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This is a Bill, not an Act. For current law, see the Acts databases.
1998-99
The Parliament of
the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Presented and read a first
time
Taxation Laws
Amendment (Software Depreciation) Bill
1999
No. ,
1999
(Treasury)
A Bill
for an Act to amend the law relating to taxation, and for related
purposes
ISBN: 0642 389365
Contents
Income Tax Assessment Act
1936 3
Income Tax Assessment Act
1997 3
A Bill for an Act to amend the law relating to taxation,
and for related purposes
The Parliament of Australia enacts:
This Act may be cited as the Taxation Laws Amendment (Software
Depreciation) Act 1999.
This Act commences on the day on which it receives the Royal
Assent.
Each Act that is specified in a Schedule to this Act is amended or
repealed as set out in the applicable items in the Schedule concerned, and any
other item in a Schedule to this Act has effect according to its
terms.
Section 170 of the Income Tax Assessment Act 1936 does not prevent
the amendment of an assessment made before the commencement of this section for
the purposes of giving effect to this Act.
Income
Tax Assessment Act 1936
1 At the end of subsection
124K(2)
Add:
; or (c) expenditure on software (within the meaning of the Income Tax
Assessment Act 1997).
2 Schedule 2C, subsection 245-140(1)
(definition of table of deductible expenditure, after table item relating
to Cost of plant or articles)
Insert:
|
Expenditure on software, pooled |
Subdivision 46-D of the Income Tax Assessment Act 1997 |
3 Schedule 2D, subsection 57-85(3) (after table
item 14)
Insert:
|
14A |
Software |
Subdivisions 46-B and 46-D |
|
Income
Tax Assessment Act 1997
4 Section 10-5 (after table item headed
“pooled depreciated property”)
Insert:
|
pooled software |
|
see software |
5 Section 10-5 (after table item headed
“small-medium enterprises”)
Insert:
|
software |
|
pooled, consideration for disposal of 46-95 |
6 Section 12-5 (table item headed
“depreciation”)
After:
|
roll-over relief, unpooled property Subdivision 41-A |
insert:
|
software Subdivision 46-B |
|
software, pooled Subdivision 46-D |
7 Section 12-5 (after table item headed
“pooled development funds”)
Insert:
|
pooled software |
|
see software |
8 Section 12-5 (after table item headed
“small-medium enterprises”)
Insert:
|
software |
|
abandoned software 46-70 |
|
minor expenditure 46-65 |
|
pooled software 46-90 |
|
Year 2000 software 46-75 |
|
see also depreciation |
9 Section 20-30 (after table item
1.7)
Insert:
|
1.7A |
Division 42 (as it applies to *software
because of Subdivision 46-B) |
Expenditure on software |
|
1.7B |
Subdivision 46-C |
Expenditure on software |
|
1.7C |
Subdivision 46-D |
Expenditure on software, pooled |
10 Section 40-30 (before the table item dealing
with Telephone lines)
Insert:
|
Software |
Expenditure on software |
Any entity |
21/2 years |
Balancing adjustment required |
Division 46 |
11 Section 41-5 (before the table item dealing
with Telephone lines)
Insert:
|
Software—depreciable (Subdivision 46-B) |
Applies as modified by sections 42-275 and 42-280 |
Applies as modified by section 42-210 |
Applies without modification |
|
Software—pooled (Subdivision 46-D) |
Applies as modified by section 46-105 |
Applies as modified by section 46-110 |
Applies without modification |
|
Software—other (Subdivision 46-C) |
Does not apply |
Does not apply |
Does not apply |
12 Subsection 41-23(1) (after table item
1.1)
Insert:
|
1.2 |
Expenditure on software: pooled |
the transferor and transferee jointly elect for it |
section 46-100 |
13 At the end of section
42-55
Add:
Software
(8) Division 46 has special rules about depreciation of
software.
14 Section 43-260
Omit the link note, substitute:
[The next Division is Division 46.]
Table of Subdivisions
46-A Definitions and scope of Division
46-B Depreciation of software
46-C Deductions for certain expenditure on software
46-D Software pools
Table of sections
46-5 Meaning of software
46-10 Meaning of expenditure on
software
46-15 Exclusions from scope of Division
46-20 Relationship with general deductions
Software includes a right to use software.
