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Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2017 (No 1)

Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2017 (No 1)

Administered by Department of the Treasury

Legislation au F2017L00746 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 40-100(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

2. This is a legislative instrument for the purposes of the Legislation Act 2003.

3. Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.

Date of effect

4. The instrument applies from 1 July 2017.

What is this instrument about

5. The instrument provides taxpayers in specific industries and for specific assets with effective lives as a basis to calculate the decline in value (depreciation) of an asset for income tax purposes.

What the effect of this instrument is

6. Compliance cost impact: Minor. The instrument will affect only a small proportion of businesses and confirms existing practice. There is no ongoing compliance cost impacts and minimal implementation impacts. However, affected taxpayers will nonetheless need to be aware of and learn about the changes.

7. The instrument provides taxpayers with a choice under the ITAA 1997, when measuring the decline in value (depreciation) of an asset. A taxpayer can either use an effective life determined by the Commissioner, or work out (self-assess) their own effective life of an asset in accordance with section 40-105 of the ITAA 1997.

8. Effective lives determined by the Commissioner provide what is referred to as a ‘safe harbour’ for taxpayers, as it provides certainty to taxpayers that these lives will be accepted by the Commissioner.

Background

9. The policy of effective life depreciation came into effect on 1 July 1991. On 21 September 1999, accelerated depreciation was removed.

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

11. As a result, the ATO has been undertaking a comprehensive review of the Commissioner’s determinations of effective life. In doing so, the Commissioner consults with a number of key stakeholders, including users of the assets, industry associations, manufacturers and suppliers of the assets and, when necessary, industry consultants.

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

13. Taxation Ruling 2017/2 explains the factors the Commissioner 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.

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

15. The new determinations of effective life do not represent any change in policy. They represent proper administration of the law.

16. The new determinations have been arrived at by a proper process. An independent review panel has confirmed that sufficient consultation was undertaken.

Consultation

17. Notifications of the various reviews being conducted are listed on the ATO website with an invitation to participate in the reviews.

18. Draft effective lives are also published along with requests for feedback, and these drafts are also sent to key stakeholders, including industry participants and associations, for comment. After considering the feedback, final effective lives are published in Taxation Ruling 2017/2 on the ATO website.

19. A review panel including representatives from the Corporate Tax Association and Chartered Accountants Australia and New Zealand is involved in reviewing the proposed effective lives. An Assistant Commissioner from the ATO is also on the review panel and is responsible for signing the legislative instrument. The involvement of review panel members ensures that a full consultative process has been carried out with key stakeholders when conducting effective life reviews.

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

Legislative references:

- Income Tax (Effective life of Depreciating Assets) Determination 2015

- Income Tax Assessment Act 1997

- Legislation Act 2003

- Acts Interpretation Act 1901

- Human Rights (Parliamenary Scrutiny) Act 2011

Other References

- Recommendation 8.5 of The Review of Business Taxation Report: A Tax System Redesigned

Statement of Compatibility with Human Rights

This statement is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2017

(No 1)

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

The Legislative Instrument provides taxpayers with a choice under the Income Tax Assessment Act 1997 (ITAA 1997), when measuring the decline in value (depreciation) of an asset, because a taxpayer can either use an effective life determined by the Commissioner, or work out (self-assess) their own effective life of an asset in accordance with section 40-105 of the ITAA 1997.

Effective lives determined by the Commissioner provide what is referred to as a ‘safe harbour’ for taxpayers, as it provides certainty to taxpayers that these lives will be accepted by the Commissioner

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms. The Instrument provides taxpayers in specific industries and for specific assets with effective lives as a basis to calculate the decline in value (depreciation) of an asset for income tax purposes.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Overview

The Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2017 (No 1) was introduced to provide taxpayers with effective life schedules for depreciating assets, offering them a choice when calculating depreciation for income tax purposes. This legislative instrument, enacted by the Australian Government under the authority of subsection 40-100(1) of the Income Tax Assessment Act 1997, allows taxpayers to either use effective lives determined by the Commissioner or self-assess their own effective lives as per section 40-105 of the ITAA 1997. The policy objective behind this amendment is to offer certainty to taxpayers by providing a 'safe harbour' through Commissioner-determined effective lives, while ensuring the proper administration of the law and reflecting a comprehensive review process that considers factors such as commercial and technical obsolescence. This amendment is part of the ongoing review of effective life schedules recommended by the Review of Business Taxation and endorsed by the Government, ensuring that the determinations are based on a thorough consultation process with stakeholders.

