Income and deductions for small business

Expenses you can claim over time

The cost of assets that have a longer life (usually longer than one income year) or that relate to establishing, replacing, enlarging or improving the structure of your business are called capital expenses.

These assets have a limited life expectancy (effective life) and can reasonably be expected to decline in value over the time you use them. They are called depreciating assets, and include:

computers
electrical tools
furniture
carpet and curtains
motor vehicles
plant and equipment.

Land and items of trading stock are not depreciating assets. However, improvements to land and fixtures on land, such as windmills and fences, may be depreciating assets.

Your business assets start to depreciate from the time you first use them, or install them ready for use, for any purpose, including a private purpose. However, you can only claim deductions for depreciation for the time you use the assets to produce assessable income.

Generally, you cannot claim the total cost of a capital asset in the income year you pay it. Instead, you can claim an amount for the decline in value of the asset each year over a number of years.

The amount you can claim will be less if you:

only own the asset for part of a year
only use the asset in part for business purposes; that is, if you only use it for 60% business purposes, you can only claim 60% of its total depreciation for that year
owned the asset for some time before you started business. In this case, you must work out how much the asset depreciated before you started business and use the reduced value as your starting base value for the asset.

Generally, you can only claim a deduction for the depreciation of assets you legally own or are purchasing under a hire purchase agreement.

If you are not sure whether an asset is a depreciating asset, phone us on 13 28 66 or talk to your tax adviser.

Sections within Working out your allowable deductions

Last Modified: Tuesday, 4 October 2011