) item 6) Sch 1 (item 100): 19 Dec 2002 (s 2(1) item 7) Sch 1 (items 101–104) and Sch 10 (items 23–29, 30–42): 30 June 2003 (s 2(1) items 8, 9, 24–26) Sch 1 (items 105, 106): 17 Dec 2003 (s 2(1) item 10) Sch 10 (items 3–22): 29 June 2002 (s 2(1) item 23)

s 40-20 — What this Subdivision is about

The rules that apply to most depreciating assets are in this Subdivision. It explains: • what a depreciating asset is; and • when you start deducting amounts for depreciating assets; and • how to work out your deductions. It also contains rules for splitting and merging depreciating assets. Table of sections Operative provisions 40 ‑ 25 Deducting amounts for depreciating assets 40 ‑ 27 Further reduction of deduction for second ‑ hand assets in residential property 40 ‑ 30 What a depreciating asset is 40 ‑ 35 Jointly held depreciating assets 40 ‑ 40 Meaning of hold a depreciating asset 40 ‑ 42 When mining, quarrying or prospecting rights are used 40 ‑ 45 Assets to which this Division does not apply 40 ‑ 50 Assets for which you deduct under another Subdivision 40 ‑ 53 Alterations etc. to certain depreciating assets 40 ‑ 55 Use of the “cents per kilometre” car expense deduction method 40 ‑ 60 When a depreciating asset starts to decline in value 40 ‑ 65 Choice of methods to work out the decline in value 40 ‑ 70 Diminishing value method 40 ‑ 72 Diminishing value method for post ‑ 9 May 2006 assets 40 ‑ 75 Prime cost method 40 ‑ 80 When you can deduct the asset’s cost 40 ‑ 82 Assets costing less than $150,000—medium sized businesses—assets first acquired between 2 April 2019 and 31 December 2020 40 ‑ 85 Meaning of adjustable value and opening adjustable value of a depreciating asset 40 ‑ 90 Debt forgiveness 40 ‑ 95 Choice of determining effective life 40 ‑ 100 Commissioner’s determination of effective life 40 ‑ 102 Capped life of certain depreciating assets 40 ‑ 103 Effective life and remaining effective life of certain vessels 40 ‑ 105 Self ‑ assessing effective life 40 ‑ 110 Recalculating effective life 40 ‑ 115 Splitting a depreciating asset 40 ‑ 120 Replacement spectrum licences 40 ‑ 122 Partial conversions of mining, quarrying or prospecting rights 40 ‑ 125 Merging depreciating assets 40 ‑ 130 Choices 40 ‑ 135 Certain anti ‑ avoidance provisions 40 ‑ 140 Getting tax information from associates

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)) | Repealed and substituted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent

s 40-25 — Deducting amounts for depreciating assets

You deduct the decline in value (1) You can deduct an amount equal to the decline in value for an income year (as worked out under this Division) of a * depreciating asset that you * held for any time during the year. Note 1: Sections 40 ‑ 70, 40 ‑ 72 and 40 ‑ 75 show you how to work out the decline for most depreciating assets. There is a limit on the decline: see subsections 40 ‑ 70(3), 40 ‑ 72(3) and 40 ‑ 75(7). Note 2: Small business entities can choose to both deduct and work out the amount they can deduct under Division 328. Note 3: 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. Reduction of deduction (2) You must reduce your deduction by the part of the asset’s decline in value that is attributable to your use of the asset, or your having it * installed ready for use, for a purpose other than a * taxable purpose. Example: Ben holds a depreciating asset that he uses for private purposes for 30% of his total use in the income year. If the asset declines by $1,000 for the year, Ben would have to reduce his deduction by $300 (30% of $1,000). Note: You may have to make a further reduction under subsections (3) and (4) or section 40 ‑ 27. Further reduction: leisure facilities (3) You may have to make a further reduction for a * depreciating asset that is a * leisure facility attributable to your use of it, or your having it * installed ready for use, for a * taxable purpose. (4) That reduction is the part of the * leisure facility’s decline in value that is attributable to your use of it, or your having it * installed ready for use, at a time when: (a) its use did not constitute a * fringe benefit; or (b) you did not use it or * hold it for use as mentioned in paragraph 26 ‑ 50(3)(b) (about using it in the course of your business or for your employees). Exception: low ‑ value pools (5) Subsections (2), (3) and (4) do not apply to * depreciating assets allocated to a low ‑ value pool. Despite subsection (1), you can continue to deduct an amount equal to the decline in value for an income year (as worked out under this Division) of such an asset even though you do not continue to * hold that asset. Note: See Subdivision 40 ‑ E for low ‑ value pools. Meaning of taxable purpose (7) Subject to subsection (8), a taxable purpose is: (a) the * purpose of producing assessable income; or (b) the purpose of * exploration or prospecting; or (c) the purpose of * mining site rehabilitation; or (d) * environmental protection activities. Note 1: 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. Note 2: When this Division notionally applies under section 355 ‑ 310 (about depreciating assets used for R&D activities), the taxable purpose is sometimes only the purpose of conducting R&D activities. (8) If Division 250 applies to you and an asset that is a * depreciating asset: (a) if section 250 ‑ 150 applies—you are taken not to be using the asset for a * taxable purpose to the extent of the * disallowed capital allowance percentage; or (b) otherwise—you are taken not to be using the asset for such a purpose.

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)) | 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)) | Repealed and substituted 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 55 of 2006, effective Schedules 1, 3 and 4: 1 July 2006 Remainder: Royal Assent | Amended by No 78 of 2007, effective Schedule 7 (items 2–14): 1 July 2005 Schedule 8 (items 350–353): 19 Dec 2002 (s 2(1) item 7) Remainder: Royal Assent | Amended by No 80 of 2007, effective 21 June 2007 | 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 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) | 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 126 of 2017, effective Sch 1 and 2: 1 Jan 2018 (s 2(1) item 2)

s 40-27 — Further reduction of deduction for second ‑ hand assets in residential property

(1) In addition to subsections 40 ‑ 25(2) to (4), you may have to further reduce your deduction for a * depreciating asset for the income year. (2) Reduce your deduction by any part of the asset’s decline in value that is attributable to your use of it, or your having it * installed ready for use, for 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: (c) you did not * hold the asset when it was first used, or first installed ready for use, (other than as trading stock) by any entity; or (d) at any time during the income year or an earlier income year, the asset was used, or installed ready for use, either: (i) in residential premises that were one of your residences at that time; or (ii) for a purpose that was not a * taxable purpose, and in a way that was not occasional. Note: Your deduction could be reduced to nil if the purpose to which paragraphs (a) and (b) relate is your only taxable purpose for using the asset or having the asset installed ready for use. Exception—kind of entity (3) Subsection (2) does not apply to you for the asset if, at any time during the income year, you are: (a) a * corporate tax entity; or (b) a * superannuation plan that is not a * self managed superannuation fund; or (c) a * managed investment trust; or (d) a public unit trust (within the meaning of section 102P of the Income Tax Assessment Act 1936 ); or (e) a unit trust or partnership, if each * member of the trust or partnership is covered by a paragraph of this subsection at that time during the income year. Exception—certain assets in new residential premises (4) Paragraph (2)(c) does not apply to you for the asset if: (a) the * residential premises referred to in paragraph (2)(a) (the current premises ) are supplied to you as new residential premises on a particular day (the current supply day ); and (b) the asset is supplied to you as part of that supply of the current premises; and (c) at the time you first * hold the asset as a result of that supply, the asset is used, or * installed ready for use, in: (i) the current premises; or (ii) any other real property in which an interest was supplied to you as part of that supply of the current premises; and (d) at any earlier time, no entity was residing in any residential premises in which the asset was used, or installed ready for use, at that earlier time; and (e) no amount can be deducted under this Division, or under Subdivision 328 ‑ D, for the asset for any income year by any previous holder of the asset. Note: An entity residing at an earlier time in other residential premises in the same complex will not cause paragraph (d) to prevent this subsection from applying. (5) However, disregard paragraph (4)(d) for an earlier time if: (a) the asset was used, or installed ready for use, in the current premises at that time; and (b) both that time, and the current supply, happen during the 6 ‑ month period starting on the day the current premises became new residential premises. Exception—low ‑ value pools (6) Subsection (2) does not apply to * depreciating assets allocated to a low ‑ value pool. Note: See Subdivision 40 ‑ E for low ‑ value pools.

Amendment history: Inserted by No 126 of 2017, effective Sch 1 and 2: 1 Jan 2018 (s 2(1) item 2)

s 40-30 — What a depreciating asset is

(1) A depreciating asset is an asset that has a limited * effective life and can reasonably be expected to decline in value over the time it is used, except: (a) land; or (b) an item of * trading stock; or (c) an intangible asset, unless it is mentioned in subsection (2). (2) These intangible assets are depreciating assets if they are not * trading stock: (a) * mining, quarrying or prospecting rights; (b) * mining, quarrying or prospecting information; (c) items of * intellectual property; (d) * in ‑ house software; (e) * IRUs; (f) * spectrum licences; (h) * telecommunications site access rights. (3) This Division applies to an improvement to land, or a fixture on land, whether the improvement or fixture is removable or not, as if it were an asset separate from the land. Note 1: Whether such an asset is a depreciating asset depends on whether it falls within the definition in subsection (1). Note 2: This Division does not apply to capital works for which you can deduct amounts under Division 43: see subsection 40 ‑ 45(2). (4) Whether a particular composite item is itself a depreciating asset or whether its components are separate depreciating assets is a question of fact and degree which can only be determined in the light of all the circumstances of the particular case. Example 1: A car is made up of many separate components, but usually the car is a depreciating asset rather than each component. Example 2: A floating restaurant consists of many separate components (like the ship itself, stoves, fridges, furniture, crockery and cutlery), but usually these components are treated as separate depreciating assets. (5) This Division applies to a renewal or extension of a * depreciating asset that is a right as if the renewal or extension were a continuation of the original right. (6) This Division applies to a * mining, quarrying or prospecting right (the new right ) as if it were a continuation of another mining, quarrying or prospecting right you * held if: (a) the other right ends; and (b) any of the following conditions are satisfied: (i) the new right and the other right relate to the same area, or any difference in area is not significant; (ii) the new right relates to an area that is a part of the area that the other right relates to. Note: If the other right does not end, it may be taken to be split into 2 assets: see section 40 ‑ 122. (7) For the purposes of subsection (6), it does not matter whether the new right begins immediately after the other right ends or later (including in a later income year).

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 91 of 1998, effective Sch 1 (items 1–13, 19): 14 July 1998 (s 2(1)) | Amended by No 108 of 1998, effective 7 Dec 1998 ( see s. 2) | 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)) | Repealed and substituted 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 78 of 2005, effective 29 June 2005 | 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 151 of 2020, effective Sch 9 (items 101–106): 17 June 2021 (s 2(1) item 12) | Amended by No 67 of 2024, effective sch 1 (items 4 ‑ 7), sch 3 (items 1 ‑ 7), sch 5 (items 49 ‑ 52), sch 6: 1 Oct 2024 (s 2(1) items 3, 7, 10, 12)

s 40-35 — Jointly held depreciating assets

(1) This Division and the provisions referred to in subsection (3) apply to a * depreciating asset (the underlying asset ) that you * hold, and that is also held by one or more other entities, as if your interest in the underlying asset were itself the underlying asset. Note: Partners do not hold partnership assets: see section 40 ‑ 40. (2) As a result, the decline in value of the underlying asset is not itself taken into account. Example: Buford Corp owns an office block that it leases to 2 companies, Smokey Pty Ltd and Bandit Pty Ltd. Smokey and Bandit decide to install a fountain in front of the building. They discuss it with Buford who agrees to pay half the cost (because the fountain won’t be removable at the end of the lease). Smokey and Bandit split the rest of the cost between them. Smokey and Bandit would each hold the asset under item 3 of the table in section 40 ‑ 40 and Buford would hold it under item 10. They would be joint holders, so each would write ‑ off its interest in the fountain. (3) The provisions are: (a) Divisions 41, 328 and 775 of this Act; and (b) Divisions 40 and 328 of the Income Tax (Transitional Provisions) Act 1997 .

