Uniform capital allowance system: disposal of a depreciating asset

What is the uniform capital allowance system?

The uniform capital allowance (UCA) system applies from 1 July 2001. Under the UCA rules, taxpayers calculate deductions for the decline in value of a depreciating asset based on the extent to which it is used for a taxable purpose (for example, to produce assessable income). A balancing adjustment event occurs when you cease to hold or to use a depreciating asset. You must calculate a balancing adjustment amount to include in your assessable income or to claim as a deduction. If the depreciating asset has been used partly for a non-taxable purpose, the balancing adjustment amount is reduced to reflect only the taxable purpose proportion of the asset's use. Additionally, a capital gain or capital loss can arise at the time of the balancing adjustment event but only to the extent that the asset has been used for a non-taxable purpose.

The disposal of a depreciating asset will now be considered in detail, with regard to the most common example of a balancing adjustment event, a sale. The principles apply equally to all types of balancing adjustment events.

If you are using the simplified depreciation rules, generally you will not use the UCA rules. Under the simplified depreciation rules, you can claim an immediate deduction for most depreciating assets costing less than $1,000 and pool most other depreciating assets. You can use the simplified depreciation rules if you are a small business entity (2007-08 and later years). You must use the simplified depreciation rules for income years where you were in the simplified tax system (2006-07 and earlier years). For more information see www.ato.gov.au/sbconcessions