LECTURE 6

CAPITAL WRITE-OFFS &

ALLOWANCES

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Weekly reading

Foundations of Taxation Law 2017 by Stephen Barkoczy

Chapter 17
• Pages 433 to 439 - Introduction
• Pages 443 to 447 – Business related blackhole capital expenditure

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Capital Allowances

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Depreciating asset

• 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
• Excludes:
• Land
• Trading stock
• Certain intangible assets (eg goodwill)
Source: Foundations of Taxation Law 2017, Stephen Barkoczy
 Holder

• Holder of a depreciating asset determined in accordance with

table in s 40-40
• Generally, the holder is the 'legal owner' of the asset
• However, in some cases, the holder is the 'economic owner' of
the asset

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Decline in value
• Entities can choose to calculate a depreciating asset’s decline in
value using either:
• A 'diminishing value method' (DVM), or
• A 'prime cost method' (PCM)

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Methods

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Special asset rules
• Immediate deduction available for certain assets that do not
cost more than $300
• Car limit limits deduction available in respect of luxury cars

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Pooling rules
• Pooling rules apply to:
• 'low-cost assets' (ie assets costing less than $1,000) and
• 'low-value assets' (ie assets that have an opening adjustable
value of less than $1,000)
• Pooled assets are written off at the DVM rate of 37.5% (18.75%
applies in first year of allocation to pool)

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Blackhole expenditure
• Section 40-880 allows certain capital expenditure to be
deducted in equal proportions over 5 years
• The expenditure must:
• Relate to a business that the taxpayer carries on for
a 'taxable purpose'

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Blackhole expenditure
• Not be excluded, eg:
▪ Must not otherwise be deductible
▪ Must not form cost of land or depreciating asset
▪ Must not be taken into account in working out capital
gain or loss
• Taxpayers are also able to claim immediate deductions for
certain expenses associated with starting a new business

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Capital works
• Capital works regime allows 'construction expenditure' incurred
in constructing 'capital works' that are used for income-
producing and certain other purposes to be written off over a
period of 25 or 40 years
• Deductions are only available where the capital works
commenced after specified times
• 'Construction expenditure' excludes:
• Cost of acquiring land, and
• Cost of demolishing existing structures or landscaping
Source: Foundations of Taxation Law 2017, Stephen Barkoczy
 Rate of write off
• Annual rate of write-off is 2½% or 4%
• The rate depends on:
• Type of capital works
• Use of 'construction expenditure area'
• Date construction commenced

Source: Foundations of Taxation Law 2017, Stephen Barkoczy

 Week 7 Tutorial 6

Foundations of Taxation Law 2017 by Stephen Barkoczy

Chapter 17, page 446 – Questions 1 & 2

Chapter 17, page 447 – Questions 5 & 8

Source: Foundations of Taxation Law 2017, Stephen Barkoczy