Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2019 (No 1)

Administered by Department of the Treasury

Legislation au F2019L00833 Not in force Legislative Instrument

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Explanatory Statement

 

Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2019 (No 1)  

 

 

General Outline of Instrument

 

  1. 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 2019.

 

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 a depreciating asset for income tax purposes.

 

What is the effect of this instrument

 

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

 

7.      Taxpayers are provided with a choice under the ITAA 1997 when measuring the decline in value (depreciation) of a depreciating asset. A taxpayer can either use an effective life determined by the Commissioner, or work out (self-assess) their own effective life of a depreciating 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 they have certainty these lives will be accepted by the Commissioner.

 

9.      The effective life determinations in the instrument apply on a prospective basis. The effective life determinations with an application date earlier than 1 July 2019 are included in the instrument because there is a need to update the asset description, correct a previous mistake or extend the current industry listing. 

 

Background

 

10.  The policy of effective life depreciation came into effect on 1 July 1991.

 

11.  On 21 September 1999, accelerated depreciation was removed. 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).

 

12.  As a result, the ATO has been undertaking ongoing annual reviews 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.

 

13.  The reviews are comprehensive in terms of the information gathered and the consideration given to different factors.

 

14.  Taxation Ruling 2019/5 explains the factors the Commissioner takes into account when making effective life determinations. Those factors include commercial and technical obsolescence, to the extent this can be predicted. The review does not focus on the physical life of assets to the exclusion of economic influences on its effective life.

 

15.  Ultimately, the Commissioner’s determinations must satisfy the question of how long the depreciating asset can be used by any entity for one or more specified purposes, including a taxable purpose.

 

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

 

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

 

18.  An Assistant Commissioner from the ATO is responsible for signing the legislative instrument.

 

 

Consultation:

 

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

 

20.  Draft effective lives are published along with requests for feedback.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 2019/5 on the ATO website.

 

21.  A review panel, typically including representatives from the Corporate Tax Association, Chartered Accountants Australia and New Zealand, Australian Finance Industry Association, National Australia Bank Finance and the ATO is involved in reviewing the proposed effective lives. The involvement of review panel members ensures that a full consultative process has been carried out with key stakeholders when conducting effective life reviews.

 

22.  The final effective life determinations are sent to all taxpayers that participated in the review and are also published on the ATO website.

 

 

Legislative references:

-       Acts Interpretation Act 1901

-       Human Rights (Parliamentary Scrutiny) Act 2011

-       Income Tax Assessment Act 1997

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

-       Legislation Act 2003

 

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 2019 (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 when measuring the decline in value (depreciation) of a depreciating asset, because a taxpayer can either use an effective life determined by the Commissioner, or work out (self-assess) their own effective life of a depreciating asset.  

 

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 a depreciating 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 2019 (No 1) amends the effective life of depreciating assets for income tax purposes, allowing taxpayers to calculate the depreciation of specific assets more accurately. Enacted by the Australian Government, this legislative instrument was introduced to ensure the ongoing revision of the effective life schedule as recommended by the Review of Business Taxation and endorsed by the Government in 1999. The instrument applies from 1 July 2019 and provides a prospective basis for determining the effective life of assets, ensuring that taxpayers in specific industries have a reliable basis for calculating depreciation. This amendment represents proper administration of the law and ensures that the effective lives determined by the Commissioner offer a 'safe harbour' for taxpayers, providing them with certainty that their depreciation calculations will be accepted. The process of determining these effective lives involves comprehensive reviews, consultations with stakeholders, and confirmation by an independent review panel, ensuring that the legislative instrument is compatible with human rights and does not engage any applicable rights or freedoms.

Scope and Application

The Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2019 (No 1) applies to taxpayers in specific industries and for particular assets, providing them with effective lives as a basis to calculate the decline in value (depreciation) of a depreciating asset for income tax purposes. It applies from 1 July 2019 and is made under the authority of the Income Tax Assessment Act 1997. The instrument provides a choice for taxpayers to either use an effective life determined by the Commissioner or self-assess their own effective life. The effective life determinations offer a 'safe harbour' for taxpayers, ensuring that these lives will be accepted by the Commissioner. The instrument is applicable on a prospective basis and updates, corrects, or extends the current industry listings. The Australian Taxation Office (ATO) has been conducting ongoing annual reviews of the Commissioner’s determinations of effective life, consulting with stakeholders, and publishing the final effective life determinations on their website.

Key Provisions

The Income Tax (Effective Life of Depreciating Assets) Amendment Determination 2019 (No 1) (the Determination) is a legislative instrument designed to provide taxpayers with specific industries and assets with effective lives as a basis for calculating the decline in value (depreciation) of depreciating assets for income tax purposes (paragraphs 5 and 6). The Determination applies from 1 July 2019 and offers taxpayers the choice to use an effective life determined by the Commissioner or to self-assess their own effective life of a depreciating asset (subsection 40-105(1) of the Income Tax Assessment Act 1997 (ITAA 1997)). Effective lives determined by the Commissioner serve as a 'safe harbour', ensuring that these lives will be accepted by the Commissioner (paragraph 8). The Determination imposes obligations on affected taxpayers to ensure they are aware of and understand the changes to effective life determinations. Taxpayers must choose whether to use the Commissioner's effective life determinations or self-assess their own effective life for depreciating assets. This choice is a fundamental aspect of the Determination, providing taxpayers with flexibility in managing their tax liabilities. Additionally, taxpayers must stay informed about any updates or changes to the effective life determinations, which are published on the Australian Taxation Office (ATO) website. The Determination also requires the ATO to conduct comprehensive reviews of effective life determinations, consulting with key stakeholders, including industry participants, associations, manufacturers, suppliers, and industry consultants (paragraphs 12 and 20). The Determination does not create new offences or penalties but relies on existing provisions within the ITAA 1997 for enforcement. For instance, if a taxpayer incorrectly calculates depreciation using an effective life that is not in accordance with the Determination, they may be subject to penalties under section 284-10 of the ITAA 1997, which applies to cases of careless or invalidated tax position. The Commissioner may also issue a notice under section 284-15 of the ITAA 1997, requiring the taxpayer to rectify their position and pay any additional tax, interest, or penalty. Furthermore, section 16DD of the ITAA 1997 provides for the imposition of penalties for serious non-compliance, including penalties for providing false or misleading statements, which could apply if a taxpayer deliberately miscalculates depreciation to avoid tax liabilities. The penalties for these offences can be substantial, including fines and imprisonment in severe cases. In summary, the Determination provides specific industries and assets with effective lives to calculate depreciation for income tax purposes. It offers taxpayers the choice to use Commissioner-determined effective lives or self-assess their own effective life, ensuring they are aware of the changes and understand their obligations. The Determination relies on existing provisions within the ITAA 1997 for enforcement, imposing penalties for incorrect depreciation calculations, false or misleading statements, and serious non-compliance.

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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.