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 133 of 2003, effective 17 Dec 2003 | Amended by No 31 of 2009, effective 22 May 2009 | 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)

s 40-40 — Meaning of hold a depreciating asset

Use this table to work out who holds a * depreciating asset. An entity identified in column 3 of an item in the table as not holding a depreciating asset cannot hold the asset under another item. Identifying the holder of a depreciating asset Item This kind of depreciating asset: Is held by this entity: 1 A * car in respect of which a lease has been granted that was a * luxury car when the lessor first leased it The lessee (while the lessee has the * right to use the car) and not the lessor 2 A * depreciating asset that is fixed to land subject to a * quasi ‑ ownership right (including any extension or renewal of such a right) where the owner of the right has a right to remove the asset The owner of the quasi ‑ ownership right (while the right to remove exists) 3 An improvement to land (whether a fixture or not) subject to a * quasi ‑ ownership right (including any extension or renewal of such a right) made, or itself improved, by any owner of the right for the owner’s own use where the owner of the right has no right to remove the asset The owner of the quasi ‑ ownership right (while it exists) 4 A * depreciating asset that is subject to a lease where the asset is fixed to land and the lessor has the right to recover the asset The lessor (while the right to recover exists) 5 A right that an entity legally owns but which another entity (the economic owner ) exercises or has a right to exercise immediately, where the economic owner has a right to become its legal owner and it is reasonable to expect that: (a) the economic owner will become its legal owner; or (b) it will be disposed of at the direction and for the benefit of the economic owner The economic owner and not the legal owner 6 A * depreciating asset that an entity (the former holder ) would, apart from this item, hold under this table (including by another application of this item) where a second entity (also the economic owner ): (a) possesses the asset, or has a right as against the former holder to possess the asset immediately; and (b) has a right as against the former holder the exercise of which would make the economic owner the holder under any item of this table; and it is reasonable to expect that the economic owner will become its holder by exercising the right, or that the asset will be disposed of at the direction and for the benefit of the economic owner The economic owner and not the former holder 7 A * depreciating asset that is a partnership asset The partnership and not any particular partner 8 * Mining, quarrying or prospecting information that an entity has and that is relevant to: (a) * mining and quarrying operations carried on, or proposed to be carried on by the entity; or (b) a * business carried on by the entity that includes * exploration or prospecting for * minerals or quarry materials obtainable by such operations; whether or not it is generally available The entity 9 Other * mining quarrying or prospecting information that an entity has and that is not generally available The entity 10 Any * depreciating asset The owner, or the legal owner if there is both a legal and equitable owner Example 1: Power Finance leases a luxury car to Kris who subleases it to Rachael. As lessee, item 1 makes Rachael the holder of the car. Power, as the legal owner, would normally hold the car under item 10. However, item 1 makes it clear that Power, as lessor, does not hold the car. As the lessee, item 1 would normally mean that Kris held the car but, again, she is also a lessor and so is not the holder (she also doesn’t have the right to use the car during the sublease). Example 2: Sandra sells a packing machine to Jenny under a hire purchase agreement. Jenny holds the machine under item 6 because, although she is not the legal owner until she exercises her option to purchase, she possesses the machine now and can exercise an option to become its legal owner. Jenny is reasonably expected to exercise that option because the final payment will be well below the expected market value of the machine at the end of the agreement. Sandra, as the machine’s legal owner, would normally be its holder under item 10 but item 6 makes it clear that the legal owner is not the holder. Note 1: Some assets may have holders under more than one item in the table. Note 2: As well as hire purchase agreements, items 5 and 6 cover cases like assets subject to chattel mortgages, sales subject to retention of title clauses and assets subject to bare trusts.

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) | 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 40-42 — When mining, quarrying or prospecting rights are used

(1) This Division and Subdivision 328 ‑ D (capital allowances for small business entities) apply to a * depreciating asset you * hold that is a * mining, quarrying or prospecting right as if a reference to using the asset were a reference to engaging in activity that involves exercising rights conferred on you by the asset. (2) If the asset is an interest covered by paragraph (c) of the definition of mining, quarrying or prospecting right in subsection 995 ‑ 1(1), the reference in subsection (1) of this section to rights conferred on you by the asset is taken to be a reference to rights conferred on you by the authority, licence, permit, right or lease referred to in paragraph (c) of that definition.

Amendment history: Inserted by No 67 of 2024, effective sch 1 (items 4 ‑ 7), sch 3 (items 1 ‑ 7), sch 5 (items 49 ‑ 52), sch 6: 1 Oct 2024 (s 2(1) items 3, 7, 10, 12)

s 40-45 — Assets to which this Division does not apply

Eligible work related items (1) This Division does not apply to an asset that is an eligible work related item for the purposes of section 58X of the Fringe Benefits Tax Assessment Act 1986 where the relevant benefit provided by the employer is an expense payment benefit or a property benefit (within the meaning of that Act). Capital works (2) This Division does not apply to capital works for which you can deduct amounts under Division 43, or for which you could deduct amounts under that Division: (a) but for expenditure being incurred, or capital works being started, before a particular day; or (b) had you used the capital works for a purpose relevant to those capital works under section 43 ‑ 140. Note: Section 43 ‑ 20 lists the capital works to which that Division applies. Films (5) This Division does not apply to a * depreciating asset if you or another taxpayer has deducted or can deduct amounts for it under: (a) former Division 10BA of Part III of the Income Tax Assessment Act 1936 (about Australian films); or (b) former Division 10B of Part III of that Act if the depreciating asset relates to a copyright in an Australian film within the meaning of that Division. (6) This Division applies to a * depreciating asset that is copyright in a * film where a company is entitled to a * tax offset under section 376 ‑ 55 in respect of the film as if the asset’s * cost were reduced by the amount of that offset.

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 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 78 of 2005, effective 29 June 2005 | 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 59 of 2008, effective 30 June 2008

s 40-50 — Assets for which you deduct under another Subdivision

(1) You cannot deduct an amount, or work out a decline in value, for a * depreciating asset under this Subdivision if you or another taxpayer has deducted or can deduct amounts for it under Subdivision 40 ‑ F (about primary production depreciating assets), 40 ‑ G (about capital expenditure of primary producers and other landholders) or 40 ‑ J (about capital expenditure for the establishment of trees in carbon sink forests). (2) You cannot deduct an amount, or work out a decline in value, for * in ‑ house software under this Subdivision if you have allocated expenditure on the software to a software development pool under Subdivision 40 ‑ E.

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 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 40-53 — Alterations etc. to certain depreciating assets

(1) These things are not the same * depreciating asset for the purposes of section 40 ‑ 50 and Subdivision 40 ‑ F: (a) a depreciating asset; and (b) a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a * water facility, * fodder storage asset or * fencing asset. (2) These things are not the same * depreciating asset for the purposes of section 40 ‑ 50 and Subdivision 40 ‑ G: (a) a depreciating asset; and (b) a repair of a capital nature, or an alteration, addition or extension, to that asset that would, if it were a separate depreciating asset, be a * landcare operation.

Amendment history: Inserted 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 40-55 — Use of the “cents per kilometre” car expense deduction method

You cannot deduct any amount for the decline in value of a * car for an income year if you use the “cents per kilometre” method for the car for that year. Note: See Subdivision 28 ‑ C for that method.

Amendment history: Inserted by No 76 of 2001, effective Schedule 2: 1 July 2000 Schedule 3: 9 May 2001 Remainder: Royal Assent | Repealed and substituted 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 40-60 — When a depreciating asset starts to decline in value

(1) A * depreciating asset you * hold starts to decline in value from when its * start time occurs. (2) The start time of a * depreciating asset is when you first use it, or have it * installed ready for use, for any purpose. Note: Previous use by a transition entity is ignored: see section 58 ‑ 70. (3) However, there is another start time for a * depreciating asset you * hold if a * balancing adjustment event referred to in paragraph 40 ‑ 295(1)(b) occurs for the asset and you start to use the asset again. Its second start time is when you start using it again.

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

s 40-65 — Choice of methods to work out the decline in value

(1) You have a choice of 2 methods to work out the decline in value of a * depreciating asset. You must choose to use either the * diminishing value method or the * prime cost method. Note 1: Once you make the choice for an asset, you cannot change it: see section 40 ‑ 130. Note 2: For the diminishing value method, see sections 40 ‑ 70 and 40 ‑ 72. For the prime cost method, see section 40 ‑ 75. Note 3: In some cases you do not have to make the choice because you can deduct the asset’s cost: see sections 40 ‑ 80 and 40 ‑ 82. Note 4: Subdivisions 40 ‑ BA and 40 ‑ BB of the Income Tax (Transitional Provisions) Act 1997 may affect the operation of this section. Exception: asset acquired from associate (2) For a * depreciating asset that you acquire from an * associate of yours where the associate has deducted or can deduct an amount for the asset under this Division, you must use the same method that the associate was using. Note: You can require the associate to tell you which method the associate was using: see section 40 ‑ 140. Exception: holder changes but user same or associate of former user (3) For a * depreciating asset that you acquire from a former * holder of the asset, you must use the same method that the former holder was using for the asset if: (a) the former holder or another entity (each of which is the former user ) was using the asset at a time before you became the holder; and (b) while you hold the asset, the former user or an * associate of the former user uses the asset. (4) However, you must use the * diminishing value method if: (a) you do not know, and cannot readily find out, which method the former holder was using; or (b) the former holder did not use a method. Exception: low ‑ value pools (5) You work out the decline in value of a * depreciating asset in a low ‑ value pool under Subdivision 40 ‑ E rather than under this Subdivision. Exception: also notionally deductible under R&D provisions (6) If: (a) only one of the following events has happened: (i) you have deducted one or more amounts under this Division for an asset; (ii) you have been entitled under section 355 ‑ 100 (about R&D) to one or more * tax offsets because you can deduct one or more amounts under section 355 ‑ 305 for an asset; but (b) later, the other event happens for the asset; then, for the purposes of working out the deduction for the later event, you must choose the same method that you chose for the first event. Note 1: Deductions under section 355 ‑ 305 (about decline in value of tangible depreciating assets used for R&D activities) are worked out using a notional application of this Division. Note 2: This subsection applies with changes if you have or could have deducted an amount under former section 73BA of the Income Tax Assessment Act 1936 for the asset (see section 40 ‑ 67 of the Income Tax (Transitional Provisions) Act 1997 ). (7) If: (a) the events in paragraph (6)(a) could both arise for the same period for an asset; and (b) neither event has already arisen for the asset; then you must choose the same method for the purposes of working out the deduction for each event.

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 55 of 2006, effective Schedules 1, 3 and 4: 1 July 2006 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 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 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 40-70 — Diminishing value method

(1) You work out the decline in value of a * depreciating asset for an income year using the diminishing value method in this way: where: base value is: (a) for the income year in which the asset’s * start time occurs—its * cost; or (b) for a later year—the sum of its * opening adjustable value for that year and any amount included in the second element of its cost for that year. days held is the number of days you * held the asset in the income year from its * start time, ignoring any days in that year when you did not use the asset, or have it * installed ready for use, for any purpose. Note 1: If you recalculate the effective life of a depreciating asset, you use that recalculated life in working out your deduction. You can choose to recalculate effective life because of changed circumstances: see section 40 ‑ 110. That section also requires you to recalculate effective life in some cases. Note 2: The effective life of a vessel can change in some cases: see subsection 40 ‑ 103(2). Exception: intangibles (2) You cannot use the * diminishing value method to work out the decline in value of: (a) * in ‑ house software; or (b) an item of * intellectual property (except copyright in a * film); or (c) a * spectrum licence; or (e) a * telecommunications site access right. Limit on decline (3) The decline in value of a * depreciating asset under this section for an income year cannot be more than the amount that is the asset’s * base value for that income 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 78 of 2005, effective 29 June 2005 | Amended by No 147 of 2005, effective Schedule 1 (items 4–168, 169(2), 170–176), Schedule 2 (items 1, 12–24, 26–28), Schedule 3, Schedule 4 (items 4–12), Schedule 5 (items 13, 14, 20), Schedule 6 (items 1, 2, 10(1)) and Schedule 7 (items 14–16, 20): 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 57 of 2012, effective Schedules 1–3: Royal Assent | Amended by No 151 of 2020, effective Sch 9 (items 101–106): 17 June 2021 (s 2(1) item 12)

s 40-72 — Diminishing value method for post ‑ 9 May 2006 assets

(1) You work out the decline in value of a * depreciating asset for an income year using the diminishing value method in this way if you started to * hold the asset on or after 10 May 2006: where: days held has the same meaning as in subsection 40 ‑ 70(1). Note: If you recalculate the effective life of a depreciating asset, you use that recalculated life in working out your deduction. You can choose to recalculate effective life because of changed circumstances: see section 40 ‑ 110. That section also requires you to recalculate effective life in some cases. Exception: intangibles (2) You cannot use the * diminishing value method to work out the decline in value of: (a) * in ‑ house software; or (b) an item of * intellectual property (except copyright in a * film); or (c) a * spectrum licence; or (e) a * telecommunications site access right. Limit on decline (3) The decline in value of a * depreciating asset under this section for an income year cannot be more than the amount that is the asset’s * base value for that income year.

