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INCOME TAX ASSESSMENT ACT 1997 - SECT 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:

Start formula Asset's *cost times start fraction Days held over 365 end fraction times start fraction 100% over Asset's *effective life end fraction end formula

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:

Start formula $3,500 times start fraction open bracket 365 minus 25 close bracket over 365 end fraction times start fraction 100% over 3 and one third end fraction equals $978 end formula

  The asset's adjustable value at the end of the income year is:

Start formula $3,500 minus $978 equals $2,522

  (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.


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