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  • 9. Capital allowances

    Small business entities

    If you are a small business using the simplified depreciation rules:

    Show at S the total amount of any deduction under temporary full expensing you claimed at X Depreciation expenses item 6.

    Show at T the total number of any assets you are claiming temporary full expensing for.

    You will not be penalised for specifying an incorrect amount at S and T where you have made your best attempt to determine the amounts you are claiming for.

    You have finished this question. Go to Small business entity simplified depreciation.

    In this section:

    Depreciating assets first deducted this income year

    In this section:

    A – Intangible depreciating assets first deducted

    Write at A the cost of all intangible depreciating assets for which the company is claiming a deduction for decline in value for the first time.

    The following intangible assets are regarded as depreciating assets (as long as they are not trading stock):

    • certain items of intellectual property (patents, registered designs, copyrights and licences of these)
    • computer software, or a right to use computer software, that the company acquires, develops or has someone else develop for its use for the purposes for which it is designed (in-house software)
    • mining, quarrying or prospecting rights and information
    • spectrum licences
    • datacasting transmitter licences
    • certain indefeasible rights to use telecommunications cable systems (IRUs)
    • certain telecommunications site access rights.

    A depreciating asset that the company holds starts to decline in value from the time the company uses it (or installs it ready for use) for any purpose. However, the company can only claim a deduction for the decline in value to the extent it uses the asset for a taxable purpose, such as for producing assessable income.

    If the company has allocated any intangible depreciating assets with a cost of less than $1,000 to a low-value pool for the income year, also include the cost of those assets at A. Do not reduce the cost for estimated non-taxable use.

    Expenditure on in-house software which has been allocated to a software development pool is not included at A.

    For more information on decline in value, cost, low-value pools, in-house software and software-development pools, see the Guide to depreciating assets 2021.

    Consolidated or MEC groups

    The head company of a consolidated or MEC group must also include the cost of intangible depreciating assets that a subsidiary member would have included at A if it had not joined the consolidated or MEC group. However, the head company must not include the cost of depreciating assets at A if the subsidiary member deducted their decline in value before becoming a member of the consolidated or MEC group.

    For a company that was a subsidiary member of a consolidated or MEC group for part of the income year and is completing a tax return because of any non-membership periods, write at A the cost of intangible depreciating assets first deducted during the non-membership periods. However, do not include the cost of depreciating assets where the head company of the consolidated or MEC group deducted its decline in value during any period that the subsidiary was a member of the group, and that period was before the non-membership period in which the subsidiary first deducted the decline in value.

    B – Other depreciating assets first deducted

    A depreciating asset that the company holds starts to decline in value from the time the company uses it (or installs it ready for use) for any purpose. However, the company can only claim a deduction for the decline in value to the extent it uses the asset for a taxable purpose, such as for producing assessable income.

    Write at B the cost of all depreciating assets (other than intangible depreciating assets) for which the company is claiming a deduction for the decline in value for the first time.

    If the company has allocated any assets (other than intangible depreciating assets) with a cost of less than $1,000 to a low-value pool for the income year, also include the cost of those assets at B. Do not reduce the cost for estimated non-taxable use.

    For information on decline in value, cost and low-value pools, see the Guide to depreciating assets 2021.

    See also:

    Consolidated or MEC groups

    The head company of a consolidated or MEC group must also include the cost of depreciating assets that a subsidiary member would have included at B if it had not joined the consolidated or MEC group. However, the head company must not include the cost of depreciating assets at B if the subsidiary member deducted its decline in value before becoming a member of the consolidated or MEC group.

    For a company that was a subsidiary member of a consolidated or MEC group for part of the income year and is completing a tax return because of any non-membership periods, write at B the cost of depreciating assets first deducted during the non-membership periods. However, do not include the cost of depreciating assets where the head company of the consolidated or MEC group deducted its decline in value during any period the subsidiary was a member of the group, and that period was before the non-membership period in which the subsidiary first deducted the decline in value.

    P – Are you making a choice to opt out of temporary full expensing for some or all of your eligible assets?

    The following 12 labels (P to C) are new this year.

    You can choose to opt out of temporary full expensing on an asset–by-asset basis in an income year and apply the other depreciation rules to that asset. You make this choice for a particular depreciating asset for each applicable income year. Once a choice is made it cannot be revoked.

    Show at P:

    • A if you are opting out for some of your assets, or
    • B if you are opting out for all of your assets.

    For more information, see Temporary full expensing

    Q – Number of assets you are opting out for

    Show at Q the number of assets for which you have made the choice to opt out of temporary full expensing.

