ATO Compliance

Activa gives you the tools and functionality to maintain ATO tax compliance for capital allowances in the following areas;

During the past 23 years we have been actively providing tax compliant software to our clients and constantly monitor ATO legislation as it applies to corporate fixed assets. Regular software reviews ensure that we keep pace with the changing requirements.

The effective life is the fundamental consideration in determining the cost recovery period for any capital asset. Under Australian Tax Law we are required to disclose whether depreciation deductions claimed arise from a compliant, or a non-compliant, effective life assessment of an asset. Since this assessment is invariably based upon practical considerations, it is the operational use and application of the asset in a given situation that will determine whether its actual effective life assessment is compliant or not.

A set of standard system templates can ensure that the TR2011/2 election for depreciation method and effective life for any type of asset reflects its practical application and is applied consistently to all asset additions of the same type.

Activa incorporates a broad range of depreciation methodologies including Prime Cost, 150% Diminishing Value and 200% Diminishing Value methods and non-depreciating and Write-off methods.

The pooling of low value assets for tax purposes created an accounting dilemmna for most organisations wanting to take advantage of the accelerated tax deduction but maintain the financial and physical control of low cost and low value assets. This was most particularly difficult in industries with high-volume, low cost assets such as materials handling, hire equipment, waste disposal and hospitality. Some organisations simply elected not to get involved at all.

In 2000, Activa developed a simple, accurate and successful solution that takes the pain out of low value asset pooling, removes the need for spreadsheets, maintains a full transaction history for all assets and reduces annual reconciliation to a few minutes only.

There is no need for separate record keeping to track low cost assets. The system automatically overrides the normal depreciation conditions to pool low cost assets based on their unit cost. It will automatically adjust the pool for any offsets attributable to low value assets that are disposed. Qualifying assets that have achieved a low carrying value can also be selectively added to the pool once per year in a single step.

The introduction of Project Pooling in Section 40I required a special treatment for all assets associated with long term projects where the project was not in production for some considerable time, but capitalised expenditure was accruing.

This section required that depreciation deductions be deferred until production commenced and then be depreciated over the term of the life of the project. Activa uses 'Functional Units' to group the assets associated with an individual project and to apply the particular project depreciation conditions.

This is an unpopular piece of legislation with distinct disadvantages for investors and operators alike and is often disregarded in favour of the effective life approach.

Investment Allowances usually take one of two forms; (1) an additional deduction based on a percentage of the capital invested such as in the case of R&D concessions or special investment incentive, or (2), an up-front depreciation [accelerated] deduction. We achieve both of these requirements through an optional facility called 'Concessional Deductions'.

All disposed assets are automatically reviewed to determine whether they are subject to capital gains tax and if so, to assess the actual taxable capital gain.

Since 1988, Activa has incorporated a full CGT assessment on disposal and this has been regularly reviewed to keep pace with the subsequent amendments to CGT legislation.

Market valuations for CGT assessment can be applied using the system standard valuation process.

In addition to the normal assessment on disposal, we market a value-added 'Divestment Modeling' option that integrates into the Fixed Assets Register and incorporates an full assessment of unrealised capital gains. This feature is used to accurately evaluate detailed divestment outcomes for high-value property investment assets.

Capital works deductions are a special case and Activa has a depreciation method, 'Section 43 Building Allowance' specifically designed to recognise this. Technically this method is identical to the Prime Cost method.

Capital works assets, that is Buildings, Structural Works and Environment Protection Earthworks are deductible at their original construction cost over 40 years. For second hand buildings acquired at market value, Activa has special provisions to record original construction cost and notional tax allowances claimed by others so that deductions are fully compliant with the tax legislation.

The statutory limit on motor vehicles varies year over year as the Consumer Price Index [The car limit for the 2009-10 financial year is $57,180]. Passenger motor vehicles with a cost price exceeding the prevailing luxury limit will attract a deduction calculated from a depreciable cost base equal to the limit to a maximum value also equal to the limit and then stop. Users will need to maintain the quarterly CPI and luxury limit as they are issued.

During the past 6 years Activa has provided a service to its clients where ACA tax consolidation events have required a reset to the carrying value of tax assets. These events are usually subject to a number of practical complications;

In order to overcome these issues and to maintain the integrity of the statutory accounting records we have developed a standard tool that permits us to insert the ACA transaction, process the revised effective life depreciation conditions and to recalculate all subsequent depreciation transactions including transfers and disposals without reversing the current status of the system.

The CAS form required by the ATO with your tax return incorporates a number of deductions and other values derived from the standard depreciation forms for normal and low value assets. We have taken this basic form and developed an automated process that populates the replica form with the relevant values without any further input from the user.

In addition to the normal items of depreciating plant and equipment and low value pooled assets, the Activa version of the CAS form incorporates a range of special provisions and a number of supplementary pieces of information relating to other sections of the Act to assist the user in completing these sections. These are all included in the following table;

Tax Reference	Name of Provision	CAS Designation
10-122DG	Deductions of allowable capital expenditure [repealed]	Supplementary Item 3
330-80	Deductions of allowable capital expenditure [Transitional repealed]	Supplementary Item 2
40-450	In-house software development pools	Supplementary Item 1
40-730_(1)	Exploration or prospecting [Intangible]	CAS Part D Item A
40-730_(3)	Exploration or prospecting [Fixed Asset]	CAS Part D item B [100% use]
40-735_(1)	Mining site rehabilitation [Intangible]	CAS Part D item A
40-735_(3)	Mining site rehabilitation [Fixed Asset]	CAS Part D item B [100% use]
40-750	Petroleum resource rent tax	CAS Part D item A
40-755	Environmental protection activities	CAS Part D item A
40-840_2(d)(i)	Community infrastructure	CAS Part C section 2 item Z
40-840_2(d)(ii)	Site preparation	CAS Part C section 2 item Z
40-840_2(d)(iii)	Feasibility studies	CAS Part C section 2 item Z
40-840_2(d)(iv)	Environmental assessments	CAS Part C section 2 item X
40-840_2(d)(v)	Project information	CAS Part C section 2 item Z
40-840_2(d)(vi)	Intellectual property rights	CAS Part C section 2 item Z
40-840_2(d)(vii)	Ornamental trees and shrubs	CAS Part C section 2 item Z
40-860	Mining capital expenditure	CAS Part C section 2 item Y
40-865	Transport capital expenditure	CAS Part C section 2 item Y
40-880	Business related costs	CAS Part C section 2 item Z
43-20(i)	Buildings	Supplementary Item 4
43-20(ii)	Structural works	Supplementary Item 4
43-20(iii)	Environment protection earthworks	Supplementary Item 4
8.1 ATC 4154	Immediate Deduction Section 8.1 ATC 4154	Supplementary Item 5

Review the following pages for related information.

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Article last updated : Feb 23 2012 10:25AM