Amendment history: Inserted by No 55 of 2006, effective Schedules 1, 3 and 4: 1 July 2006 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 151 of 2020, effective Sch 9 (items 101–106): 17 June 2021 (s 2(1) item 12)

s 40-75 — Prime cost method

(1) You work out the decline in value of a * depreciating asset for an income year using the prime cost method in this way: where: where: days held has the same meaning as in subsection 40 ‑ 70(1). Example: Greg acquires an asset for $3,500 and first uses it on the 26th day of the income year. If the effective life of the asset is 3 1 / 3 years, the asset would decline in value in that year by: The asset’s adjustable value at the end of the income year is: (2) However, you must adjust the formula in subsection (1) for an income year (the change year ): (a) for which you recalculate the * depreciating asset’s * effective life; or (b) after the year in which the asset’s start time occurs and in which an amount is included in the second element of the asset’s * cost; or (c) for which the asset’s * opening adjustable value is reduced under section 40 ‑ 90 (about debt forgiveness); or (d) in which the * remaining effective life of the asset is calculated under section 40 ‑ 103; or (e) for which there is a reduction to the asset’s opening adjustable value under paragraph 40 ‑ 365(5)(b) (about involuntary disposals) where you are using the prime cost method; or (f) for which the opening adjustable value of the asset is modified under subsection 27 ‑ 80(3A) or (4), 27 ‑ 85(3) or 27 ‑ 90(3); or (g) for which there is a reduction in the asset’s opening adjustable value under section 775 ‑ 70; or (h) for which there is an increase in the asset’s opening adjustable value under section 775 ‑ 75. The adjustments apply for the change year and later years. Note 1: For recalculating a depreciating asset’s effective life: see section 40 ‑ 110. Note 2: You may also adjust the formula for an income year if you had undeducted core technology expenditure for the asset at the end of your last income year commencing before 1 July 2011 (see section 355 ‑ 605 of the Income Tax (Transitional Provisions) Act 1997 ). Note 3: Subdivision 40 ‑ BA or 40 ‑ BB of the Income Tax (Transitional Provisions) Act 1997 may also require you to adjust the formula: see subsections 40 ‑ 135(3) and 40 ‑ 180(2) of that Act. (3) The adjustments are: (a) instead of the asset’s * cost, you use its * opening adjustable value for the change year plus the amounts (if any) included in the second element of its cost for that year; and (b) instead of the asset’s * effective life, you use its * remaining effective life. (4) The remaining effective life of a * depreciating asset is any period of its * effective life that is yet to elapse as at: (a) the start of the change year; or (b) in the case of a roll ‑ over under section 40 ‑ 340—the time when the * balancing adjustment event occurs for the transferor. Note: Effective life is worked out in years and fractions of years. (5) You must also adjust the formula in subsection (1) for an intangible * depreciating asset that: (a) is mentioned in an item in the table in subsection 40 ‑ 95(7) (except item 5, 7 or 8); and (b) you acquire from a former * holder of the asset. The adjustment applies for the income year in which you acquire the asset and later income years. (6) Instead of the asset’s * effective life under the table in subsection 40 ‑ 95(7), you use the number of years remaining in that effective life as at the start of the income year in which you acquire the asset. Limit on decline (7) The decline in value of a * depreciating asset under this section for an income year cannot be more than: (a) for the income year in which the asset’s * start time occurs—its * cost; or (b) for a later year—the sum of its * opening adjustable value for that year and any amount included in the second element of its cost 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 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 133 of 2003, effective 17 Dec 2003 | 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 57 of 2012, effective Schedules 1–3: Royal Assent | 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 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 40-80 — When you can deduct the asset’s cost

Exploration or prospecting (1) The decline in value of a * depreciating asset you * hold is the asset’s * cost if: (a) you first use the asset for * exploration or prospecting for * minerals, or quarry materials, obtainable by * mining and quarrying operations; and (b) when you first use the asset, you do not use it for: (i) development drilling for * petroleum; or (ii) operations in the course of working a mining property, quarrying property or petroleum field; and (c) you satisfy one or more of these subparagraphs at the asset’s * start time: (i) you carry on mining and quarrying operations; (ii) it would be reasonable to conclude you proposed to carry on such operations; (iii) you carry on a * business of, or a business that included, exploration or prospecting for minerals or quarry materials obtainable by such operations, and expenditure on the asset was necessarily incurred in carrying on that business; and (d) in a case where the asset is a * mining, quarrying or prospecting right—you acquired the asset from an * Australian government agency or a * government entity; and (e) in a case where the asset is * mining, quarrying or prospecting information: (i) you acquired the asset from an Australian government agency or a government entity; or (ii) the asset is a geophysical or geological data package you acquired from an entity to which subsection (1AA) applies; or (iii) you created the asset, or contributed to the cost of its creation; or (iv) you caused the asset to be created, or contributed to the cost of it being created, by an entity to which subsection (1AA) applies. (1AA) This subsection applies to an entity if, at the time of the acquisition referred to in subparagraph (1)(e)(ii) or the creation referred to in subparagraph (1)(e)(iv), the entity predominantly carries on a * business of providing * mining, quarrying or prospecting information to other entities that: (a) carry on * mining and quarrying operations; or (b) it would be reasonable to conclude propose to carry on such operations; or (c) carry on a business of, or a business that included, * exploration or prospecting for * minerals or quarry materials obtainable by such operations. (1AB) If an amount is included in the second element of the * cost of a * depreciating asset, subsection (1) applies in relation to that amount only if: (a) your first use of the asset, after the inclusion of the amount in the second element, is for * exploration or prospecting for * minerals, or quarry materials, obtainable by * mining and quarrying operations; and (b) at the time of that first use: (i) you satisfy paragraph (1)(b) as if that first use was your first use of the asset; and (ii) you satisfy paragraph (1)(c) as if the time of that first use was the asset’s * start time; and (c) if the amount relates to a * mining, quarrying or prospecting right—after the inclusion of the amount in the second element, you satisfy paragraph (1)(d) in relation to the right; and (d) if the amount relates to * mining, quarrying or prospecting information—after the inclusion of the amount in the second element: (i) you satisfy paragraph (1)(e) in relation to the information; or (ii) you would satisfy that paragraph, in relation to the economic benefit that resulted in the inclusion of the amount in the second element, if that economic benefit were the asset referred to in that paragraph. (1AC) If subsection (1) does not apply to a * depreciating asset: (a) the fact that subsection (1) does not apply to the asset does not prevent the application of subsection (1AB) to an amount included in the second element of the * cost of the asset; but (b) subsection (1) only affects the asset’s decline in value to the extent that the asset’s cost consists of that amount. Depreciating assets used for certain purposes (2) The decline in value of a * depreciating asset you start to * hold in an income year is the asset’s * cost if: (a) that 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 one that is 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.

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 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) | 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 69 of 2014, effective 1 July 2014 (s 2) | 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 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 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 40-82 — Assets costing less than $150,000—medium sized businesses—assets first acquired between 2 April 2019 and 31 December 2020

Year in which asset first used, or installed ready for use, for a taxable purpose (1) The decline in value of a * depreciating asset you * hold for the income year (the current year ) in which you start to use the asset, or have it * installed ready for use, for a * taxable purpose is the amount worked out under subsection (2) if: (a) you are an entity covered by subsection (4) (about medium sized businesses) for: (i) the current year; and (ii) the income year in which you started to hold the asset; and (b) you first acquired the asset: (i) at or after 7.30 pm, by legal time in the Australian Capital Territory, on 2 April 2019; and (ii) before 12 March 2020; and (c) the current year ends on or after 2 April 2019; and (d) you start to use the asset, or have it installed ready for use, for a taxable purpose before 12 March 2020; and (e) the asset is a depreciating asset whose * cost as at the end of the current year is less than $30,000. Note: The amount you can deduct may be reduced by other provisions, such as subsection 40 ‑ 25(2) (about taxable purpose) and section 40 ‑ 215 (about double deductions). (2) The amount is: (a) unless paragraph (b) applies—the asset’s * cost as at the end of the current year; or (b) if the asset’s * start time occurred in an earlier income year—the sum of the asset’s * opening adjustable value for the current year and any amount included in the second element of its cost for the current year. (2A) The decline in value of a * depreciating asset you * hold for the income year (the current year ) in which you start to use the asset, or have it * installed ready for use, for a * taxable purpose is the amount worked out under subsection (2B) if: (a) you are an entity covered by subsection (4) (about medium sized businesses), or by subsection (4A) (about medium sized businesses and certain assets) in relation to the asset, for: (i) the current year; and (ii) the income year in which you started to hold the asset; and (b) you first acquired the asset: (i) at or after 7.30 pm, by legal time in the Australian Capital Territory, on 2 April 2019; and (ii) on or before 31 December 2020; and (c) the current year ends on or after 12 March 2020; and (d) you start to use the asset, or have it installed ready for use, for a taxable purpose: (i) on or after 12 March 2020; and (ii) on or before 30 June 2021; and (e) the asset is a depreciating asset whose * cost as at the end of the earlier of: (i) the end of the current year; and (ii) 31 December 2020; is less than $150,000. Note 1: The amount you can deduct may be reduced by other provisions, such as subsection 40 ‑ 25(2) (about taxable purpose) and section 40 ‑ 215 (about double deductions). Note 2: This subsection does not apply if Subdivision 40 ‑ BB of the Income Tax (Transitional Provisions) Act 1997 applies: see section 40 ‑ 145 of that Act. (2B) The amount is: (a) unless paragraph (b) applies—the asset’s * cost as at the earlier of: (i) the end of the current year; and (ii) 31 December 2020; or (b) if the asset’s * start time occurred in an earlier income year—the sum of: (i) the asset’s * opening adjustable value for the current year; and (ii) any amount included in the second element of the asset’s cost for the current year, other than an amount included after 31 December 2020. Later year (3) The decline in value of a * depreciating asset you * hold for an income year (the later year ) is the first amount included in the second element of the asset’s * cost for the later year if: (a) you are an entity covered by subsection (4) (about medium sized businesses) for the later year; and (aa) the amount is included before 12 March 2020; and (b) the amount included is less than $30,000; and (c) you worked out the decline in value of the asset for an earlier income year under subsection (1); and (d) the later year ends on or after 2 April 2019. Note: The amount you can deduct may be reduced by other provisions, such as subsection 40 ‑ 25(2) (about taxable purpose) and section 40 ‑ 215 (about double deductions). (3A) The decline in value of a * depreciating asset you * hold for an income year (the later year ) is the first amount included in the second element of the asset’s * cost for the later year if: (a) you are an entity covered by subsection (4) (about medium sized businesses), or by subsection (4B) (about medium sized businesses and certain amounts) in relation to the amount, for the later year; and (b) the amount is included: (i) on or after 12 March 2020; and (ii) on or before 31 December 2020; and (c) the amount included is less than $150,000; and (d) you worked out the decline in value of the asset for an earlier income year under subsection (1) or (2A); and (e) the later year ends on or after 12 March 2020. Note 1: The amount you can deduct may be reduced by other provisions, such as subsection 40 ‑ 25(2) (about taxable purpose) and section 40 ‑ 215 (about double deductions). Note 2: This subsection does not apply if Subdivision 40 ‑ BB of the Income Tax (Transitional Provisions) Act 1997 applies: see section 40 ‑ 145 of that Act. Medium sized business (4) 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. (4A) An entity is covered by this subsection for an income year in relation to an asset mentioned in subsection (2A) if: (a) the entity starts to use the asset, or has the asset * installed ready for use, for a * taxable purpose in the period beginning on 12 March 2020 and ending on 30 June 2021; and (b) the entity is not a * small business entity for the income year; and (c) 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 $500 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 in relation to the asset. (4B) An entity is covered by this subsection for an income year in relation to an amount included as mentioned in subsection (3A) if: (a) the amount is so included in the period beginning on 12 March 2020 and ending on 31 December 2020; and (b) the entity is not a * small business entity for the income year; and (c) 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 $500 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 in relation to the amount. Assets you start to use, or have installed ready for use, after 30 June 2021 (5) The decline in value of a * depreciating asset you start to use, or have * installed ready for use, for a * taxable purpose after 30 June 2021 is worked out under the other provisions of this Division. Amounts included in second element of cost after 31 December 2020 (6) The effect on the value of a * depreciating asset of an amount included in the second element of the asset’s * cost after 31 December 2020 is worked out under the other provisions of this Division.

Amendment history: Inserted 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 61 of 2020, effective Sch 2: 1 July 2020 (s 2(1) item 5) Sch 4 (items 1–17): 20 June 2020 (s 2(1) item 6) | 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 40-85 — Meaning of adjustable value and opening adjustable value of a depreciating asset

(1) The adjustable value of a * depreciating asset at a particular time is: (a) if you have not yet used it or had it * installed ready for use for any purpose—its * cost; or (b) for a time in the income year in which you first use it, or have it installed ready for use, for any purpose—its cost less its decline in value up to that time; or (c) for a time in a later income year—the sum of its * opening adjustable value for that year and any amount included in the second element of its cost for that year up to that time, less its decline in value for that year up to that time. Note: The adjustable value of a depreciating asset may be modified by section 250 ‑ 285. (2) The opening adjustable value of a * depreciating asset for an income year is its * adjustable value to you at the end of the previous income year. Note: The opening adjustable value of a depreciating asset may be modified by one of these provisions: (a) Subdivision 27 ‑ B; (b) subsection 40 ‑ 90(3); (c) subsection 40 ‑ 285(4); (d) paragraph 40 ‑ 365(5)(b); (e) section 775 ‑ 70; (f) section 775 ‑ 75; (g) section 355 ‑ 605 of the Income Tax (Transitional Provisions) Act 1997.

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 133 of 2003, effective 17 Dec 2003 | 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 93 of 2011, effective Schedule 1, Schedule 3 (items 1–4, 15–42, 54–107) and Schedule 4 (items 1–9): Royal Assent

s 40-90 — Debt forgiveness

(1) This section applies if an amount (the debt forgiveness amount ) is applied in reduction of expenditure for a * depreciating asset in an income year under section 245 ‑ 155 or 245 ‑ 157. (2) The asset’s * cost is reduced for that income year by the debt forgiveness amount. (3) The asset’s * opening adjustable value for that income year is reduced by the debt forgiveness amount if that income year is later than the one in which its * start time occurs.