(1) Expenditure on software includes expenditure you incur
(whether of a capital nature or not):
(a) in acquiring *software; or
(b) in developing software; or
(c) in having another person develop software;
principally for you to use the software to perform the functions for which
the software was acquired or developed.
Example 1: As an agent who sells tickets to shows, you incur
expenditure in developing software that is specifically designed to keep track
of bookings you accept in the course of your business. You would consider
selling other similar businesses a licence to use the software, but this has not
influenced your decision to develop it. The expenditure is covered by this
subsection because you developed it principally to perform
the function of keeping track of bookings in your business; not
principally as a product to sell to others.
Example 2: You incur expenditure in developing new word
processing software principally to sell to the general public, but you also
incidentally plan to use the software in your own business. The expenditure is
not covered by this subsection because you developed the software
principally to sell it to the public; not principally to use as an
in-house word processor.
(2) Expenditure on software may include salary or wages paid
to a person who is involved with the development of the
*software.
This Division does not apply to
*expenditure on software if:
(a) the *software is, or is part of,
*trading stock; or
(b) the deduction you can get for the expenditure under some
*capital allowance outside this Division is
more favourable to you than a deduction you can get under this
Division.
Example: You might get an immediate deduction under section
73B of the Income Tax Assessment Act 1936 (R&D expenditure) or
Subdivision 330-A of this Act (exploration and prospecting), either of which
might be more favourable to you than writing the expenditure off over
21/2 years under Subdivision B of this Division.
You can’t deduct expenditure under section 8-1 (general deductions)
if you can deduct it under this Division.
Table of sections
46-25 Depreciating software
46-30 The amount to be depreciated
46-35 Prime cost method to be used
46-40 Effective life
46-45 Depreciation rate
46-50 Additional balancing adjustment event
46-55 Non-arm’s length transactions
46-60 Pooling software
The provisions of this Act dealing with the depreciation of
*plant apply to units of
*software on which you incur expenditure as if
they were units of plant that you own, but with the modifications set out in
this Subdivision.
Example: You own a licence to use a software program. The
depreciation provisions apply as if the licence were a unit of
plant.
Note: If an amount of expenditure on software is recouped,
the amount may be included in your assessable income: see Subdivision
20-A.
The references to “its cost to you” in the table in section
42-65 (which is about working out the *cost of
plant) are to be read as references to “your
*expenditure on software”.
(1) The *prime cost method must be used
for calculating the deduction.
Note: The prime cost method is set out in section 42-165.
The diminishing value method set out in section 42-160 cannot be used for
software.
(2) However, subsection 42-165(2) does not apply.
Note: Subsection 42-165(2) allows you to deduct the full
cost of a unit of plant if the depreciation rate is 100%.
The *effective life for
*software is
21/2 years.
Note 1: Because of this, the effective life of software is
not worked out under Subdivision 42-C.
Note 2: If you permanently stop using the software before
the end of its effective life, a balancing adjustment may be required: see
section 46-50.
Note 3: In any case, you might get an immediate deduction
for minor amounts ($300 or less) of expenditure on software: see section
46-65.
The rate is 40%.
Note: Because of this, the depreciation rate for software is
not worked out under Subdivision 42-D.
(1) There is an additional *balancing
adjustment event for *software. It occurs if,
during the *current year, you do not dispose of
a unit of software but you:
(a) permanently cease to use it; and
(b) permanently cease to have it
*installed ready for use; and
(c) if it is a right to use software (the underlying
software)—it is reasonable to expect that you will never obtain a
subsequent right to use the underlying software.
Note: Balancing adjustment events are dealt with in section
42-30.
(2) The *termination value in that case
is nil unless an item in the termination value table in section 42-205
applies.
(3) If this *balancing adjustment event
occurs, no later event can be a balancing adjustment event for the
*software.
Common rule 2 applies to this Subdivision without the modification in
section 42-75.
Note: That modification is not needed because this
Subdivision already applies to expenditure (rather than cost).
*Software cannot be pooled under
Subdivision 42-L (but some *expenditure on
software can be pooled under Subdivision 46-D).
