Horse 1773 - The Tax Implications Of Owning A Death Star

One of our clients is a very successful businessman and owns an expensive sports car (you know who you are). He'd removed the badges from it and replaced them with the badge of the Rebel Alliance from Star Wars.
He was putting questions to us about the most cost effective way to keep certain assets, whether to buy, lease or hire purchase them and the question came up about some massive theoretical asset - it isn't very hard to guess which one either.

What would the taxation implications be for the Death Star?
Initially, I think probably none.

The real problem that I have with the question of the tax implications of a DS-1 Orbital Battle Station (to use its proper name, thank you very much) isn't to do with depreciation or capital gains tax but the general principle of deductibility laid out in Section 8 of the Tax Act:

http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s8.1.html
You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
- Section 8, Income Tax Assessment Act 1997

In order to claim any deductions relating to the operation of your "Death Star", I would argue that it has to be employed in a business operation of some sort and that that business operation is for the purpose of gaining or producing income. Considering that the purpose of the Death Star is to do death, it might be hard to show that you were engaged in a business which does that. I don't know though, is there a viable market for hitmen for hire?
Various occupation codes can be found for military personnel but the military and mercenary forces aren't included as industry codes to go into a company tax return. The nearest thing I can up with is 48100 which is for "Ship charter, lease or rental" but that assumes that one can lease the Death Star to do death.

Then there's the problem that I'm not entirely sure that if you held an DS-1 Orbital Battle Station as an asset for some mercenary force, who you'd be able to use it against. Using it against targets in Australia night be construed as an act of treason because the giant turbolaser would blow up the entire earth and assuming that you did manage to find someone who wanted to hire it, you might run foul of the The Counter-Terrorism Legislation Amendment (Foreign Fighters) Bill 2014 when it passes into law or even the Proceeds of Crime Act 2002.
Whilst section 8 does allow deductions against income from illegal activities, the whole question does become fraught with complications really quickly.

Could you write it off as a depreciable asset?
The answer to this is "probably not". The reasons though aren't all that straight forward.

Okay, we already know that Tax deductions can be claimed for depreciable assets, and certain capital works; so it would then become a matter of knowing a few things about the asset. Knowing the purchase cost and the written down book value would be helpful for a start. That might be rather expensive though.

http://www.ibtimes.com/white-house-rejects-death-star-petition-doomsday-devices-us-could-build-instead-1014682
Writers at the economics blog Centives calculated that just buying enough steel to make a Death Star would cost $852 quadrillion (that's 852 with with 15 zeroes after it) -- roughly 13,000 times the world's gross domestic product – and, at current rates of steel production, would not be ready for more than 833,000 years.
- International Business Times, 14th Jan 2013

Once you have worked out your cost base though, the answer is surprisingly simple. The ATO advises that if there is an asset which exists which is not on their lists, then looking for something that's roughly equivalent is a reasonable assumption.

A DS-1 Orbital Battle Station because it is movable and carries many people, would probably be classified by the ATO as some sort of vehicle and I don't think that's unreasonable. If you had a commercial operation which used space shuttles put satellites into orbit, then that would most certainly be classified as a vehicle.
The ATO lists passenger aircraft, big lorries, railway trains and ships as all having an effective life of 30 years; so it's to reasonable assume that an Orbital Battle Station would probably also have an effective life of 30 years.

If you have worked out your cost base and the effective life of the asset, then you can either use the Prime Cost or Diminishing Value method to work out what amount of depreciation expense is appropriate.

What about Capital Gains Tax?
The thing is that Capital Gains Tax also doesn't actually apply to depreciating assets used solely for taxable purposes, such as business equipment or fittings in a rental property.
Also, Capital Gains Tax only came into effect on 20th September 1985, and because the opening crawl of Star Wars which came out in 1977 states: "A long time ago, in a galaxy far, far away..." it is safe to assume that the asset existed before 20th September 1985 and is therefore CGT-exempt anyway.

Conclusion:
So there you go. You have an asset which it's difficult to prove exists in an income producing capacity, which might be depreciable and probably isn't subject to tax on capital gains.
It would actually be easier to try and depreciate the USS Enterprise which you could claim was on a 5 year mission to acquire mining rights and mining information, in boldly going where no one has gone before.

Addenda:
Forget trying to depreciate a TARDIS. That device can't even be reliably tied down to any given calendar year and so would probably fail a standard 183-day residency test.

Additional Addenda:
Daleks would be incredibly useful for a firm like Flick Anticimex and other pest control businesses. They wouldn't just rid properties of pests like rats, roaches and roos, they'd...