Relocation expenses of depreciating assets - Second Element of Cost

Do costs incurred by a taxpayer for relocating a depreciating asset form part of the second element of cost under subsection 40-190(2) of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Yes. The cost of relocating a depreciating asset does form part of the second element of cost under subsection 40-190(2) of the ITAA 1997.

The taxpayer moved depreciating assets from one location to another. The depreciating assets are used wholly for taxable purposes.

The taxpayer incurred expenses in moving the assets to their present location.

Expenditure incurred in relocating depreciating assets are capital in nature and therefore not deductible under section 8-1 of the ITAA 1997. However, the cost of moving a depreciating asset from one location to another (including from one state to another) is included as a second element of cost for the purposes of calculating the decline in value of that asset.

The cost of a depreciating asset consists of two elements. The first element of the cost is generally the amount paid or taken to have been paid to start holding the asset. Any cost, of a capital nature, that you incur after you start to hold the asset, that is incurred to bring the asset to its present condition and location, is a second element of cost under subsection 40-190(2) of the ITAA 1997.

Second element costs are worked out after the taxpayer starts to hold depreciating assets. The asset's adjustable value is calculated by using the opening adjustable value for that year, plus any amounts included as a second element of cost for that year less it decline in value for that year, under paragraph 40-85(1)(c) of the ITAA 1997.

Date of Amendment Part Comment 21 November 2014 Reasons for Decision Changed reference to calculation to adjustable value Related ATO Interpretative Decisions Removed link to ATO ID 2001/431 because it has been withdrawn

Date of Amendment | Part | Comment

21 November 2014 | Reasons for Decision | Changed reference to calculation to adjustable value

Related ATO Interpretative Decisions | Removed link to ATO ID 2001/431 because it has been withdrawn