Fixed asset registers and composite items | KPMG | AU

Fixed asset registers and composite items

Fixed asset registers and composite items

Anthony Patrk and Peter Xing examine the ATO's draft ruling on the depreciation of composite assets.

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The Australian Taxation Office (ATO) has published draft Taxation Ruling TR 2017/D1 on the depreciation of composite assets, which are assets made up of a number of components that are capable of separate existence. The draft Ruling sets out the Commissioner's views on how to determine whether a composite item is itself a depreciating asset or whether its components are separate depreciating assets for the purposes of Division 40 (capital allowances).

The main principles taken into account on whether composite items are separate depreciating assets are:

  • Identifiable: the depreciating asset will tend to be the item that performs a separate identifiable function.
  • Use: a depreciating asset will tend to be an item that performs a discrete function.
  • Degree of integration: the depreciating asset will tend to be the composite item where there is a high degree of physical integration of the components.
  • Effect of attachment: the item, when attached to another asset having its own independent function, varies the performance of that asset.
  • System: a depreciating asset will tend to be the multiple components that are purchased as a system to function together as a whole and which are necessarily connected in their operation.

The draft Ruling also covers assets that are jointly held and whether an 'interest in an underlying asset' for the purposes of section 40-35 requires an entity to have an interest in all parts of a depreciating asset, or whether an interest in any part of the asset is enough. However, the draft Ruling does not address Division 43 which provides deductions for certain capital works expenditure.

The importance of maintaining an accurate fixed asset register is sometimes overlooked by businesses. A tax fixed asset review may play a very valuable role in assisting businesses with short and long term planning by ensuring it is correctly reported.

KPMG’s Tax Technology & Innovation team can help identify opportunities through its Capital Allowances Data Analytics (CADA) tool, including the identification of significant assets for further review of composite assets in order to accelerate tax depreciation claims. In addition, CADA can also determine:

  • repair, maintenance and other expenditure that has been capitalised but which can be immediately deducted
  • assets that have been incorrectly categorised with incorrect effective lives
  • assets where tax depreciation may not be optimised based on ATO prescribed effective lives.

The CADA tool has the aim of realising potential cash benefits by combining sophisticated data analytics software with comprehensive tests to uncover potential risks through to opportunities. Our insights help demonstrate consistent and transparent procedures and controls as well as optimising the capital allowance position.

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