Income Tax (Transitional Provisions) Act 1997

For the purposes of section 40‑120, the decline in value for the income year in which paragraph 40‑120(1)(a) is satisfied (the current year) is:

if the asset’s start time occurs in the current year—the amount worked out under subsection (2); or

if the asset’s start time occurred in an earlier year—the amount worked out under subsection (4).

The asset’s start time is when you first use it, or have it installed ready for use, for any purpose (including a non‑taxable purpose): see subsection 40‑60(2) of the Income Tax Assessment Act 1997.

A case covered by paragraph (b) is where you start to hold the asset in the period 12 March 2020 to 30 June 2020 and use it for only non‑taxable purposes in that period, then first use it for a taxable purpose in the period 1 July 2020 to 30 June 2021.

If this subsection applies, the amount for the current year is the sum of the following amounts:

50% of the asset’s cost as at the end of the current year, disregarding any amount included in the second element of the asset’s cost after 30 June 2021;

the amount that would be the asset’s decline in value for the current year under Division 40 of the Income Tax Assessment Act 1997, assuming its cost were reduced by the amount worked out under paragraph (a).

Paragraph (a) effectively only requires you to disregard an amount included in the second element of cost if you have a substituted accounting period that ends after 30 June 2021.

However, the amount worked out under subsection (2) for an income year cannot be more than the amount that is the asset’s cost for the year.

If this subsection applies, the amount for the current year is the sum of the following amounts:

50% of the sum of the asset’s opening adjustable value for the current year and any amount included in the second element of its cost for that year, disregarding any amount included in that second element after 30 June 2021;

the amount that would be the asset’s decline in value for the current year under Division 40 of the Income Tax Assessment Act 1997 assuming:

for the diminishing value method—its base value were reduced by the amount worked out under paragraph (a); or

for the prime cost method—the component “Asset’s *cost” in the formula in subsection 40‑75(1) of that Act (as adjusted under that section) were reduced by the amount worked out under paragraph (a).

Paragraph (a) effectively only requires you to disregard an amount included in the second element of cost if you have a substituted accounting period that ends after 30 June 2021.

However, the amount worked out under subsection (4) for an income year cannot be more than:

for the diminishing value method—the asset’s base value for the year; or

for the prime cost method—the sum of its opening adjustable value for the income year and any amount included in the second element of its cost for that year.