40Capital costs and operating costs

40  Capital costs and operating costs  (1) For the purposes of step 5 of the residual pricing method, an included cost for a participant in a relevant operation is a capital cost if:  (a) it is not a personal cost; and  (b) it is not a commercial tolling fee; and  (c) any of the following subparagraphs apply:  (i) it was incurred before the production date;  (ii) the unit of property for which it was incurred is a depreciating asset for the purposes of section 40–30 of the Income Tax Assessment Act 1997;  (iii) it is a project amount within the meaning of section 40‑840 of the Income Tax Assessment Act 1997. Note: Subparagraph (c)(i) applies if, for example, a person incurs operating expenses before the production date. Those expenses will be capital costs for the purposes of this instrument.  (2) A cost that is a capital cost only because of subparagraph (1)(c)(i) is taken to have been incurred on 1 January in the financial year in which it was incurred. Note: Costs that relate to a unit of property that is constructed over several years of tax are dealt with in section 43.  (3) For the purposes of step 5 of the residual pricing method, an included cost for a participant in a relevant operation is an operating cost if:  (a) it is not a personal cost; and  (b) it is not a capital cost.