Table of sections
46-65 Deductions for minor amounts of expenditure on
software
46-70 Deductions for expenditure on software that you will
never use
46-75 Deductions for expenditure on software related to Year
2000
You can deduct *expenditure on software
that you incur, to the extent that you use the
*software, or have it
*installed ready for use, for the
*purpose of producing assessable income,
if:
(a) the expenditure does not exceed $300; and
(b) the expenditure relates to a unit of software and the total cost to
you of the software does not exceed $300; and
(c) the total cost to you of that unit of software, and any other
identical, or substantially identical, units of software that you acquire in the
*current year does not exceed $300.
Note: If an amount of the expenditure is recouped, the
amount may be included in your assessable income: see Subdivision
20-A.
(1) You can deduct *expenditure on
software if:
(a) you incurred the expenditure with the intention of using the
*software for the
*purpose of producing assessable income;
and
(b) the expenditure relates to a unit of software that you have not used
or had *installed ready for use; and
(c) in the *current year, you have
decided that you will never use the software, or have it
*installed ready for use; and
(d) the expenditure is not in your
*software pool (see Subdivision
46-D).
(2) The amount that you can deduct in the
*current year is:
(a) the total of your *expenditure on the
software in the current year and any previous income year; less
(b) any amount of consideration you derive in relation to the software or
any part of it (but no more than the total in paragraph (a));
but only to the extent that, when you incurred the expenditure, you
intended to use the *software, or have it
*installed ready for use, for the
*purpose of producing assessable
income.
Example: You have abandoned a software project that you were
working on. You could not deduct expenditure on the project for the current year
or any previous income year under any other provision. You can deduct it under
this section, to the extent that you intended to use it, or have it installed
ready for use, for the purpose of producing assessable income.
Note: If an amount of the expenditure is recouped, the
amount may be included in your assessable income: see Subdivision
20-A.
(1) You can deduct *expenditure on
software incurred before 1 January 2000 if the principal purpose of the
expenditure is to ensure that an existing computer system attains Year 2000
compliance.
(2) If that is not the principal purpose, you can deduct the expenditure
to the extent that it is the purpose of the expenditure.
(3) But in any case, a deduction is only allowed under this section to the
extent that, when you incur the expenditure, you intend to use the
*software, or have it
*installed ready for use, for the
*purpose of producing assessable
income.
Note: If an amount of the expenditure is recouped, the
amount may be included in your assessable income: see Subdivision
20-A.
Table of sections
46-80 Creating a software pool
46-85 What expenditure goes into the software
pool?
46-90 Calculating deductions for pooled expenditure on
software
46-95 Your assessable income includes consideration for
pooled software
46-100 Application of Division 41 Common
rules
46-105 Modifications of Common rule 1
46-110 Modification of Common rule 2
(1) You may choose to create a *software
pool by recording in writing the first income year for which
*expenditure on software is to go into
it.
(2) Once made, the choice cannot be revoked.
Note: There is a limited exception to this for the 1999-2000
income year: see item 24 of Schedule 1 to the Taxation Laws Amendment
(Software Depreciation) Act 1999.
*Expenditure on software goes into the
*software pool if, and only if:
(a) you incur it in developing *software,
or in having another person develop software; and
(b) you incur it in the income year for which the choice is made or any
later income year; and
(c) you intend to use the software, or have it
*installed ready for use, wholly for the
purpose of producing assessable income; and
(d) the expenditure would not otherwise be deductible under section 46-65
(minor amounts) or section 46-75 (Year 2000 compliance).
(1) For all the expenditure in the
*software pool that was incurred in a
particular income year (Year 1), you get deductions in successive
income years as follows:
|
Deductions allowed for software pool |
|
|---|---|
|
Income year |
Amount of expenditure you can deduct for that year |
|
Year 1 |
Nil |
|
Year 2 |
40% |
|
Year 3 |
40% |
|
Year 4 |
20% |
(2) These deductions are instead of any deductions you could otherwise get
for the expenditure under Subdivision 46-B or section 46-70.
(1) If *expenditure on software is (or
was) in your *software pool, your assessable
income includes any amount you derive as consideration in relation to the
*software.
(2) However, subsection (1) does not apply if Common rule 1 (roll-over
relief) applies to the change (see section 46-100).
(1) Common rule 1 applies to this Subdivision as set out in section 41-15,
but only if the transferor and the transferee jointly elect for it to
apply.
Note: For the conditions relating to the election, see
section 41-55.