    R – Value of assets you are opting out for

    Show at R the value of the assets for which you made the choice to opt out of temporary full expensing. The value is the amount you would have otherwise claimed for these assets under temporary full expensing if you had not made the choice to opt out.

    You will not be penalised for specifying an incorrect amount at Q and R where you have made your best attempt to determine the amounts you are opting out for.

    S – Temporary full expensing deductions

    Show at S the total amount of the deductions that you are claiming under temporary full expensing.

    T – Number of assets you are claiming for

    Show at T the number of assets for which you are claiming temporary full expensing.

    You will not be penalised for specifying an incorrect amount at S and T where you have made your best attempt to determine the amounts you are claiming for.

    U – Are you using the alternative income test?

    If you have self-assessed your eligibility for the alternative income test, show X in the Yes box at U.

    If you are not using the alternative income test, show X in the No box at U.

    Corporate tax entities unable to meet the aggregated turnover test may still be eligible for temporary full expensing if they satisfy the alternative income test. You satisfy the alternative income test if:

    • you have less than $5 billion of ordinary and statutory income (excluding non-assessable non-exempt income) for 2018–19 (or for 2019–20 if that year ends on or before 6 October 2020), and
    • the total cost of certain depreciating assets (including cost of improvements) held and first used, or first installed ready for use, for a taxable purpose in 2016–17, 2017–18 and 2018–19 combined exceeds $100 million.

    To determine whether the total cost of depreciating assets exceeds $100 million, you do not take into account assets that are:

    • intangible assets
    • depreciating assets that would    
      • not be used principally in Australia for the principal purpose of carrying on a business, or
      • never be located in Australia.
       

    There are also assets excluded from temporary full expensing if applying the alternative income test. For more information, see F item 7.

    V – Are you making a choice to opt out of Backing business investment for some or all of your eligible assets?

    If your aggregated turnover is less than $500 million in 2020–21, you may be eligible to deduct an amount under Backing business investment – accelerated depreciation if the asset is an eligible asset and temporary full expensing and instant asset write off do not apply. You may choose whether or not to use the Backing business investment – accelerated depreciation.

    You may choose to opt out of the backing business investment incentive on an asset–by-asset basis. You then apply the general capital allowance rules for that asset. Once a choice is made it cannot be revoked.

    Show A at V if you are opting out for some of your eligible assets and show B if you are opting out for all of your eligible assets.

    For more information, see Backing business investment – accelerated depreciation

    W – Number of assets you are opting out for

    Show at W the number of assets for which you are opting out of Backing business investment – accelerated depreciation.

    X – Value of assets you are opting out for

    Show at X the total cost of the assets for which you are opting out of Backing business investment – accelerated depreciation.

    You will not be penalised for specifying an incorrect amount at W and X where you have made your best attempt to determine the amounts you are opting out for.

    M – First year accelerated depreciation deductions for assets using Backing business investment

    Show at M the total amount claimed using Backing business investment for assets first used or installed ready for use in 2020–21. The amounts claimed are:

    • 50% of the cost (or adjustable value where applicable) of the depreciating asset in the income year the asset is first used or installed ready for use, plus
    • the amount of the usual depreciation deduction that would otherwise apply, but calculated as if the cost or adjustable value of the asset were reduced by 50%.

    Use M only for assets for which you are claiming a deduction for the decline in value assets subject to Backing business investment – accelerated depreciation for the first time.

    For more information on Backing business investment – accelerated depreciation, see Backing business investment – accelerated depreciation.

    O – Instant asset write off deductions for non small business entities

    Show at O the total amount you claimed at item 7F Deduction for decline in value of depreciating assets about assets costing less than the relevant instant asset write-off threshold for which an immediate deduction is available.

    See also:

    C – Self-assessment of effective life

    For most depreciating assets, you can choose to:

    • work out the effective life yourself (self-assess), or
    • use an effective life determined by the Commissioner.

    If you have adopted the Commissioner’s effective life determination for all your depreciating assets, print X in the No box at C.

    If you have self-assessed the effective life of any of your depreciating assets, print X in the Yes box at C.

    For all depreciating assets

    In this section:

    D – Recalculation of effective life

    You may recalculate the effective life of assets in certain circumstances if the effective life you have been using is no longer accurate. There are also circumstances where you must recalculate the effective life of a depreciating asset.

    If you have not recalculated the effective life of any of your depreciating assets in this income year, print X in the No box at D.

    If you have recalculated the effective life of any of your depreciating assets this income year, print X in the Yes box at D.

