This section provides you with a general overview of the possible ways that expenditure on assets can be treated for income tax purposes together with some definitions.
maintenance
Trading stock & capital expenditures
Unit details
Level: Professional
Cost:
$199 members
$320 non-members
Estimated learning duration: 10 hours
Assessment duration: 2.5 hours
Assessment: Part 1: 20 multiple choice questions 75% pass mark
Part 2: 3 scenarios with 3-4 multiple choice questions per scenario 75% pass mark
Assumed knowledge: This unit assumes that the learner has a good understanding of how income is taxed in Australia and the rules regarding whether or not expenditures can be deducted for tax purposes. An awareness that a capital gains tax regime exists will be helpful.
These topics are covered in the Taxation of income and Income tax deductions units respectively.
In this unit, you will learn about the different capacities in which a taxpayer can hold an asset under income tax law and the impact of this on the income tax treatment for that taxpayer.
You will learn:
- The income tax rules regarding the treatment of trading stock.
- The core rules regarding deductions available for standard or concessional declines in value of depreciating assets under Division 40 ITAA97.
- The income tax rules when disposing of depreciating assets.
- The situations where deductions are available for other types of Division 40 ITAA97 capital expenditures.
- The deductions available for capital works under Division 43 ITAA97 and how these rules interact with the capital gains tax (CGT) regime.
- The rules for claiming deductions for alternative methods of asset financing by way of a lease or when Division 240 ITAA97 applies to a hire purchase agreement.
Topics within Trading stock and capital expenditures:
You will gain an understanding of how purchases and sales of trading stock are treated for income tax purposes in different situations, contextualised alongside the financial accounting treatment of inventory, in this section. You will learn about the implications of stock valuation on the income tax position and the various methods that can be used as well as how closing stock is treated more generally for income tax purposes. Key case decisions will also be referenced in this section.
In this section the key definitions and concepts surrounding the income tax treatment of depreciating assets including cost implications, holding an asset, “start time” and “adjustable value”. Understanding these key concepts is critical to the topics you will learn in the unit.
Where none of the concessional decline in value or other special situations are relevant for the taxpayer the standard decline in value rules will apply. You will learn about how these operate and about the relevant concepts of effective life and non-taxable use, and about the decline in value methods in this section. Special rules affecting second-hand assets in residential properties are also discussed here.
There is a range of special situations where a better tax outcome, when compared to the standard decline in value rules, can be obtained. This includes some temporary measures introduced as a response to the Covid-19 pandemic. In this section you will work through these scenarios and understand when they apply and the consequences for the taxpayer. These include Instant Asset Write Off (IAWO), Temporary Full Expensing (TFE) and accelerated depreciation scenarios. You will also learn and understand the relevance of “aggregated turnover” and related concepts for the concessional declines in value rules discussed in this section.
You will learn about the concept of a balancing adjustment event in this section as well as the consequences that flow from such an event happening and the calculations that will be required for income tax purposes. The key concepts of balancing adjustment event and termination value are covered here as well as the calculation of the balancing adjustment amount. This section also introduces you to how these rules interact with the capital gains tax (CGT) regime.
Some depreciating assets have special rules or different treatments applied for the purposes of calculating decline in value. Key ones are discussed in this section. You will learn about low value and software development pools, primary producer expenditures on water facilities and other specific assets and capital expenditures incurred by businesses in the mining and quarrying sector on exploration and prospecting. The details of project pool amounts and other expenditures where immediate deductions are available will be discussed and you will also learn about “black-hole” expenditure. Consequences of disposing of the assets covered in this section are also discussed.
In this section you will learn about the tax treatment of certain capital expenditures on buildings and other capital works and how these rules interact with other relevant parts of the income tax law. The concepts that underpin these rules and the interactions with Division 40 ITAA97 and the capital gains tax provisions will also be discussed in this section.
The income tax implications for the financing of assets by way of leases and hire purchase agreements are covered in this section. These are considered from the lessee and the lessors perspective. You will also learn about the circumstances in which Division 240 ITAA97 will apply to a hire purchase arrangement in this section.