• Uniform capital allowance system: calculating the decline in value of a depreciating asset

    From 1 July 2001, the uniform capital allowance (UCA) rules apply to most depreciating assets. Taxpayers calculate deductions for the decline in value of their depreciating assets using these new rules.

    The UCA system consolidates a range of former capital allowance provisions including those relating to plant and equipment. It does this by providing a set of general rules to calculate a deduction for the decline in value of most depreciating assets. It maintains some concessional tax treatments such as those applying to primary production depreciating assets and expenditure. It also introduces new deductions for certain types of capital expenditure that did not previously attract a deduction.

    If you are using the simplified depreciation rules you generally will not use the UCA rules. Under the simplified depreciation rules, you can claim an immediate deduction for most depreciating assets costing less than $20,000 and pool most other depreciating assets.

    You can use the simplified depreciation rules if you are a small business entity (2007-08 and later income years).

    You must use the simplified depreciation rules for income years where you were in the simplified tax system (2006-07 and earlier income years).

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    When does a depreciating asset start to decline in value?

    Under the UCA, a depreciating asset starts to decline in value when you first use it (or install it ready for use) for any purpose, including a private purpose. However, a deduction for the decline in value is only allowable to the extent the asset is used for a taxable purpose. This means if you initially use an asset for a private purpose, and in later years use it for a taxable purpose (such as in a business), you need to work out the asset's decline in value over the period of its private use before you can work out the decline in value for the period you used it for taxable purposes.

    Example

    Robyn purchased a car on 1 July 2013 for $25,000. She used the car entirely for private purposes until 1 March 2014 when she started a new business. The car was then used wholly for business purposes. The car started to decline in value from 1 July 2013 because it was being used from that date, but no part of the decline was an allowable deduction before 1 March 2014 because the car was not used for a taxable purpose before that date.

    End of example
      Last modified: 22 Aug 2016QC 16297