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 40-95 — Choice of determining effective life

(1) You must choose either: (a) to use an * effective life determined by the Commissioner for a * depreciating asset under section 40 ‑ 100; or (b) to work out the effective life of the asset yourself under section 40 ‑ 105. Note: If you choose to use an effective life determined by the Commissioner for a depreciating asset, a capped life may apply to the asset under section 40 ‑ 102. (2) Your choice of an * effective life determined by the Commissioner for a * depreciating asset is limited to one in force as at: (a) the time when you entered into a contract to acquire the asset, you otherwise acquired it or you started to construct it if its * start time occurs within 5 years of that time; or (b) for * plant that you entered into a contract to acquire, you otherwise acquired or you started to construct before 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999—the time when you entered into the contract to acquire it, otherwise acquired it or started to construct it; or (c) otherwise—its * start time. (3) You must make the choice for the income year in which the asset’s * start time occurs. Note: For rules about choices: see section 40 ‑ 130. Exception: asset acquired from associate (4) For a * depreciating asset that you start to * hold where the former holder is an * associate of yours and the associate has deducted or can deduct an amount for the asset under this Division, you must use: (a) if the associate was using the * diminishing value method for the asset—the same * effective life that the associate was using; or (b) if the associate was using the * prime cost method—an effective life equal to any period of the asset’s effective life the associate was using that is yet to elapse at the time you started to hold it. Note: You can require the associate to tell you which effective life the associate was using: see section 40 ‑ 140. (4A) Subsection (4) does not apply to a * depreciating asset if subsection (4B) or (4C) applies to the asset. (4B) For a * depreciating asset that you start to * hold if: (a) the former holder is an * associate of yours; and (b) the associate has deducted or can deduct an amount for the asset under this Division; and (c) section 40 ‑ 102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40 ‑ 102(4) and (5) applied to it at the relevant time (the relevant time for the associate ) that applied to the associate under subsection 40 ‑ 102(3); and (d) a different item in the tables in subsections 40 ‑ 102(4) and (5) applies to the asset when you start to hold it; and (e) the item referred to in paragraph (d) would have applied to the asset at the relevant time for the associate if the use to which the asset were put at that time were the use (the new use ) to which it is put when you start to hold it; you must use: (f) if the associate was using the * diminishing value method for the asset—an * effective life equal to the * capped life that would have applied to the asset under subsection 40 ‑ 102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; or (g) if the associate was using the * prime cost method—an effective life equal to the capped life that: (i) would have applied to the asset under subsection 40 ‑ 102(4) or (5) at the relevant time for the associate if the use to which the asset were put at that time were the new use; and (ii) is yet to elapse at the time you start to hold it. Note 1: If paragraph (e) is not satisfied, subsection (4C) may apply to the depreciating asset. Note 2: You can require the associate to tell you the relevant time that applied to the associate under subsection 40 ‑ 102(3): see section 40 ‑ 140. (4C) For a * depreciating asset that you start to * hold if: (a) the former holder is an * associate of yours; and (b) the associate has deducted or can deduct an amount for the asset under this Division; and (c) section 40 ‑ 102 applied to the asset immediately before you started to hold it; and (d) one of the following applies: (i) no item in the tables in subsections 40 ‑ 102(4) and (5) applies to the asset when you start to hold it; (ii) subsection (4B) would apply to the asset but for paragraph (e) of that subsection not being satisfied; you must use: (e) if the associate was using the * diminishing value method for the asset—the * effective life determined by the Commissioner for the asset under section 40 ‑ 100 that the associate would have used if section 40 ‑ 102 had not applied to the asset; or (f) if the associate was using the * prime cost method—an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40 ‑ 100 that: (i) the associate would have used if section 40 ‑ 102 had not applied to the asset; and (ii) is yet to elapse at the time you start to hold it. Note: You can require the associate to tell you which effective life the associate would have used if section 40 ‑ 102 had not applied to the asset: see section 40 ‑ 140. Exception: holder changes but user same or associate of former user (5) For a * depreciating asset that you start to * hold where: (a) the former holder or another entity (each of which is the former user ) was using the asset at a time before you became the holder; and (b) while you hold the asset, the former user or an * associate of the former user uses the asset; you must use: (c) if the former holder was using the * diminishing value method for the asset—the same * effective life that the former holder was using; or (d) if the former holder was using the * prime cost method—an effective life equal to any period of the asset’s effective life the former holder was using that is yet to elapse at the time you started to hold it. (5A) Subsection (5) does not apply to a * depreciating asset if subsection (5B) or (5C) applies to the asset. (5B) For a * depreciating asset that you start to * hold if: (a) paragraphs (5)(a) and (b) apply; and (b) section 40 ‑ 102 applied to the asset immediately before you started to hold it because an item in the tables in subsections 40 ‑ 102(4) and (5) applied to it at the relevant time (the relevant time for the former holder ) that applied to the former holder under subsection 40 ‑ 102(3); and (c) a different item in the tables in subsections 40 ‑ 102(4) and (5) applies to the asset when you start to hold it; and (d) the item referred to in paragraph (c) would have applied to the asset at the relevant time for the former holder if the use to which the asset were put at that time were the use (the new use ) to which it is put when you start to hold it; you must use: (e) if the former holder was using the * diminishing value method for the asset—an * effective life equal to the * capped life that would have applied to the asset under subsection 40 ‑ 102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; or (f) if the former holder was using the * prime cost method—an effective life equal to the capped life that: (i) would have applied to the asset under subsection 40 ‑ 102(4) or (5) at the relevant time for the former holder if the use to which the asset were put at that time were the new use; and (ii) is yet to elapse at the time you start to hold it. Note: If paragraph (d) is not satisfied, subsection (5C) may apply to the depreciating asset. (5C) For a * depreciating asset that you start to * hold if: (a) paragraphs (5)(a) and (b) apply; and (b) section 40 ‑ 102 applied to the asset immediately before you started to hold it; and (c) one of the following applies: (i) no item in the tables in subsections 40 ‑ 102(4) and (5) applies to the asset when you start to hold it; (ii) subsection (5B) would apply to the asset but for paragraph (d) of that subsection not being satisfied; you must use: (d) if the former holder was using the * diminishing value method for the asset—the * effective life determined by the Commissioner for the asset under section 40 ‑ 100 that the former holder would have used if section 40 ‑ 102 had not applied to the asset; or (e) if the former holder was using the * prime cost method—an effective life equal to any period of the effective life determined by the Commissioner for the asset under section 40 ‑ 100 that: (i) the former holder would have used if section 40 ‑ 102 had not applied to the asset; and (ii) is yet to elapse at the time you start to hold it. (6) However, you must use an * effective life determined by the Commissioner if: (a) you do not know, and cannot readily find out, which effective life the former holder was using and, if subsection (5B) or (5C) applied to the asset, either of the following matters: (i) the effective life the former holder would have used if section 40 ‑ 102 had not applied to the asset; (ii) the relevant time that applied to the former holder under subsection 40 ‑ 102(3); or (b) the former holder did not use an effective life. Exception: intangible depreciating assets (7) The effective life of an intangible * depreciating asset mentioned in this table is the period applicable to that asset under the table. Effective life of certain intangible depreciating assets Item For this asset: The effective life is: 1 Standard patent 20 years 2 Innovation patent 8 years 3 Petty patent 6 years 4 Registered design 15 years 5 Copyright (except copyright in a * film) The shorter of: (a) 25 years from when you acquire the copyright; or (b) the period until the copyright ends 6 A licence (except one relating to a copyright or * in ‑ house software) The term of the licence 7 A licence relating to a copyright (except copyright in a * film) The shorter of: (a) 25 years from when you become the licensee; or (b) the period until the licence ends 8 * In ‑ house software 5 years 9 * Spectrum licence The term of the licence 14 * Telecommunications site access right The term of the right (8) The effective life of an intangible * depreciating asset that is not mentioned in the table in subsection (7) and is not an * IRU or a * mining, quarrying or prospecting right cannot be longer than the term of the asset as extended by any reasonably assured extension or renewal of that term. (9) The effective life of an * IRU is the * effective life of the telecommunications cable over which the IRU is granted. Exceptions: mining, quarrying or prospecting rights and mining, quarrying or prospecting information (10) Subject to subsection (12), the effective life of: (a) a * mining, quarrying or prospecting right; or (b) * mining, quarrying or prospecting information; is the period you work out yourself by estimating the period (in years, including fractions of years) set out in column 2 of this table: Effective life of certain mining, quarrying or prospecting rights and mining, quarrying or prospecting information Item Column 1 For this asset: Column 2 Estimate the period until the end of: 1 A * mining, quarrying or prospecting right, or * mining, quarrying or prospecting information, relating to * mining and quarrying operations (except obtaining * petroleum or quarry materials) The life of the mine or proposed mine to which the right or information relates or, if there is more than one, the life of the mine that has the longest estimated life 2 A * mining, quarrying or prospecting right, or * mining, quarrying or prospecting information, relating to * mining and quarrying operations to obtain * petroleum The life of the petroleum field or proposed petroleum field to which the right or information relates or, if there is more than one, the life of the petroleum field that has the longest estimated life 3 A * mining, quarrying or prospecting right, or * mining, quarrying or prospecting information, relating to * mining and quarrying operations to obtain quarry materials The life of the quarry or proposed quarry to which the right or information relates or, if there is more than one, the life of the quarry that has the longest estimated life (10A) However, if the only reason that subsection 40 ‑ 80(1) does not apply to the * mining, quarrying or prospecting right, or * mining, quarrying or prospecting information, is that the right or information does not meet the requirements of paragraph 40 ‑ 80(1)(d) or (e), the effective life of the right or information is the shorter of: (a) the period that would, apart from this subsection, be the effective life of the information or right under subsection (10); and (b) 15 years. (11) You work out the period in subsection (10): (a) as from the * start time of the * mining, quarrying or prospecting right or * mining, quarrying or prospecting information; and (b) by reference only to the period of time over which the reserves, reasonably estimated using an appropriate accepted industry practice, are expected to be extracted from the mine, * petroleum field or quarry. (12) The effective life of a * mining, quarrying or prospecting right, or * mining, quarrying or prospecting information, is 15 years if the right or information does not relate to: (a) a mine or proposed mine; or (b) a petroleum field or proposed petroleum field; or (c) a quarry or proposed quarry.

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 53 of 2002, effective Schedules 3 and 4: 1 July 2002 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 78 of 2005, effective 29 June 2005 | Amended by No 147 of 2005, effective Schedule 1 (items 4–168, 169(2), 170–176), Schedule 2 (items 1, 12–24, 26–28), Schedule 3, Schedule 4 (items 4–12), Schedule 5 (items 13, 14, 20), Schedule 6 (items 1, 2, 10(1)) and Schedule 7 (items 14–16, 20): Royal Assent | Amended by No 78 of 2007, effective Schedule 7 (items 2–14): 1 July 2005 Schedule 8 (items 350–353): 19 Dec 2002 (s 2(1) item 7) Remainder: Royal Assent | Amended by No 59 of 2008, effective 30 June 2008 | 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 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) | Amended by No 69 of 2014, effective 1 July 2014 (s 2) | 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) | Amended by No 151 of 2020, effective Sch 9 (items 101–106): 17 June 2021 (s 2(1) item 12)

s 40-100 — Commissioner’s determination of effective life

(1) The Commissioner may make a written determination specifying the effective life of * depreciating assets. The determination may specify conditions for particular depreciating assets. (2) A determination may specify a day from which it takes effect for * depreciating assets specified in the determination. (3) A determination may operate retrospectively to a day specified in the determination if: (a) there was no applicable determination at that day for the * depreciating asset covered by the determination; or (b) the determination specifies a shorter * effective life for the depreciating asset covered by the determination than was previously applicable. Criteria for making a determination (4) The Commissioner is to make a determination of the effective life of a * depreciating asset in accordance with subsections (5) and (6). (5) Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes: (a) a * taxable purpose; (b) the purpose of producing * exempt income or * non ‑ assessable non ‑ exempt income; (c) the purpose of conducting * R&D activities, assuming that this is reasonably likely. (6) Secondly, if relevant for the asset: (a) assume the asset will be subject to wear and tear at a rate that is reasonable for the Commissioner to assume; and (b) assume the asset will be maintained in reasonably good order and condition; and (c) have regard to the period within which the asset is likely to be scrapped, sold for no more than scrap value or abandoned. However, for paragraph (c), disregard reasons attributable to the technical risk in conducting * R&D activities if it is reasonably likely that the asset will be used for such activities.

