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INCOME TAX ASSESSMENT ACT 1997 - SECT 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.


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