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Is the cost, under Subdivision 40-C of the Income Tax Assessment Act 1997 (ITAA 1997), of a depreciating asset held by the taxpayer nil if the asset was given to the taxpayer by their employer primarily for the purposes of their employment and for no contribution by the taxpayer?

Yes. The cost, under Subdivision 40-C of the ITAA 1997, of the depreciating asset held by the taxpayer is nil because a cost is not specified in subsection 40-180(2) and because no amount is taken to be its cost under section 40-185 of the ITAA 1997.

The taxpayer required a particular depreciating asset to carry out their duties as an employee. The employer provided the taxpayer with the asset on the basis that it was treated as a property fringe benefit. The asset was not provided pursuant to an effective salary sacrifice agreement and the taxpayer did not make any contribution towards its cost. The taxpayer uses the depreciating asset primarily for a taxable purpose.

Section 40-25 of the ITAA 1997 provides that a holder of a depreciating asset can deduct an amount equal to the decline in value of the asset to the extent it is used for a taxable purpose. Decline in value is based, in part, on the cost of the depreciating asset.

Cost consists of two elements, first and second element, and is worked out under Subdivision 40-C of ITAA 1997. The first element of cost is worked out as at the time when the asset starts to be held. The second element of cost is worked out after that time.

The first element of cost is either an amount specified in the table in subsection 40-180(2) of the ITAA 1997 for particular circumstances or the amount taken to have been paid under section 40-185 of the ITAA 1997 for general circumstances.

None of the items listed in subsection 40-180(2) of the ITAA 1997 apply to the circumstances of this case. In particular, the provision of the asset by the employer to the taxpayer for the primary purpose of carrying out their employment duties is an arm's length arrangement (item 8) and is not a private or domestic arrangement (item 9).

In addition, there is no amount, liability or non-cash benefit that is referable to the taxpayer starting to hold the asset. In these circumstances, there is also no amount taken to be the asset's cost under section 40-185 of the ITAA 1997.

The first element of cost of the asset to the taxpayer is, therefore, nil.

NOTE: This ATO Interpretative Decision does not apply to depreciating assets that are eligible work related items for the purposes of section 58X of the Fringe Benefits Tax Assessment Act 1986 (portable electronic devices, computer software, briefcases, protective clothing and tools of trade used primarily in the taxpayer's employment) and are acquired after 7.30pm by legal time in the ACT on 13 May 2008 because subsection 40-45(1) of the ITAA 1997 has effect to prevent Division 40 of the ITAA 1997 (including the cost rules in Subdivision 40-C of the ITAA 1997) from applying to them.

Date of Amendment Part Comment 7 March 2016 Reasons for Decision Correct spelling error. Legislative references Updated. 23 April 2010 Reasons for Decision Amended to improve clarity. Related public rulings Updated. Related ATO IDs Updated.

Date of Amendment | Part | Comment

7 March 2016 | Reasons for Decision | Correct spelling error.

Legislative references | Updated.

23 April 2010 | Reasons for Decision | Amended to improve clarity.

Related public rulings | Updated.

Related ATO IDs | Updated.