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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 105
However,
from 25 March 2020 (i.e. from the 2020-21 income year), non-residenal buildings are
again entled to depreciaon deducons – the depreciaon rate is 2% diminishing value or 1.5%
straight-line
A non-residenal building is a building that is not a residenal building – a residenal building is
defined as a dwelling, and includes a building intended to ordinarily provide accommodaon for
periods of less than 28 days at a me
This is appropriate because commercial and industrial buildings do decline in value and have a useful
life
o
Some difficult issues remain as to the line between buildings (no longer depreciable) and fings (sll
depreciable)
Owners of residenal buildings can sll get a deducon for fixtures and fings used in the course of
carrying on business (e.g. home appliances, carpets)
The annual rate for fixed life intangible property is provided for by a straight-line depreciaon over the useful life of the
property (
secon EE 33
)
SPECIAL RATES AND PROVISIONAL RATES
Taxpayers can apply to the Commissioner for “special” and “provisional” depreciaon rates either higher or lower than
those specified in Determinaon DEP 1
Secon EE 35
authorises the Commissioner to allow the use of such special and provisional rates
DISPOSALS AND SIMILAR EVENTS – DEPRECIATION RECOVERY INCOME
What happens if the taxpayer sells the asset for other than its book value?
o
If the taxpayer sells the item for
more
than book value, then the excess is counted as depreciaon recovery
income (
secon EE 48(1)
)
But if the item is sold for more than its original cost, this may be a capital gain and thus not taxable
o
If the taxpayer sells the item for
less
than book value, then the difference counts as depreciaon loss
These rules apply not only to sales and other disposions, but also to when the item is destroyed, stolen, repossessed
etc.
MATCHING RULES
MATCHING RULES FOR TRADING STOCK
You are usually entled to a full deducon for purchases of trading stock
o
But if the trading stock isn’t used up or resold, you add back the closing value of the trading stock (its value at
the end of an income year) (i.e. it counts as income) (
secon EA 1(2)
)
For example, if you purchased $100,000 worth of materials, but you only sold $50,000 of them – you
inially will get a deducon of $100,000, but can only get a deducon on the $50,000 sold and the
remaining $50,000 counts as income
This is because you should recognise your profit on the cost of goods that you actually have sold in
that income year, and not including the goods you sll have stored and not sold
o
Then, the opening value of the trading stock (its value at the start of the next income year) will be allowed as a
deducon (
secon EA 1(3)
)
For example, the $50,000 of materials leſt over will be deducble in the next income year
Example:
o
Income year 1
$100 trading stock purchased
$50 sold, $50 leſt at end of year (closing value)
Deducon = $100 – $50 = $50
o
Income year 2
Opening deducons for leſtover trading stock from last ear = $50
$100 trading stock purchased (so $150 total)
$75 sold, $75 leſt at end of year (closing value)
Deducon = $100 + $50 – $75 = $75
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