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 147 of 2005, effective Schedule 1 (items 4–168, 169(2), 170–176), Schedule 2 (items 1, 12–24, 26–28), Schedule 3, Schedule 4 (items 4–12), Schedule 5 (items 13, 14, 20), Schedule 6 (items 1, 2, 10(1)) and Schedule 7 (items 14–16, 20): 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

s 40-102 — Capped life of certain depreciating assets

(1) If this section applies to a * depreciating asset, the effective life of the asset is the period (the capped life) that applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)). Working out if this section applies (2) This section applies to a * depreciating asset if: (a) you choose, under paragraph 40 ‑ 95(1)(a), to use an * effective life determined by the Commissioner for the asset under section 40 ‑ 100; and (b) your choice is limited to a determination in force at the time mentioned in paragraph 40 ‑ 95(2)(a) or (c); and (c) a * capped life applies to the asset under subsection (4) or (5) at the relevant time (which is worked out using subsection (3)); and (d) the capped life is shorter than the effective life mentioned in paragraph (a). (3) For the purposes of this section, the relevant time is: (a) the * start time of the * depreciating asset if: (i) paragraph 40 ‑ 95(2)(c) applies to you; or (ii) paragraph 40 ‑ 95(2)(a) applies to you and a * capped life does not apply to the asset under subsection (4) or (5) at the time mentioned in that paragraph; or (iii) paragraph 40 ‑ 95(2)(a) applies to you and the capped life that applies to the asset under subsection (4) or (5) at the time mentioned in that paragraph is longer than the capped life that applies to the asset at its start time; or (b) if paragraph (a) does not apply—the time mentioned in paragraph 40 ‑ 95(2)(a). Capped life (4) If the * depreciating asset corresponds exactly to the description in column 2 of the table, the capped life of the asset is the period specified in column 3 of the table. Capped life of certain depreciating assets Item Kind of depreciating asset Period 1 Aeroplane used predominantly for agricultural spraying or agricultural dusting 8 years 2 Aeroplane to which item 1 does not apply 10 years 3 Helicopter used predominantly for mustering, agricultural spraying or agricultural dusting 8 years 4 Helicopter to which item 3 does not apply 10 years 5 Bus with a * gross vehicle mass of more than 3.5 tonnes 7.5 years 6 Light commercial vehicle with a * gross vehicle mass of 3.5 tonnes or less and designed to carry a load of 1 tonne or more 7.5 years 7 Minibus with a * gross vehicle mass of 3.5 tonnes or less and designed to carry 9 or more passengers 7.5 years 8 Trailer with a * gross vehicle mass of more than 4.5 tonnes 10 years 9 Truck with a * gross vehicle mass of more than 3.5 tonnes (other than a truck that is used in * mining and quarrying operations and that is not of a kind that can be registered to be driven on a public road in the place in which the truck is operated) 7.5 years 10 Vessel for which you have a certificate under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 10 years (4A) Item 10 of the table in subsection 40 ‑ 102(4) does not apply to a vessel if: (a) * ordinary income that you * derive, or your * statutory income, in relation to the vessel; or (b) ordinary income that your * associate derives, or your associate’s statutory income, in relation to the vessel; is exempt from income tax under section 51 ‑ 100 for the income year for which you are working out the vessel’s decline in value. (5) If the * depreciating asset is of a kind described in column 2 of the table and is used in the industry specified in column 3 of the table for the asset, the capped life of the asset is the period specified in column 4 of the table. Capped life of certain depreciating assets used in specified industries Item Kind of depreciating asset Industry in which the asset is used Period 1 Gas transmission asset Gas supply 20 years 2 Gas distribution asset Gas supply 20 years 3 Oil production asset (other than an electricity generation asset or an offshore platform) Oil and gas extraction 15 years 4 Gas production asset (other than an electricity generation asset or an offshore platform) Oil and gas extraction 15 years 5 Offshore platform Oil and gas extraction 20 years 6 Asset (other than an electricity generation asset) used to manufacture condensate, crude oil, domestic gas, liquid natural gas or liquid petroleum gas but not if the manufacture occurs in an oil refinery Petroleum refining 15 years 7 Harvester Primary production sector 6 2 /3 years 8 Tractor Primary production sector 6 2 /3 years

Amendment history: Inserted by No 53 of 2002, effective Schedules 3 and 4: 1 July 2002 Remainder: Royal Assent | Amended by No 77 of 2005, effective 29 June 2005 | Amended by No 55 of 2007, effective 12 Apr 2007 | 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 57 of 2012, effective Schedules 1–3: Royal Assent

s 40-103 — Effective life and remaining effective life of certain vessels

(1) If, at a particular time, item 10 of the table in subsection 40 ‑ 102(4): (a) starts to apply to a vessel (whether or not that item has previously applied to the vessel); or (b) ceases to apply to a vessel (whether or not that item subsequently applies to the vessel); at that time the effective life of the vessel changes accordingly. (2) If subsection (1) applies and the decline in value of the vessel is worked out using the * prime cost method, the remaining effective life of the vessel just after that time is: where: alternative effective life is: (a) if that item starts to apply to the vessel at that time—what would have been the * effective life of the vessel just before that time if that item had applied to the vessel; or (b) if that item ceases to apply to the vessel at that time—what would have been the effective life of the vessel just before that time if that item had not applied to the vessel. unadjusted effective life is what was the * effective life of the vessel just before that time. unadjusted remaining effective life is what was the * remaining effective life of the vessel just before that time. Example: Assume that item 10 of the table in subsection 40 ‑ 102(4) ceases to apply to a vessel after having applied to the vessel for 7 years, and again starts to apply after another 4 years. Assume further that the effective life of a vessel of that kind has been determined under section 40 ‑ 100 to be 20 years. The remaining effective life of the vessel just before that item ceases to apply to the vessel is 3 years. Its alternative effective life is 20 years, and its unadjusted effective life is 10 years. Its remaining effective life just after that time is therefore 6 years. The remaining effective life of the vessel just before that item again starts to apply to the vessel is 2 years. Its alternative effective life is 10 years, and its unadjusted effective life is 20 years. Its remaining effective life just after that time is therefore 1 year.

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

s 40-105 — Self ‑ assessing effective life

(1) You work out the effective life of a * depreciating asset yourself in accordance with this section. (1A) Firstly, estimate the period (in years, including fractions of years) the asset can be used by any entity for one or more of the following purposes: (a) a * taxable purpose; (b) the purpose of producing * exempt income or * non ‑ assessable non ‑ exempt income; (c) the purpose of conducting * R&D activities, assuming that this is reasonably likely. (1B) Secondly, if relevant for the asset: (a) have regard to the wear and tear you reasonably expect from your expected circumstances of use; and (b) assume that the asset will be maintained in reasonably good order and condition. (2) If, in working out that period, you decide that the asset would be likely to be: (a) scrapped; or (b) sold for no more than scrap value or abandoned; before the end of that period, its effective life ends at the earlier time. However, when making your decision, disregard reasons attributable to the technical risk in conducting * R&D activities if it is reasonably likely that the asset will be used for such activities. (3) You work out the period mentioned in subsection (1A) or (2) beginning at the * start time of the * depreciating asset. Exception: intangibles (4) This section does not apply to the following intangible * depreciating assets: (a) assets to which an item in the table in subsection 40 ‑ 95(7) applies; (b) * mining, quarrying or prospecting rights; (c) * mining, quarrying or prospecting information.

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 147 of 2005, effective Schedule 1 (items 4–168, 169(2), 170–176), Schedule 2 (items 1, 12–24, 26–28), Schedule 3, Schedule 4 (items 4–12), Schedule 5 (items 13, 14, 20), Schedule 6 (items 1, 2, 10(1)) and Schedule 7 (items 14–16, 20): Royal Assent | Amended by No 78 of 2007, effective Schedule 7 (items 2–14): 1 July 2005 Schedule 8 (items 350–353): 19 Dec 2002 (s 2(1) item 7) 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 69 of 2014, effective 1 July 2014 (s 2)

s 40-110 — Recalculating effective life

(1) You may choose to recalculate the * effective life of a * depreciating asset from a later income year if the effective life you have been using is no longer accurate because of changed circumstances relating to the nature of the use of the asset. Example: Some examples of changes in circumstances that may result in your recalculating the effective life of a depreciating asset are: • your use of the asset turns out to be more or less rigorous than you expected (or was anticipated by the Commissioner’s determination); • there is a downturn in demand for the goods or services the asset is used to produce that will result in the asset being scrapped; • legislation prevents the asset’s continued use; • changes in technology make the asset redundant; • there is an unexpected demand, or lack of success, for a film. (2) You must recalculate a * depreciating asset’s * effective life from a later income year if: (a) you: (i) self ‑ assessed its effective life; or (ii) are using an effective life worked out under section 40 ‑ 100 (about the Commissioner’s determination), or 40 ‑ 102 (about the capped life of certain depreciating assets), and the * prime cost method; or (iii) are using an effective life because of subsection 40 ‑ 95(4), (4B), (4C), (5), (5B) or (5C); and (b) its * cost is increased in that year by at least 10%. Note 1: You may conclude that the effective life is the same. Note 2: For the elements of the cost of a depreciating asset, see Subdivision 40 ‑ C. Example 1: Paul purchases a photocopier and self ‑ assesses its effective life at 6 years. In a later year he incurs expenditure to increase the quality of the reproductions it makes. He recalculates its effective life, but concludes that it remains the same. Example 2: Fiona also purchases a photocopier and self ‑ assesses its effective life at 6 years. In a later year she incurs expenditure to incorporate a more robust paper handling system. She recalculates its effective life, and concludes that it is increased to 7 years. (3) You must recalculate a * depreciating asset’s * effective life for the income year in which you started to * hold it if: (a) you are using an effective life because of subsection 40 ‑ 95(4), (4B), (4C), (5), (5B) or (5C); and (b) the asset’s * cost is increased after you started to hold it in that year by at least 10%. (3A) Subsections (1), (2) and (3) do not apply to a * depreciating asset that is a * mining, quarrying or prospecting right or * mining, quarrying or prospecting information. (3B) You may choose to recalculate the * effective life of a * mining, quarrying or prospecting right, or * mining, quarrying or prospecting information, from a later income year if the effective life you have been using is no longer accurate: (a) because of changed circumstances relating to an existing or proposed mine, petroleum field or quarry to which that right or information relates; or (b) because that right or information now relates to an existing or proposed mine, petroleum field or quarry; or (c) because that right or information no longer relates to an existing or proposed mine, petroleum field or quarry. (4) A recalculation under this section must be done using: (a) if paragraph (b) does not apply—section 40 ‑ 105 (about self ‑ assessing effective life); or (b) if the * depreciating asset is a * mining, quarrying or prospecting right or * mining, quarrying or prospecting information: (i) subsections 40 ‑ 95(10) and (11) (if the right or information relates to an existing or proposed mine, petroleum field or quarry); or (ii) subsection 40 ‑ 95(12) (if the right or information no longer relates to an existing or proposed mine, petroleum field or quarry). Exception: intangibles (5) This section does not apply to an intangible * depreciating asset to which an item in the table in subsection 40 ‑ 95(7) applies.

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 53 of 2002, effective Schedules 3 and 4: 1 July 2002 Remainder: Royal Assent | Amended by No 147 of 2005, effective Schedule 1 (items 4–168, 169(2), 170–176), Schedule 2 (items 1, 12–24, 26–28), Schedule 3, Schedule 4 (items 4–12), Schedule 5 (items 13, 14, 20), Schedule 6 (items 1, 2, 10(1)) and Schedule 7 (items 14–16, 20): Royal Assent | Amended by No 78 of 2007, effective Schedule 7 (items 2–14): 1 July 2005 Schedule 8 (items 350–353): 19 Dec 2002 (s 2(1) item 7) 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 69 of 2014, effective 1 July 2014 (s 2)

s 40-115 — Splitting a depreciating asset

(1) If a * depreciating asset you * hold is split into 2 or more assets, this Division applies as if you had stopped holding the original asset and started holding the assets into which it is split. Note 1: For the cost of the split assets, see section 40 ‑ 205. Note 2: A balancing adjustment event does not occur just because you split a depreciating asset: see section 40 ‑ 295. (2) If you stop * holding part of a * depreciating asset, this Division applies as if, just before you stopped holding that part, you had split the original asset into the part you stopped holding and the rest of the original asset. (The rest of the original asset is then taken to be a different asset from the original asset.) Example: Bronwyn sells Tim a part interest in a depreciating asset she owns. They become joint holders under section 40 ‑ 35. She is taken to have split the underlying asset into the interest she retains and the interest Tim buys. She now holds an interest (a new depreciating asset) in the underlying asset and is taken to have stopped holding the interest sold. (3) If you grant or assign an interest in an item of * intellectual property, subsection (2) applies to you as if you had stopped * holding part of the item.

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

s 40-120 — Replacement spectrum licences

(1) If: (a) some (but not all) of a * spectrum licence you * hold is assigned or resumed; and (b) your original licence is replaced by one or more other spectrum licences (possibly including a modified version of your original licence); and (c) the replacement licences together cover exactly the same rights as were covered by your original licence just after the assignment or resumption; this Division applies as if your original licence (as it existed just after the assignment or resumption) had been split into the replacement licences. Example: MGP Communications Ltd buys a spectrum licence on 1 July 2003 for $5 million. The licence specifies areas A, B, C and D. The company assigns the spectrum relating to area C. Area C represents 20% of the market value of the overall licence. $1m of the adjustable value is allocated to it and $4m is allocated to the remaining licence. The Australian Communications and Media Authority adjusts the licence to specify only areas A and B, and issues a new licence specifying area D. Area D represents 25% of the market value of the spectrum remaining in the licence. The adjustable value of the new licence is therefore $1m and the adjustable value of the original (modified) licence is $3m. (2) If a * spectrum licence you * hold is replaced by 2 or more spectrum licences (possibly including a modified version of your original licence) that together cover exactly the same rights as your original licence, this Division applies as if the original licence had been split into the replacement licences.