Scope and Application

The Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2017 (No 1) pertains to taxpayers in certain industries and specific assets, providing them with an effective life as the basis for calculating the decline in value (depreciation) of an asset for income tax purposes. This legislative instrument applies from 1 July 2017, and its purpose is to offer taxpayers a choice under the Income Tax Assessment Act 1997 (ITAA 1997) when measuring depreciation. Taxpayers can either use the effective life determined by the Commissioner or calculate their own effective life in accordance with section 40-105 of the ITAA 1997. The effective lives determined by the Commissioner provide a 'safe harbour' for taxpayers, ensuring that these lives will be accepted by the Commissioner. This instrument is compatible with human rights as it does not engage any of the applicable rights or freedoms. The instrument only affects a small proportion of businesses, and there are no ongoing compliance or implementation cost impacts, although affected taxpayers need to be aware of the changes.

Key Provisions

The main sections of the Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2017 (No 1) (the Determination) are designed to provide clarity and guidance to taxpayers in specific industries and for specific assets regarding the effective lives of depreciating assets, which is crucial for calculating depreciation for income tax purposes. Section 40-100(1) of the Income Tax Assessment Act 1997 (ITAA 1997) authorises the Commissioner to make determinations about the effective life of depreciating assets. This Determination provides those effective lives, giving taxpayers the option to either use the Commissioner's determinations or self-assess the effective life of their assets according to section 40-105 of the ITAA 1997. The Determination also stipulates that the Commissioner’s determinations offer a ‘safe harbour’, ensuring that these effective lives will be accepted by the Commissioner, thereby providing taxpayers with certainty. The Determination imposes specific obligations on taxpayers, particularly those in targeted industries and possessing certain assets. It mandates that these taxpayers must either adhere to the effective lives determined by the Commissioner or calculate their own effective life in accordance with the ITAA 1997. This dual approach ensures that taxpayers have the flexibility to choose the method that best suits their circumstances while maintaining compliance with tax regulations. Additionally, the Determination requires that the Commissioner's determinations are based on a comprehensive review process that includes consultations with key stakeholders such as industry participants, industry associations, manufacturers, suppliers, and consultants. This ensures that the determinations are well-informed and consider various factors such as commercial and technical obsolescence. Failure to comply with the Determination can lead to several consequences. While the Determination does not explicitly outline specific offences or penalties, non-compliance with the ITAA 1997, from which the Determination derives its authority, can result in civil or criminal penalties. Under the ITAA 1997, penalties for non-compliance can include substantial fines and, in severe cases, imprisonment. The specific penalties depend on the nature and extent of the non-compliance, and the ATO has the discretion to pursue appropriate enforcement actions against taxpayers who fail to adhere to the legislation. Additionally, taxpayers who self-assess their effective life must ensure their calculations are accurate and justifiable, as incorrect assessments could lead to audits and additional scrutiny by the ATO. The Determination also ensures that the process of determining effective lives is transparent and consultative. Notifications of reviews and draft determinations are published on the ATO website, inviting public participation. Key stakeholders are also directly engaged through feedback requests and consultations. This comprehensive review process is overseen by a panel that includes representatives from the Corporate Tax Association and Chartered Accountants Australia and New Zealand, ensuring a balanced and thorough review. The final determinations are published on the ATO website, making them readily accessible to all taxpayers. This approach not only enhances the legitimacy of the determinations but also ensures that taxpayers are well-informed and have the opportunity to provide input on the effective lives of their assets.

Area of Law: Taxation Law
Instrument: Legislative Instrument
Concepts: Definitions & Interpretation; Compliance Obligations; Offence Provisions

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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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