    E – Total adjustable values at end of income year

    Write at E the total of the adjustable values of your depreciating assets as at the end of the income year. This is the value of all assets costs (first and second elements) less any decline in value up to that time, or the closing value of all assets.

    If the company has allocated any assets with a cost of less than $1,000 to a low-value pool for the income year, do not include the adjustable values of those assets at E.

    F – Assessable balancing adjustments on the disposal of intangible depreciating assets

    Write at F the total assessable income you have from balancing adjustment events on the disposal of intangible depreciating assets that occurred this income year (this type of assessable income may arise if, for example, you disposed of an intangible depreciating asset for more than its adjustable value). If you do not have any assessable balancing adjustment amounts for intangible assets this year, leave F blank.

    If the company has allocated any assets with a cost of less than $1,000 to a low-value pool for the income year, do not include the assessable balancing adjustments for these assets at F.

    G – Deductible balancing adjustments on the disposal of intangible depreciating assets

    Write at G the total deductible amount you have from balancing adjustment events on the disposal of intangible depreciating assets that occurred this income year (this type of deduction may arise if, for example, you disposed of an intangible depreciating asset for less than its adjustable value). If you do not have any deductible balancing adjustment amounts for intangible assets this year, leave G blank.

    If the company has allocated any assets with a cost of less than $1,000 to a low-value pool for the income year, do not include the assessable balancing adjustments for these assets at G.

    H – Termination value of intangible depreciating assets

    Write at H the termination value of each balancing adjustment event occurring for intangible depreciating assets to which the UCA rules in Division 40 of the ITAA 1997 apply, including assets allocated to a low-value pool.

    Do not write at H any termination value for in-house software for which the company has allocated expenditure to a software development pool.

    A balancing adjustment event occurs if the company stops holding or using a depreciating asset or decides not to use it in the future, for example, assets were sold, lost or destroyed. As well as these usual balancing adjustment events, such as ceasing to hold a depreciating asset, a balancing adjustment event may also occur under certain circumstances where you have claimed temporary full expensing. See Temporary full expensing for further information.

    Generally, the termination value is the amount the company received or is deemed to have received for the balancing adjustment event. It also includes the market value of any non-cash benefits, such as goods and services that the company receives for the asset.

    For more information on balancing adjustment events, termination value, in-house software and software development pools, see the Guide to depreciating assets 2021.

    See also:

    I – Termination value of other depreciating assets

    Write at I the termination value of each balancing adjustment event occurring for depreciating assets, including assets allocated to a low-value pool.

    Do not include at I any termination value for:

    • assets allocated in a prior year to a general small business pool or long life small business pool
    • intangible depreciating assets
    • buildings or structures for which a deduction is available under the capital works provisions
    • assets used in R&D activities that are subject to the R&D tax incentive
    • assets falling within the provisions relating to investments in Australian films.

    A balancing adjustment event occurs if the company stops holding or using a depreciating asset or decides not to use it in the future, for example, assets were sold, lost or destroyed. As well as these usual balancing adjustment events, such as ceasing to hold a depreciating asset, a balancing adjustment event may also occur under certain circumstances where you have claimed temporary full expensing. See Temporary full expensing for further information.

    Generally, the termination value is the amount the company received or is deemed to have received for the balancing adjustment event. It also includes the market value of any non-cash benefits, such as goods and services that the company received for the asset.

    For more information on balancing adjustment events and termination value, see the Guide to depreciating assets 2021.

    N – Subsequent year accelerated depreciation deductions for assets using Backing business investment

    This label is new for this year.

    If you are an entity that used the Backing business investment – accelerated depreciation in a previous year, write at N the amount of depreciation you are claiming in 2020–21.

    For entities connected with mining operations, exploration or prospecting (J, K and L)

    At J write the total of any amounts you have allocated to a project pool for mining capital expenditure or transport capital expenditure incurred this income year. If you have not allocated any such amounts to a project pool, leave J blank.

    For information on project amount and how to work out your deductions, see the Guide to depreciating assets 2021.

    Questions 9K and 9L require information on your deductions for the decline in value of depreciating assets used in exploration or prospecting. This includes deductions claimed for the cost of depreciating assets used in exploration or prospecting. If you did not claim any deductions for depreciating assets used in exploration or prospecting, you do not need to complete these questions.

    At K write the total of your deductions for decline in value of intangible depreciating assets used in exploration or prospecting.

    At L write the total of your deductions for decline in value of other depreciating assets used in exploration or prospecting.

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    Last modified: 27 May 2021QC 64886