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 45 of 2005, effective Schedule 1 (items 66, 67) and Schedule 4: 1 July 2005 ( see s. 2(1))

s 40-122 — Partial conversions of mining, quarrying or prospecting rights

(1) This section applies if: (a) a * depreciating asset you * hold is a * mining, quarrying or prospecting right (the old right ) that relates to an area; and (b) you begin to hold another depreciating asset (the partial new right ) that: (i) is a mining, quarrying or prospecting right; and (ii) relates to an area that is a part of the area that the old right relates to; and (c) the old right does not end when you begin to hold the partial new right. (2) This Division applies as if: (a) when you begin to hold the partial new right, the old right is split into: (i) an asset that is the partial new right; and (ii) an asset that is the old right; and (b) the assets mentioned in subparagraphs (a)(i) and (ii) are both continuations of the old right. Note: For the cost of the split assets, see section 40 ‑ 205.

Amendment history: Inserted by No 67 of 2024, effective sch 1 (items 4 ‑ 7), sch 3 (items 1 ‑ 7), sch 5 (items 49 ‑ 52), sch 6: 1 Oct 2024 (s 2(1) items 3, 7, 10, 12)

s 40-125 — Merging depreciating assets

If a * depreciating asset or assets that you * hold is or are merged into another depreciating asset, this Division applies as if you had stopped holding the original asset or assets and started holding the merged asset. Note 1: For the cost of the merged asset, see section 40 ‑ 210. Note 2: A balancing adjustment event does not occur just because you merge depreciating assets: see section 40 ‑ 295.

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

s 40-130 — Choices

(1) A choice you can make under this Division about a * depreciating asset must be made: (a) by the day you lodge your * income tax return for the income year to which the choice relates; or (b) within a further time allowed by the Commissioner. (2) Your choice, once made, applies to that income year and all later income years. Exception: recalculating effective life (3) However, subsection (2) does not apply to a choice to recalculate the * effective life of a * depreciating asset under section 40 ‑ 110.

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

s 40-135 — 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 a * depreciating asset you * hold as if you were the owner of the asset instead of any other person.

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

s 40-140 — Getting tax information from associates

(1) If you acquire a * depreciating asset from an * associate of yours where the associate has deducted or can deduct an amount for the asset under this Division, you may give the associate a written notice requiring the associate to tell you: (a) the method the associate was using to work out the decline in value of the asset; and (b) the * effective life the associate was using; and (c) if section 40 ‑ 102 applied to the asset at any time: (i) the effective life that the associate would have used if section 40 ‑ 102 had not applied to the asset; and (ii) the relevant time that applied to the associate under subsection 40 ‑ 102(3). (2) The notice must: (a) be given within 60 days of your acquiring the asset; 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 associate is a partnership. Requirement to comply with notice (3) The * associate must not intentionally refuse or fail to comply with the notice. Penalty: 10 penalty units. Giving the notice to a partnership (4) If the * associate 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 * depreciating 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 53 of 2002, effective Schedules 3 and 4: 1 July 2002 Remainder: Royal Assent

s 40-170 — What this Subdivision is about

Your cost of a depreciating asset is a component in working out the amounts you can deduct for it. There are 2 elements of the cost of a depreciating asset. This Subdivision shows you how to work out those elements. Table of sections Operative provisions 40 ‑ 175 Cost 40 ‑ 180 First element of cost 40 ‑ 185 Amount you are taken to have paid to hold a depreciating asset or to receive a benefit 40 ‑ 190 Second element of cost 40 ‑ 195 Apportionment of cost 40 ‑ 200 Exclusion from cost 40 ‑ 205 Cost of a split depreciating asset 40 ‑ 210 Cost of merged depreciating assets 40 ‑ 215 Adjustment: double deduction 40 ‑ 217 Cost of partial continuations of mining, quarrying or prospecting rights 40 ‑ 220 Cost reduced by amounts not of a capital nature 40 ‑ 222 Cost reduced by water infrastructure improvement expenditure 40 ‑ 225 Adjustment: acquiring a car at a discount 40 ‑ 230 Adjustment: car limit 40 ‑ 235 Adjustment: National Disability Insurance Scheme costs

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

s 40-175 — Cost

The cost of a * depreciating asset you * hold consists of 2 elements. Note: The cost of a depreciating asset may be modified by one of these provisions: • Subdivision 27 ‑ B; • subsection 40 ‑ 90(2); • paragraph 40 ‑ 362(3)(c); • paragraph 40 ‑ 365(5)(a); • section 40 ‑ 1110; • section 775 ‑ 70; • section 775 ‑ 75.

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 133 of 2003, effective 17 Dec 2003 | Amended by No 57 of 2012, effective Schedules 1–3: 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 40-180 — First element of cost

(1) The first element is worked out as at the time when you began to * hold the * depreciating asset (except for a case to which item 3, 4 or 14 of the table in subsection (2) applies). It is: (a) if an item in that table applies—the amount specified in that item; or (b) otherwise—the amount you are taken to have paid to hold the asset under section 40 ‑ 185. Note 1: The first element of the cost may be modified by a later provision in this Subdivision. Note 2: Section 230 ‑ 505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration. (2) If more than one item in this table covers the asset, apply the last item that covers it. First element of the cost of a depreciating asset Item In this case: The cost is: 1 A * depreciating asset you * hold is split into 2 or more assets For each of the assets into which it is split, the amount worked out under section 40 ‑ 205 2 A * depreciating asset or assets that you * hold is or are merged into another depreciating asset For the other asset, the amount worked out under section 40 ‑ 210 3 A * balancing adjustment event happens to a * depreciating asset you * hold because you stop using it for any purpose expecting never to use it again, and you continue to hold it The * termination value of the asset at the time of the event 4 A * balancing adjustment event happens to a * depreciating asset you * hold but have not used because you expect never to use it, and you continue to hold it The * termination value of the asset at the time of the event 5 A partnership asset that was * held, just before it became a partnership asset, by one or more partners (whether or not any other entity was a joint holder) or a partnership asset to which subsection 40 ‑ 295(2) applies The * market value of the asset when the partnership started to hold it or when the change referred to in subsection 40 ‑ 295(2) occurred 6 There is roll ‑ over relief under section 40 ‑ 340 for a * balancing adjustment event happening to a * depreciating asset The * adjustable value of the asset to the transferor just before the balancing adjustment event occurred 7 You are the legal owner of a * depreciating asset that is hired under a * hire purchase agreement and you start * holding it because the entity to whom it is hired does not become the legal owner The * market value of the asset when you started to hold it 8 You started to * hold the asset 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 item, the first element of the asset’s cost would exceed its * market value The market value of the asset when you started to hold it 9 You started to * hold the asset under an * arrangement that was private or domestic in nature to you (for example, a gift) The * market value of the asset when you started to hold it 10 The * Finance Minister has determined a cost for you under section 49A, 49B, 50A, 50B, 51A or 51B of the Airports (Transitional) Act 1996 The cost so determined 11 To which Division 58 (which deals with assets previously owned by an * exempt entity) applies The amount applicable under subsections 58 ‑ 70(3) and (5) 12 A * balancing adjustment event happens to a * depreciating asset because a person dies and the asset devolves to you as the person’s * legal personal representative The asset’s * adjustable value on the day the person died or, if the asset is allocated to a low ‑ value pool, so much of the * closing pool balance for the income year in which the person died as is reasonably attributable to the asset 13 You started to * hold a * depreciating asset because it * passed to you as the beneficiary or a joint tenant The * market value of the asset when you started to hold it reduced by any * capital gain that was disregarded under section 128 ‑ 10 or subsection 128 ‑ 15(3), whether by the deceased or by the * legal personal representative 14 A * balancing adjustment event happens to a * depreciating asset you * hold because of subsection 40 ‑ 295(1B) What would, apart from subsection 40 ‑ 285(3), be the asset’s * adjustable value on the day the * balancing adjustment event occurs (3) The first element of * cost includes an amount you paid or are taken to have paid in relation to starting to * hold the * depreciating asset if that amount is directly connected with holding the asset. (4) The first element of * cost of a * depreciating asset does not include an amount that forms part of the second element of cost of another depreciating asset. Note: The first element of cost may be reduced under section 40 ‑ 1130 to account for exploration benefits received under farm ‑ in farm ‑ out arrangements.

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 32 of 2006, effective 6 Apr 2006 | Amended by No 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | 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 69 of 2014, effective 1 July 2014 (s 2) | 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) | 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 40-185 — Amount you are taken to have paid to hold a depreciating asset or to receive a benefit

(1) This Division applies to you as if you had paid, to * hold a * depreciating asset or for an economic benefit for such an asset, the greater of these amounts: (a) the sum of the amounts that would have been included in your assessable income because you started to hold the asset or received the benefit, or because you gave something to start holding the asset or receive the benefit, if you ignored the value of anything you gave that reduced the amount actually included; or (b) the sum of the applicable amounts set out in this table in relation to holding the asset or receiving the benefit. Example 1: Gold Medals Ltd manufactures some medals for a local sporting association’s annual meeting in return for a die cut stamping machine. The medals have a market value of $20,000. The machine has an arm’s length value of $100,000 but Gold Medals has to contribute $75,000 towards acquiring it from the association. Gold Medals will have to include: in its assessable income because of section 21A of the Income Tax Assessment Act 1936 . The first element of the machine’s cost will be the greater of: • the amount it paid ($75,000) plus the market value of the non ‑ cash benefits it provided ($20,000), which comes to $95,000; and • the amount that was assessable income from receiving the machine ($25,000) plus the amount by which that assessable income was reduced because of the payment Gold Medals made ($75,000), which comes to $100,000. So, in this case, the first element of the machine’s cost to Gold Medals is $100,000. Example 2: Laura travels overseas to purchase a purpose ‑ built vehicle for use in her trade. The purchase of the vehicle is the sole reason for the trip. Laura incurs expenses for airfares and accommodation. These expenses are included in the cost of the vehicle because they are “in relation to starting to hold” the vehicle. Amount you are taken to have paid to hold a depreciating asset or to receive a benefit Item In this case: The amount is: 1 You pay an amount The amount 2 You incur or increase a liability to pay an amount The amount of the liability or increase when you incurred or increased it 3 All or part of a liability to pay an amount owed to you by another entity is terminated The amount of the liability or part when it is terminated 4 You provide a * non ‑ cash benefit The * market value of the non ‑ cash benefit when it is provided 5 You incur or increase a liability to provide a * non ‑ cash benefit The * market value of the non ‑ cash benefit or the increase when you incurred or increased the liability 6 All or part of a liability to provide a * non ‑ cash benefit (except the * depreciating asset) owed to you by another entity is terminated The * market value of the non ‑ cash benefit when the liability is terminated Note 1: Item 1 includes not only amounts actually paid but also amounts taken to have been paid. Examples include the price of the notional purchase made when trading stock is converted to a depreciating asset under section 70 ‑ 110, the cost of an asset held under a hire purchase arrangement under section 240 ‑ 25 and a lessor’s deemed purchase price when a luxury car lease ends under subsection 242 ‑ 90(3). Note 2: Section 230 ‑ 505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration. (2) In applying the table in subsection (1) to a liability of yours to pay an amount or provide a * non ‑ cash benefit, don’t count any part of the liability you have already satisfied.

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 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | 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 40-190 — Second element of cost

(1) The second element is worked out after you start to * hold the * depreciating asset. (2) The second element is: (a) the amount you are taken to have paid under section 40 ‑ 185 for each economic benefit that has contributed to bringing the asset to its present condition and location from time to time since you started to * hold the asset; and (b) expenditure you incur that is reasonably attributable to a * balancing adjustment event occurring for the asset. Example 1: Andrew adds a new tray and canopy to his ute. The materials and labour that go into the addition are economic benefits that Andrew received and that contribute to the ute’s present condition. The payments he makes for those economic benefits are included in the second element of the ute’s cost. Example 2: Leonie needed to replace one of her old depreciating assets that was fixed to her land with a new, more efficient one. Leonie paid a contractor a fee to demolish and remove the old asset. This resulted in a balancing adjustment event occurring for the old asset, and the fee forms part of the second element of the cost of the old asset that was demolished. Note: The second element of the cost may be modified by a later provision in this Subdivision. (2A) Paragraph (2)(b) does not apply to a * balancing adjustment event referred to in item 6 or 11 of the table in subsection 40 ‑ 300(2). (3) However, the second element is worked out using this table if an item in it applies. Use the last applicable item. Second element of the cost of a depreciating asset Item In this case: The second element of cost is: 1 You received the benefit 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 item, the second element of cost for the benefit would exceed its * market value The market value of the benefit when you received it 2 You received the benefit under an * arrangement that was private or domestic in nature to you The * market value of the benefit when you received 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 32 of 2006, effective 6 Apr 2006

s 40-195 — Apportionment of cost

If you pay an amount for 2 or more things that include at least one * depreciating asset, or that include a contribution to bringing a depreciating asset to its present condition and location, you take into account as part of its * cost only that part of what you paid that is reasonably attributable to the asset. Example: Ian buys 3 assets (one depreciating asset and 2 other assets) under the one transaction. He pays $30,000 for the 3 assets. $25,000 of that amount is reasonably attributable to the depreciating asset. The first element of the depreciating asset’s cost is $25,000.

