Foundations of Taxation Law

Capital expenditure is not deductible under the general deduction provision in s 8-1 ITAA97 as it falls within the first negative limb of the section. This means that capital expenditure can only be deductible if it satisfies the requirements of a specific deduction provision. This chapter focuses on the ‘capital allowance regime’ in div 40 ITAA97, which allows taxpayers to deduct the cost of ‘depreciating assets’ that are used for a ‘taxable purpose’ over their ‘effective lives’. The regime operates subject to special rules that allow SBEs and certain other entities to claim immediate deductions in particular cases. It also contains ‘balancing adjustment’ rules that apply where taxpayers stop holding depreciating assets and ‘pooling’ rules that allow groups of assets to be written off together as if they were a single asset. There are also special rules that apply to primary producers and miners as well as business-related ‘blackhole’ capital expenditure.

The chapter also examines the ‘capital works regime’ in div 43 ITAA97, which provides deductions for construction expenditure on ‘capital works’ (eg buildings and structural improvements) used for income-producing and other eligible purposes.