• Service: Tax, Corporate Tax
  • Industry: Energy & Natural Resources
  • Type: Regulatory update
  • Date: 20/11/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Kurt Burrows

Kurt Burrows
Partner, Corporate Tax

+61 8 9263 7420

Tread carefully – capital expenditure and fixed asset registers 

by Kurt Burrows, Corporate Tax Specialist

When Yoda said “do or do not, there is no try” I am almost certain that he was reaching out to those responsible for managing and maintaining fixed asset registers.

The Australian Bureau of Statistics estimates that $160 billion dollars of capital expenditure will be spent in Australia in the 30 June 2014 year.


A considered and methodical approach to analysing, categorising and recording this expenditure and appropriately documenting positions adopted is not only a matter of good tax governance but can also have a positive impact on project net present value (NPV).


One matter to consider is the categorisation of capital expenditure which will be relevant to determining the relevant period of deduction. Capital exploration expenditure may be immediately deductible, while project pool expenditure, depreciating assets, items of capital works and 'black hole' expenditure will be deductible over time. Expenditure on other capital assets may not be deductible at all, but may reduce any gain arising on disposal.


For a capital intensive business, taking the time to consider whether the effective life of depreciating assets can be self assessed and also making informed decisions around which depreciation method (prime cost versus diminishing value) to apply can have a relevant positive impact on project NPV.


Given the magnitude of capital expenditure and the potential variances in the period over which it may be deducted, it is not surprising that the ATO is currently focussed on a number of related matters, including exploration expenditure, mine site improvements, capitalised labour costs and black hole costs.


It is important then to take steps to ensure that considered positions are taken in compiling fixed asset registers and that they are appropriately documented and supported.


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