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

s 40-200 — Exclusion from cost

The * cost of a * depreciating asset that is not * plant does not include any amount that was incurred: (a) before 1 July 2001; or (b) under a contract entered into before that day.

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

s 40-205 — Cost of a split depreciating asset

If you split a * depreciating asset into separate assets as mentioned in section 40 ‑ 115, the first element of the cost of each of the separate assets is a reasonable proportion of the sum of these amounts: (a) the * adjustable value of the original asset just before it was split; and (b) the amount you are taken to have paid under section 40 ‑ 185 for any economic benefit involved in splitting the original asset. Example: Barry owns a spectrum licence that covers 3 areas: Area A, area B and area C. The licence has an adjustable value of $160,000. He sells area A to Chris, and his costs of splitting are $10,000. Barry is taken to have split the licence into 2 assets. On the basis of their relative market values, Barry apportions $170,000 to area A (that he disposed of) and to the licence he still holds for areas B and C.

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

s 40-210 — Cost of merged depreciating assets

If a * depreciating asset or assets that you * hold is or are merged into another depreciating asset as mentioned in section 40 ‑ 125, the first element of the cost of the merged asset is a reasonable proportion of the sum of: (a) the * adjustable value or adjustable values of the original asset or assets just before the merger; and (b) the amount you are taken to have paid under section 40 ‑ 185 for any economic benefit involved in merging the original asset or assets.

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

s 40-215 — Adjustment: double deduction

Each element of the * cost of a * depreciating asset is reduced by any portion of that element of cost that you have deducted or can deduct, or that has been or will be taken into account in working out an amount you can deduct, other than under this Division, Division 41 or Division 328. Note: This section does not apply to notional deductions under section 355 ‑ 305 or 355 ‑ 520 (about R&D) because those provisions are about deducting the asset’s decline in value, not its 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 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 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 101 of 2006, effective Schedules 3 and 4: 1 Jan 2008 Remainder: Royal Assent | Amended 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

s 40-217 — Cost of partial continuations of mining, quarrying or prospecting rights

If: (a) because of subsection 40 ‑ 30(6), this Division applies to a * mining, quarrying or prospecting right (the new right ) as if it were a continuation of another mining, quarrying or prospecting right you * held; and (b) the new right satisfies the condition in subparagraph (b)(ii) of that subsection because it relates to an area that is a part of the area that the other right relates to; the first element of the cost of the new right is a reasonable proportion of the * adjustable value of other right at the time just before the other right ends.

Amendment history: Inserted by No 67 of 2024, effective sch 1 (items 4 ‑ 7), sch 3 (items 1 ‑ 7), sch 5 (items 49 ‑ 52), sch 6: 1 Oct 2024 (s 2(1) items 3, 7, 10, 12)

s 40-220 — Cost reduced by amounts not of a capital nature

The * cost of a * depreciating asset is reduced by any portion of it that consists of an amount that is not of a capital nature.

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

s 40-222 — Cost reduced by water infrastructure improvement expenditure

The * cost of a * depreciating asset is reduced by any portion of it that consists of expenditure that you cannot deduct because of section 26 ‑ 100.

Amendment history: Inserted 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)

s 40-225 — Adjustment: acquiring a car at a discount

(1) You must increase the first element of the cost of a * car designed mainly for carrying passengers you acquire at a discount if: (a) it is reasonable to conclude that any portion (the discount portion ) of the discount is referable to you or another entity selling another asset for less than its * market value; and (b) you, or another entity, has deducted or can deduct an amount for the other asset for any income year; and (c) the sum of the cost of the car and the discount portion exceeds the * car limit for the * financial year in which you first use the car for any purpose. (2) The first element of the cost of the * car is increased by the discount portion. (3) This section does not apply to a * car that is excluded from the * car limit by subsection 40 ‑ 230(2).

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

s 40-230 — Adjustment: car limit

(1) The first element of the cost of a * car designed mainly for carrying passengers (after applying section 40 ‑ 225 and Subdivision 27 ‑ B) is reduced to the * car limit for the * financial year in which you started to * hold it if its cost exceeds that limit. (2) However, the * car limit does not apply to a * car: (a) fitted out for transporting disabled people in wheelchairs for profit; or (b) whose first element of * cost exceeds that limit only because of modifications made to enable an individual with a disability to use it for a * taxable purpose. (3) The car limit for the 2000 ‑ 01 * financial year is $55,134. The limit is indexed annually. Note: Subdivision 960 ‑ M shows you how to index amounts. (4) If you * hold a * car that is also held by one or more other entities, subsection (1) applies to the * cost of the car despite section 40 ‑ 35. Then section 40 ‑ 35 applies to the cost of the car as reduced under subsection (1).

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 40-235 — Adjustment: National Disability Insurance Scheme costs

The * cost of a * depreciating asset does not include an amount to the extent that section 26 ‑ 97 prevents the amount from being deducted (even if some other provision also prevents it being deducted). Note: Section 26 ‑ 97 denies deductions for National Disability Insurance Scheme expenditure.

Amendment history: Inserted by No 44 of 2013, effective Sch 3: 28 May 2013 (s 2(1) item 14) | Amended by No 110 of 2014, effective Sch 1 and Sch 2 (items 2–5, 13–23): 17 Oct 2014 (s 2(1) item 2) Sch 3, Sch 4 (items 1, 3) and Sch 5 (items 16–67, 74–76, 84–91, 98–121): 16 Oct 2014 (s 2(1) items 3–5, 7)

s 40-280 — What this Subdivision is about

You may have to make an adjustment to your taxable income if you stop holding a depreciating asset. The adjustment is generally based on the difference between the actual value of the asset when you stop holding it and its adjustable value. Table of sections Operative provisions 40 ‑ 285 Balancing adjustments 40 ‑ 290 Reduction for non ‑ taxable use 40 ‑ 291 Reduction for second ‑ hand assets used in residential property 40 ‑ 291A Fixed reduction for certain assets used to produce assessable labour income 40 ‑ 292 Adjustments—assets used for both general tax purposes and R&D activities 40 ‑ 293 Adjustments—partnership assets used for both general tax purposes and R&D activities 40 ‑ 295 Meaning of balancing adjustment event 40 ‑ 300 Meaning of termination value 40 ‑ 305 Amount you are taken to have received under a balancing adjustment event 40 ‑ 310 Apportionment of termination value 40 ‑ 320 Car to which section 40 ‑ 225 applies 40 ‑ 325 Adjustment: car limit 40 ‑ 335 Deduction for in ‑ house software where you will never use it 40 ‑ 340 Roll ‑ over relief 40 ‑ 345 What the roll ‑ over relief is 40 ‑ 350 Additional consequences 40 ‑ 360 Notice to allow transferee to work out how this Division applies 40 ‑ 362 Roll ‑ over relief for holders of vessels covered by certificates under the Shipping Reform (Tax Incentives) Act 2012 40 ‑ 363 Roll ‑ over relief for interest realignment arrangements 40 ‑ 364 Interest realignment adjustments 40 ‑ 365 Involuntary disposals 40 ‑ 370 Balancing adjustments where there has been use of different car expense methods

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

s 40-285 — Balancing adjustments

(1) An amount is included in your assessable income if: (a) a * balancing adjustment event occurs for a * depreciating asset you * held and: (i) whose decline in value you worked out under Subdivision 40 ‑ B; or (ii) whose decline in value you would have worked out under that Subdivision if you had used the asset; and (b) the asset’s * termination value is more than its * adjustable value just before the event occurred. The amount included is the difference between those amounts, and it is included for the income year in which the balancing adjustment event occurred. Note 1: The most common balancing adjustment event is where you sell the depreciating asset. Note 2: There is a different calculation if you had used different car expense methods for a car: see section 40 ‑ 370. Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25 ‑ 47. (2) You can deduct an amount if: (a) a * balancing adjustment event occurs for a * depreciating asset you * held and: (i) whose decline in value you worked out under Subdivision 40 ‑ B; or (ii) whose decline in value you would have worked out under that Subdivision if you had used the asset; and (b) the asset’s * termination value is less than its * adjustable value just before the event occurred. The amount you can deduct is the difference between those amounts, and you can deduct it for the income year in which the balancing adjustment event occurred. Note 1: There is a different calculation if you had used different car expense methods for a car: see section 40 ‑ 370. Note 2: The timing of a deduction allowed under this subsection is determined under Subdivision 170 ‑ D where that Subdivision applies to the balancing adjustment event. Note 3: There is a modification to the calculation in the case of misappropriation by your employee or agent: see section 25 ‑ 47. (3) The * adjustable value of a * depreciating asset you * hold after this section applies to it is then zero. (4) However, subsection (3) does not apply to a * depreciating asset for which you have a * cost under item 3, 4 or 14 of the table in subsection 40 ‑ 180(2). Instead, the asset’s * opening adjustable value for the income year (the later year ) after the one in which the * balancing adjustment event occurred is that cost plus any amounts included in the second element of that cost after the event occurred and before the start of the later year. Note: Those items deal with a case where a balancing adjustment event happens even though you still hold the asset in question. (5) Despite subsection (1), an amount included in your assessable income under that subsection is included for the second income year after the income year in which the * balancing adjustment event occurs if: (a) the * depreciating asset is a vessel; and (b) you have a certificate for the vessel under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 that: (i) applies to the day that the balancing adjustment event occurs; and (ii) is not a * shipping exempt income certificate. Note: An amount will not be included in your assessable income in relation to the balancing adjustment event if you choose roll ‑ over relief under section 40 ‑ 362.

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 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 57 of 2012, effective Schedules 1–3: Royal Assent | Amended by No 69 of 2014, effective 1 July 2014 (s 2)

s 40-290 — Reduction for non ‑ taxable use

(1) You must reduce the amount (the balancing adjustment amount ) included in your assessable income, or the amount you can deduct, under section 40 ‑ 285 for a * depreciating asset if your deductions for the asset have been reduced under section 40 ‑ 25. Note: You may instead choose a fixed reduction for certain depreciating assets that have been used to produce your assessable labour income: see section 40 ‑ 291A. (2) The reduction is: where: sum of reductions is the sum of: (a) the reductions in your deductions for the asset under section 40 ‑ 25; and (b) if there has been roll ‑ over relief for the asset under section 40 ‑ 340—the reductions in deductions for the asset for the transferor or an earlier successive transferor under section 40 ‑ 25; and (c) if you * hold the asset as the * legal personal representative of an individual—the reductions in deductions for the asset for the individual under section 40 ‑ 25. total decline is the sum of: (a) the decline in value of the * depreciating asset since you started to * hold it; and (b) if there has been roll ‑ over relief for the asset under section 40 ‑ 340—the decline in value of the asset for the transferor or an earlier successive transferor; and (c) if you * hold the asset as the * legal personal representative of an individual—the decline in value of the asset for the individual. (3) You must further reduce the amount included in your assessable income, or the amount you can deduct, under section 40 ‑ 285 for a * depreciating asset (the current asset ) if: (a) the asset’s * cost (for you) was worked out under section 40 ‑ 205 (Cost of a split depreciating asset) or 40 ‑ 210 (Cost of merged depreciating assets); and (b) you used the depreciating asset from which the current asset was split, or a depreciating asset that was merged into the current asset, or had it * installed ready for use, for a purpose other than a * taxable purpose. (4) The further reduction is such amount as is reasonable having regard to the extent of the use referred to in paragraph (3)(b). Exception: mining, quarrying or prospecting information (5) This section does not apply to * mining, quarrying or prospecting information.

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 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 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 40-291 — Reduction for second ‑ hand assets used in residential property

(1) In addition to section 40 ‑ 290, you must reduce the amount (the balancing adjustment amount ) included in your assessable income, or that you can deduct, under section 40 ‑ 285 for a * depreciating asset if your deductions for the asset have been reduced under section 40 ‑ 27. Note: You may instead choose a fixed reduction for certain depreciating assets that have been used to produce your assessable labour income: see section 40 ‑ 291A. (2) The reduction is the following, as increased under subsection (3) if applicable: where: sum of section 40 ‑ 27 reductions is the sum of: (a) the reductions in your deductions for the asset under section 40 ‑ 27; and (b) if there has been roll ‑ over relief for the asset under section 40 ‑ 340—the reductions in deductions for the asset for the transferor or an earlier successive transferor under section 40 ‑ 27; and (c) if you * hold the asset as the * legal personal representative of an individual—the reductions in deductions for the asset for the individual under section 40 ‑ 27. total decline is the sum of: (a) the decline in value of the * depreciating asset since you started to * hold it; and (b) if there has been roll ‑ over relief for the asset under section 40 ‑ 340—the decline in value of the asset for the transferor or an earlier successive transferor; and (c) if you hold the asset as the * legal personal representative of an individual—the decline in value of the asset for the individual. (3) If: (a) the * cost (for you) of the asset (the current asset ) was worked out under section 40 ‑ 205 (Cost of a split depreciating asset) or 40 ‑ 210 (Cost of merged depreciating assets); and (b) you used the * depreciating asset from which the current asset was split, or a depreciating asset that was merged into the current asset, or had it * installed ready for use, for the purpose to which paragraphs 40 ‑ 27(2)(a) and (b) relate; the reduction includes an increase equal to such amount as is reasonable having regard to the extent of the use referred to in paragraph (b) of this subsection.

