• Service: Tax, R&D Incentives
  • Type: Regulatory update
  • Date: 12/08/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Mathew Herring

Mathew Herring
National Leader, Renewables

+61 8 8236 3163

R&D Tax Incentive - what is a depreciating asset? 

by Mathew Herring, R&D Incentives Specialist

A depreciating asset is defined at subsection 40-30 (1) of the ITAA 1997 as an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used, except land, an item of trading stock, or an intangible asset, unless it is mentioned in subsection (2). The definition of a depreciating asset is quite broad and has been designed to capture all manner of depreciating assets.

Under subsection 355-225 (1) (b) of the ITAA 1997 expenditure included in the cost of a tangible depreciating asset for the purposes of Division 40 cannot be notionally deducted under section 355-205 of the ITAA 1997. However, under section 355-305 of the ITAA 1997, an R&D entity can obtain a notional deduction for the decline in value of a tangible depreciating asset which is held during an income year and which is used for the purpose of conducting one or more R&D activities.

The determination of whether expenditure should be included in the cost of a depreciating asset rests solely on the determination of whether a depreciating asset exists, as defined at subsection 40-30 (1) of the ITAA 1997. It is important that tax payers accessing the R&D Tax Incentive identify the appropriate treatment methodology according to the nature and type of expenditure incurred.

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