Clearly it is important to have robust practices in place for dealing with this expenditure contemporaneously. However, even the most diligent of finance staff and robust of systems cannot be expected to get it right first time, every time. Further, it is easy for a single error to snowball into a significant issue if replicated over time.
As a result, it is important to undertake periodic fixed asset register ‘health checks’, which often can uncover missed deductions that can be recouped by amending income tax returns.
While the ‘soft spots’ requiring special attention will be different for every taxpayer, some potential areas of focus include:
- reviewing the composition of assets under construction (AUC). While this is often the realm of the accounting team, it is important that the tax team understands how AUC is managed and how (and when) key items are capitalised out of AUC. Any expenditure that has been sitting ‘dormant’ in AUC for a long period of time should be specifically considered
- to the extent that capital expenditure has been capitalised to ‘project pools’ consider whether the project life continues to be appropriate and whether it may be possible to support a shorter project life, for example if expansions have been removed from mine plans. Consider also if any projects have been ‘abandoned’
- ensure that expenditure that may be immediately deductible is considered. For example, consider the treatment of capitalised labour costs and feasibility studies.
With all of this in mind, and with 30 June reporting just behind us (and 31 December already on the horizon) there is no time like the present to start planning your next fixed asset register health check.