Amendment history: Inserted by No 126 of 2017, effective Sch 1 and 2: 1 Jan 2018 (s 2(1) item 2) | 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 40-291A — Fixed reduction for certain assets used to produce assessable labour income

(1) Instead of a reduction under section 40 ‑ 290 or 40 ‑ 291, you may reduce, by a fixed amount, the amount (the balancing adjustment amount ) included in your assessable income, or the amount you can deduct, under section 40 ‑ 285 for a * depreciating asset if: (a) the depreciating asset has been used at any time for the purpose of gaining or producing your * assessable labour income; and (b) you have deducted an amount under section 25 ‑ 130 for an income year (whether the income year in which the * balancing adjustment event that gave rise to the balancing adjustment amount occurred or another income year); and (c) the * effective life of the depreciating asset overlaps, wholly or partly, with that income year. (2) The amount of the reduction is 50% of the balancing adjustment amount.

Amendment history: Inserted 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 40-292 — Adjustments—assets used for both general tax purposes and R&D activities

(1) This section applies if: (a) a * balancing adjustment event happens in an income year (the event year ) for an asset you * held and for which: (i) you can deduct, for an income year, an amount under section 40 ‑ 25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936 ; or (ii) you could have deducted, for an income year, an amount as described in subparagraph (i) if you had used the asset; and (b) you are entitled under section 355 ‑ 100 to * tax offsets for one or more income years for deductions (the R&D deductions ) under section 355 ‑ 305 for the asset. Note 1: This section applies in a modified way if you have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40 ‑ 292 of the Income Tax (Transitional Provisions) Act 1997 ). Note 2: To the extent that any amount is included in your assessable income under section 40 ‑ 285 in relation to R&D activities, you may have an additional amount included in your assessable income (see section 355 ‑ 447). Note 3: To the extent any amount that you are entitled to as a deduction under section 40 ‑ 285 relates to R&D activities, you may have an additional amount you can deduct (see section 355 ‑ 466). Section 40 ‑ 290 to be applied as if use for conducting R&D activities were use for a taxable purpose (2) In applying section 40 ‑ 290 (including references in that section to the reduction of deductions under section 40 ‑ 25) in relation to the asset, assume that using the asset for a * taxable purpose includes using it for the purpose of conducting the * R&D activities to which the R&D deductions relate.

Amendment history: Inserted 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 16 of 2003, effective s 4: 11 Apr 2003 (s 2(1) item 1) Sch 1 (items 1–6, 9–26), Sch 2, 3, Sch 4 (items 1–7), Sch 5 (items 2–5), Sch 6 (items 1–9), Sch 7 (items 1, 2, 4–29), Sch 8, Sch 9 (items 1, 2, 13–21), Sch 10 (item 2), Sch 11 (items 1–3), Sch 12, 13, Sch 14 (items 1–7), Sch 16 (items 1–3), Sch 19 (items 1–3), Sch 21, 22, Sch 23 (items 10–13) and Sch 24 (items 20–23): 24 Oct 2002 (s 2(1) items 1A, 2–11, 13, 14) Sch 7 (item 3): ( see Sch 10 (item 224) of Act No. 41, 2005) Sch 25 (items 1–10), Sch 26 (items 1–4, 8), Sch 27 (items 1–19, 21), Sch 28 (items 1–12, 19), Sch 29 (items 12, 13) and Sch 30 (items 1, 2): 29 June 2002 (s 2(1) items 15–19, 21, 23) | 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 | 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 40-293 — Adjustments—partnership assets used for both general tax purposes and R&D activities

(1) This section applies to an * R&D partnership if: (a) a * balancing adjustment event happens in an income year (the event year ) for a * depreciating asset * held by the R&D partnership and for which: (i) the R&D partnership can deduct, for an income year, an amount under section 40 ‑ 25, as that section applies apart from Division 355 and former section 73BC of the Income Tax Assessment Act 1936 ; or (ii) the R&D partnership could have deducted, for an income year, an amount as described in subparagraph (i) if it had used the asset; and (b) one or more partners of the R&D partnership are entitled under section 355 ‑ 100 to * tax offsets for one or more income years for deductions (the R&D deductions ) under section 355 ‑ 520 for the asset. Note 1: This section applies in a modified way if the partners have deductions for the asset under former section 73BA or 73BH of the Income Tax Assessment Act 1936 (see section 40 ‑ 293 of the Income Tax (Transitional Provisions) Act 1997 ). Note 2: To the extent any amount that is included in the R&D partnership’s assessable income under section 40 ‑ 285 relates to R&D activities, a partner may have an additional amount included in the partner’s assessable income (see section 355 ‑ 449). Note 3: To the extent any amount that the R&D partnership is entitled to as a deduction under section 40 ‑ 285 relates to R&D activities, a partner may have an additional amount the partner can deduct (see section 355 ‑ 468). Section 40 ‑ 290 to be applied as if use for conducting R&D activities were use for a taxable purpose (2) In applying section 40 ‑ 290 (including references in that section to the reduction of deductions under section 40 ‑ 25) in relation to the asset, assume that using the asset for a * taxable purpose includes using it for the purpose of conducting the * R&D activities to which the R&D deductions relate.

Amendment history: Inserted 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 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 40-295 — Meaning of balancing adjustment event

(1) A balancing adjustment event occurs for a * depreciating asset if: (a) you stop * holding the asset; or (b) you stop using it, or having it * installed ready for use, for any purpose and you expect never to use it, or have it installed ready for use, again; or (c) you have not used it and: (i) if you have had it installed ready for use—you stop having it so installed; and (ii) you decide never to use it. Note: A balancing adjustment event occurs under paragraph 40 ‑ 295(1)(a) when you start holding a depreciating asset as trading stock. (1A) A balancing adjustment event occurs for a * depreciating asset you * hold that is a * mining, quarrying or prospecting right, or * mining, quarrying or prospecting information, if: (a) the only reason that subsection 40 ‑ 80(1) does not apply to the right or information is that the right or information does not meet the requirements of paragraph 40 ‑ 80(1)(d) or (e); and (b) you have neither budgeted nor planned for further expenditure that: (i) will relate to the tenement to which the right or information relates; and (ii) will exceed the minimum expenditure required to maintain the tenement; and (c) you choose to apply this subsection to the right or information. (1B) A balancing adjustment event occurs for a * depreciating asset you * hold that is a * mining, quarrying or prospecting right, or * mining, quarrying or prospecting information, if: (a) since the last time you commenced to hold the right or information, a * balancing adjustment event occurred, because of subsection (1A), to the right or information; and (b) paragraph (1A)(b) no longer applies. (2) A balancing adjustment event occurs for a * depreciating asset if: (a) for any reason, a change occurs in the * holding of, or in the interests of entities in, the asset; and (b) the entity or one of the entities that had an interest in the asset before the change has an interest in it after the change; and (c) the asset was a partnership asset before the change or becomes one as a result of the change. (3) However, a balancing adjustment event does not occur for a * depreciating asset merely because you split it into 2 or more depreciating assets or you merge it with one or more other depreciating assets. Note: A balancing adjustment event will occur if you stop holding part of a depreciating 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 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 69 of 2014, effective 1 July 2014 (s 2)

s 40-300 — Meaning of termination value

(1) The termination value of a * depreciating asset is worked out as at the time when the * balancing adjustment event occurs. It is: (a) if an item in the table in subsection (2) applies—the amount specified in that item; or (b) otherwise—the amount you are taken to have received under section 40 ‑ 305 for the asset. Note: Section 230 ‑ 505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration. (2) If more than one item applies, use the value under the last applicable item. Termination value table Item For this balancing adjustment event: The termination value is: 1 You stop using a * depreciating asset, or having it * installed ready for use, for any purpose and you expect never to use it again even though you still * hold it The * market value of the asset when you stopped using it or having it * installed ready for use 2 You decide never to use a * depreciating asset that you have not used even though you still * hold it The * market value of the asset when you make the decision 3 You stop using * in ‑ house software for any purpose and you expect never to use it again even though you still * hold it Zero 4 You decide never to use * in ‑ house software that you have not used even though you still * hold it Zero 5 One or more partners stop holding a * depreciating asset when it becomes a partnership asset or a * balancing adjustment event referred to in subsection 40 ‑ 295(2) occurs The * market value of the asset when the partnership started to * hold it or when the balancing adjustment event occurred 6 You stop * holding a * depreciating asset 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 item, the * termination value would be less than its * market value The market value of the asset just before you stopped holding it 7 You stop * holding a * depreciating asset under an * arrangement that was private or domestic in nature to you (for example, a gift) The * market value of the asset just before you stopped * holding it 8 A * depreciating asset is lost or destroyed The amount or value received or receivable under an insurance policy or otherwise for the loss or destruction 9 You stop * holding a * depreciating asset because you die and the asset starts being held by the * legal personal representative The asset’s * adjustable value on the day you died or, if the asset is allocated to a low ‑ value pool, so much of the * closing pool balance for the income year in which you died as is reasonably attributable to the asset 10 You stop * holding a * depreciating asset because it * passes directly to a beneficiary or joint tenant when you die The * market value of the asset on the day you die 11 A * depreciating asset for which the * Finance Minister has determined an amount for you under section 52A of the Airports (Transitional) Act 1996 The amount so determined 13 The * balancing adjustment event occurs under subsection 40 ‑ 295(1A) Zero 14 The * balancing adjustment event occurs under subsection 40 ‑ 295(1B) What would, apart from subsection 40 ‑ 285(3), be the asset’s * adjustable value on the day the * balancing adjustment event occurs (3) The termination value of a * depreciating asset does not include an amount that is included in assessable income as * ordinary income under section 6 ‑ 5 or as * statutory income under section 6 ‑ 10 (except an amount that is statutory income under this Division). Note 1: Termination value may be adjusted under Subdivision 27 ‑ B so that any GST consequences are accounted for. Note 2: Termination value may be reduced under section 40 ‑ 1105 to account for exploration benefits received under farm ‑ in farm ‑ out arrangements.

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 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | 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 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 69 of 2014, effective 1 July 2014 (s 2) | 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 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 40-305 — Amount you are taken to have received under a balancing adjustment event

(1) This Division applies to you as if you had received, under a * balancing adjustment event, the greater of these amounts: (a) the sum of the amounts you have deducted or can deduct, or has been or will be taken into account in working out an amount you can deduct because of the balancing adjustment event and any amount by which the amount so deductible was reduced because of a case described in the table in this subsection; and (b) the sum of the applicable amounts set out in that table: Amount you are taken to have received under a balancing adjustment event Item In this case: The amount is: 1 You receive an amount The amount 2 You terminate all or part of a liability to pay an amount The amount of the liability or part when you terminate it 3 You are granted a right to receive an amount or an amount to which you are entitled is increased The amount of the right or increase when it is granted or increased 4 You receive a * non ‑ cash benefit The * market value of the non ‑ cash benefit when it is received 5 You terminate all or part of a liability to provide a * non ‑ cash benefit The * market value of the non ‑ cash benefit or reduction in the non ‑ cash benefit when the liability or part is terminated 6 You are granted a right to receive a * non ‑ cash benefit or you become entitled to an increased non ‑ cash benefit The * market value of the non ‑ cash benefit, or the increase, when it is granted or increased Note 1: Item 1 includes not only amounts actually received but also amounts taken to have been received. Examples include the price of the notional sale made when a depreciating asset is converted to trading stock under section 70 ‑ 30, the consideration for an asset held under a hire purchase arrangement under section 240 ‑ 25 and a lessee’s deemed consideration when a luxury car lease ends under subsection 242 ‑ 90(3). Note 2: Section 230 ‑ 505 provides special rules for working out the amount of consideration for an asset if the asset is a Division 230 financial arrangement or a Division 230 financial arrangement is involved in that consideration. (2) In applying the table in subsection (1) to a right you have to receive an amount or a * non ‑ cash benefit, don’t count any part of the right that has already been satisfied.

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 15 of 2009, effective Sch 1 (items 1–30, 52–97, 102–105): 26 Mar 2009 (s 2(1) item 2) Sch 1 (items 106–112, 114): 17 Dec 2003 (s 2(1) item 3) | 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 40-310 — Apportionment of termination value

If you receive an amount for 2 or more things that include a * balancing adjustment event occurring for a * depreciating asset, you take into account as its * termination value only that part of what you received that is reasonably attributable to the asset.

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

s 40-320 — Car to which section 40 ‑ 225 applies

You must increase the * termination value of a * car the * cost of which was increased under section 40 ‑ 225 by the discount portion for the car referred to in that section.

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

s 40-325 — Adjustment: car limit

The termination value of a * car the * cost of which was worked out by applying section 40 ‑ 230 (Car limit) is the amount worked out under subsection 40 ‑ 300(1) multiplied by the fraction: where: CL is the * car limit for the * car for the * financial year in which you first used it for any 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 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)