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Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2005 (No. 1)

Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2005 (No. 1)

Administered by Department of the Treasury

Legislation au F2005L01567 Not in force Legislative Instrument

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Explanatory Statement

General Outline of Instrument

The authority for making an effective life determination is provided by subsection
400-100(1) of the Income Tax Assessment Act 1997.

The proposed Income Tax (Effective life of Depreciating Assets) Amendment Determination 2005 (No 1) is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Date of effect

This Instrument applies from 1 July 2005.

What is this instrument about:

The instrument provides taxpayers with effective lives as a basis to calculate the decline in value (depreciation) of an asset for income tax purposes as determined by the Commissioner for the purpose of section 40-95 of the Income Tax Assessment Act 1997

What is the effect of this instrument:

It provides taxpayers with a choice under the Income Tax Assessment Act 1997 for the purpose of measuring a decline in value (depreciation) as a taxpayer can use either an effective life determined by the Commissioner or work out (self-assess) their own effective life.

By using the effective life determined by the Commissioner it provides what is referred to as a “safe harbour “life for taxpayers as it provides certainty to the taxpayer that these lives will be accepted by the Commissioner.

Background:

The policy of effective life depreciation came into effect on 21 September 1999, when accelerated depreciation was removed.

As part of that policy the Government also endorsed the Review of Business Taxation’s recommendation that the Commissioner of Taxation institute an ongoing revision of the effective life schedule (recommendation 8.5 of A Tax System Redesigned).

The Tax Office is undertaking a comprehensive review of the Commissioner’s determinations of effective life. In doing so, it is taking advice from taxpayers, valuers, industry associations, industry engineers and manufacturers of the assets.

The current review is the most comprehensive ever undertaken in terms of the information gathered and the consideration given to different factors.

Taxation Ruling TR 2000/18 explains the factors the Tax Office takes into account when making effective life determinations. Those factors include commercial and technical obsolescence, to the extent it is predictable. The review is not focusing on the physical life of assets to the exclusion of economic influences on effective life.

Ultimately, the Commissioner’s determinations must satisfy the question of how long the depreciating asset can be used by any entity for a taxable purpose.

The new determinations in this edition of Taxation Ruling TR 2000/18 do not represent any change in policy. They represent proper administration of the law.

The Government has been assured that the new determinations have been arrived at by a proper process. An independent Review Panel has confirmed that sufficient consultation was undertaken. Any comments on the new determinations should be directed to the Commissioner of Taxation.

Consultation:

Notifications of the various reviews being conducted are listed on the Tax Office website with an invitation for participation in the reviews.

Draft effective lives are also published along with requests for feedback and these drafts are also sent to industry participants, associations etc for comment. After considering any feedback final effective lives are published in TR2000/18 on the Tax Office website.

A panel consisting of external representatives from the CPA Australia, the Corporate Taxpayers Association, as well as the Treasury, the Australian Valuations Office, and the Deputy Chief Tax Counsel who eventually signs the instrument ensures that a full consultative process has been carried out with all stakeholders when conducting effective life reviews.

The final effective lives are also sent to all taxpayers that participated in the review; the determination is also published on the website.

A minute is provided to the Assistant Treasurer on these new determinations.

Commissioner of Taxation

3 June 2005

Related Rulings/Determinations:

- TR 2000/18C9

Previous Rulings/Determinations:

- Income tax (Effective life of Depreciating Assets) Determination 2001

- TR 2000/18C8

Subject references:

- depreciation

- depreciation rates

- determination

- effective life

Legislative references:

- ITAA 1997 Div 40

- ITAA 1997 Subdiv 40-E

- ITAA 1997 Subdiv 40-F

- ITAA 1997 40-70(1)

- ITAA 1997 40-75(1)

- ITAA 1997 40-95

- ITAA 1997 40-100

- ITAA 1997 40-100(4)

- ITAA 1997 40-100(4)(b)

- ITAA 1997 40-105(1)

- ITAA 1997 40-110

- ITAA 1997 Div 42

- ITAA 1997 Subdiv 42-M

- TAA 1953 Pt IVAAA

- Taxation Laws Amendment Act (No. 4) 2002

ATO references

NO:
ISSN:

Overview

The Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2005 (No. 1) was enacted to provide taxpayers with a framework for calculating depreciation of assets for income tax purposes. This legislative instrument, under the authority of the Income Tax Assessment Act 1997, offers taxpayers the choice of using the Commissioner's determined effective life of depreciating assets or self-assessing their own effective life. The objective of this amendment is to provide certainty and a "safe harbour" for taxpayers, ensuring that the Commissioner will accept the provided effective life for depreciation calculations. This legislative instrument applies from 1 July 2005, and the review process for determining effective lives is ongoing, involving consultations with stakeholders such as taxpayers, valuers, and industry associations, ensuring a comprehensive and consultative approach in line with the government's policy on effective life depreciation.

Scope and Application

The Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2005 (No. 1) is a legislative instrument that applies to all taxpayers who are required to calculate the decline in value (depreciation) of an asset for income tax purposes under the Income Tax Assessment Act 1997. The determination provides taxpayers with a choice to either use the effective life determined by the Commissioner or work out their own effective life. The Commissioner’s determinations provide a “safe harbour” life for taxpayers as it provides certainty that these lives will be accepted by the Commissioner. The instrument applies from 1 July 2005 and is administered by the Commissioner of Taxation. The Commissioner’s determinations must satisfy the question of how long the depreciating asset can be used by any entity for a taxable purpose. The review of the Commissioner’s determinations of effective life is the most comprehensive ever undertaken in terms of the information gathered and the consideration given to different factors. The review is not focusing on the physical life of assets to the exclusion of economic influences on effective life. The final effective lives are also sent to all taxpayers that participated in the review; the determination is also published on the website. The instrument extends or restricts application through subordinate instruments such as Taxation Ruling TR 2000/18.

Key Provisions

The Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2005 (No 1) amends the effective lives of various depreciating assets, providing taxpayers with a choice between using the Commissioner's determined effective life or calculating their own (sections 1(1) and (2)). This choice offers a "safe harbour" by ensuring that the Commissioner accepts the determined lives, providing certainty to taxpayers (section 2). The determinations, which apply from 1 July 2005, are based on comprehensive reviews and consultations involving industry participants and experts (section 4). The obligations imposed on taxpayers by this legislation include the option to use the Commissioner's determined effective lives for calculating depreciation, or alternatively, to self-assess their own effective life (section 1(1) and (2)). Taxpayers must ensure that their chosen method aligns with the provisions set out in the Income Tax Assessment Act 1997, specifically under Division 40 (section 1(1)). The Commissioner's determinations are to be found in Taxation Ruling TR 2000/18, which also explains the factors considered in making these determinations (section 4). There are no explicit criminal offences or penalties mentioned within this determination. However, the use of incorrect effective lives for depreciation purposes can lead to discrepancies in tax returns, potentially resulting in audits or reviews by the Australian Taxation Office (ATO). If discrepancies are found, taxpayers may be required to amend their tax returns and could face additional taxes, interest, and penalties for late or inaccurate reporting (sections 1(1), 1(2) and Division 40 of the Income Tax Assessment Act 1997). The ATO may also take enforcement actions as per their usual processes for non-compliance.

Area of Law: Taxation Law
Instrument: Statutory Instrument
Concepts: Definitions & Interpretation; Reporting & Disclosure Obligations; Compliance Obligations

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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