Download all chapter outlines in
PDF or RTF format
Back to index Next Outline Download Chapter 1 in
PDF or RTF format

Chapter 1: Towards a new policy framework for wasting assets

A case for reform

The current taxation of wasting assets lacks a coherent and consistent framework:

  • some provisions require taxpayers to be the owner of the asset while others require the taxpayer to have incurred the relevant expenditure;
  • some provisions allow deductions only from the time that assets are used to produce income while others allow deductions from an earlier time;
  • the cost base for deductions in some cases is actual expenditure while it is original cost in other cases;
  • some assets receive accelerated rates of write-off while others do not;
  • only the plant depreciation provisions allow the diminishing value method to calculate deductions — all others must use the prime cost method;
  • only the plant depreciation provisions allow balancing charges to be set against the depreciable cost of other assets; and
  • so-called ‘blackhole’ expenditures currently do not qualify for deduction.
A strategy for reform

To adopt a simplified, fair and consistent system for taxing all wasting assets under which all expenditure on wasting assets would be deductible.

Key policy issues Who should be entitled to the deductions for wasting assets and when should deductions commence? What should be the cost base for deductions? What should be the period of write-off? What should be the write-off method? What should happen on disposal of assets? How should blackhole expenditures be treated?

The taxpayer who bears the economic loss.

Deductions should commence from the time the asset is used to produce income.


The actual cost of the asset to the taxpayer.


The effective life of the asset.
Possible special cases
- low cost items
- plant and equipment
- buildings and structures
- resources sector.


Diminishing value, prime cost or taxpayer choice between the two.


In general no access to balancing charge offset.

For involuntary disposals, see Chapter 13.


Deductible in manner consistent with like expenditures.