Accumulated tax depreciation and mothballed assets

Sections EE 60(3B) of the Income Tax Act 2007 and EE 51(3B) of the Income Tax Act 2004 have been amended to ensure that if a depreciable asset has been withdrawn from use in a business (for example, mothballed), for the purpose of determining the amount "total deduction" in calculating an asset’s "adjusted tax value", the accumulated depreciation of that asset remains the same while the asset remains withdrawn from the business.

The Rewrite Advisory Panel agreed with a submission that section EE 51(3)(b) of the 2004 Act contained an unintended legislative change, and that this unintended change had been re-enacted in section 60(3)(b) of the 2007 Act. The unintended change was that in calculating the "adjusted tax value" for a "mothballed asset", the amount of accumulated depreciation continues to be calculated for each period, despite no deduction being allowed for the depreciation loss calculated.

The insertion of a new subsection (3B) in each of sections EE 60 and EE 51 ensures that during the period a depreciable asset is permanently withdrawn from use in a business, accumulated depreciation is stopped at the time of that withdrawal from business use. An example when the rule is intended to apply is if a taxpayer "mothballs" an asset, such as plant or equipment, which has become obsolete and replaced.

Application dates

The amendments apply from the beginning of the 2005-06 income year (both the 2004 and 2007 Acts being amended to give effect to this application).