(2) Common rule 1 also applies to this Subdivision if:
(a) for any reason, a change occurs in the ownership of, or in the
interests of entities in, *software that is in
a *software pool; and
(b) the entity or one of the entities that owned the software before the
change has an interest in it after the change; and
(c) the owners of the software before the change (the
transferor) and the owners of the software after the change (the
transferee) jointly elect for the Common rule to apply.
Note: For the conditions relating to the election, see
section 41-55.
(3) The reasons for the change occurring include:
(a) the formation of dissolution of a partnership; and
(b) a variation in the constitution of a partnership, or in the interests
of the partners.
(4) The following Common rules also apply to this Subdivision:
(a) Common rule 2 (non-arm’s length transactions);
(b) Common rule 3 (anti-avoidance—ownership).
(5) However, Common rules 1 and 2 are modified as set out in the following
sections.
(1) The following provisions of Common rule 1 do not apply for the
purposes of this Subdivision:
(a) section 41-25;
(b) section 41-40.
Note: Those sections are irrelevant because they are about
balancing adjustments, which are not required under this
Subdivision.
(2) Section 41-30 can apply to expenditure in respect of which you get a
deduction under this Subdivision even if it is not
*capital expenditure.
(3) Section 41-30 applies to an entitlement to a deduction under this
Subdivision only so far as the entitlement relates to the particular
*software that the Common rule applies to
(because of section 41-15 or subsection 46-100(2)).
Paragraph 41-65(2)(c) can apply to expenditure in respect of which you
get a deduction under this Subdivision even if it is not
*capital expenditure.
[The next Part is Part 2-15.]
15 After paragraph
373-10(2)(b)
Insert:
; or (c) the expenditure is *expenditure
on software.
16 At the end of subsection
373-10(2)
Add:
Note 4: Software is covered by Division 46.
17 At the end of section
373-60
Add:
(5) A balancing adjustment is not required if the expenditure is
*expenditure on software.
Note: In that case, see Division 46.
18 Subsection 995-1(1)
Insert:
expenditure on software has the meaning given by section
46-10.
19 Subsection 995-1(1)
Insert:
software has the meaning given by section 46-5.
20 Subsection 995-1(1)
Insert:
software pool has the meaning given by section
46-80.
21 Application
The amendments made by this Schedule apply to expenditure on software after
10 am by legal time in the Australian Capital Territory on 11 May
1998.
22 Transitional—projects commenced before
11 May 1998
You can deduct expenditure on software that you incur before 1 July 1999
and that you could otherwise deduct under Subdivision 46-B or 46-D of the
Income Tax Assessment Act 1997 if, at or before 10 am by legal time in
the Australian Capital Territory on 11 May 1998:
(a) you entered into a contract to acquire the software; or
(b) you commenced the development of the software for your own use;
or
(c) you commissioned another entity to develop the software for your own
use;
to the extent that you use, or intend to use, the software for the purpose
of producing assessable income.
Note: Under this item you can deduct the expenditure for the
year in which you incur it, instead of having to write it off gradually under
Subdivision 46-B or 46-D.
23 Transitional—backdating software pool
to 11 May 1998
When making a choice under section 46-80 of the Income Tax Assessment
Act 1997 for the first income year beginning after 11 May 1998, you may
elect that the choice be treated as also applying to any expenditure on software
incurred after 10 am by legal time in the Australian Capital Territory on 11 May
1998 but before that income year begins.
Note 1: You will get section 46-90 deductions for that
expenditure one year earlier than any deductions you will get for expenditure
incurred in that later income year. This is because the timing of section 46-90
deductions depends on the income year in which you incurred the expenditure (not
on when you made the choice).
Note 2: If it were not for this item, the choice could not
apply to expenditure incurred before the beginning of the income year in which
the choice is made: see paragraph 46-85(b).
24 Transitional—revoking software pool
choice
(1) When lodging your return for the second income year beginning after 11
May 1998, you may revoke a previous choice that you made to create a software
pool under section 46-80 of the Income Tax Assessment Act 1997.
(2) You may do so whether or not you also made an election under item 23 of
this Schedule when you made that choice.
(3) If you revoke the choice, no expenditure on software for that second
income year or any later income year goes into your software pool. But any
expenditure from before that second income year remains in your software pool
unaffected by the revocation.
(4) You can never revoke the revocation, or make a fresh choice under
section 46-80.