5. Capital Expenditure

Question 1

What is depreciation called in ITAA 1997?

Answer 1

It is covered in Division 40 under Capital Allowances

Question 2

What are the steps when calculating depreciation on an asset?

Answer 2

Determine the cost of the depreciating asset.
Determine the effective life of the depreciating asset.
Determine the start time.
Calculate the decline in value and adjustable value.
Reduce the decline in value deduction for any non taxable use and for second-hand assets in certain residential rental properties.

Question 3

What specific provisions apply in Capital Expenditure?

Answer 3

CGT Asset (net capital gain calculations)
Depreciating Asset (Decline in value)
Blackhole expenditure
Lease termination expenditure
Capital works deductions

Question 4

What are the 3 options for calculating depreciation?

Answer 4

Prime cost method
Diminishing value method
Low value pool

Question 5

What are the main differences between Trading stock, CGT asset, and depreciating assets?

Answer 5

trading stock - held for revenue and is deductible
CGT - Capital and any kind o property that isn’t held for trading stock or depreciable
Depreciating asset - An asset that has a limited effective life and expected to decline in value.

Question 6

Are intangibles CGT or depreciating asset?

Answer 6

Check legislation, if listed in depreciating asset treat that way, otherwise CGT