When does a depreciating asset start to decline in value?



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The decline in value of a depreciating asset starts when you first use it, or install it ready for use, for any purpose including a private purpose. This is known as a depreciating asset's start time.

Although an asset is treated as declining in value from its start time, a deduction for its decline in value is only allowable to the extent it is used for a taxable purpose. Taxable purpose means for the purpose of producing assessable income. It also means for the purposes of exploration or prospecting and of mining site rehabilitation, and for environmental protection activities.

If you initially use an asset for a non-taxable purpose, such as for private purposes, and in later years use it for a taxable purpose, you need to work out the asset's decline in value from its start time through the years it was used for a private purpose before you can work out your deductions for the decline in value of the asset in the years it is used for a taxable purpose-see Decline in value of depreciating asset used for non-taxable purpose for information about deductions for the decline in value of depreciating assets used partly for non-taxable purposes.


Start time of a depreciating asset

Paul purchased a car on 1 July 2001 and immediately used it wholly for private purposes. He started a new business on 1 March 2002 and then used the car wholly in his business.

Paul's car started to decline in value from 1 July 2001 as that is the time he first used it. Paul can only deduct an amount equal to the decline in value in relation to the period commencing 1 March 2002 when the car was used for a taxable purpose.

Last modified: 01 Jun 2005QC 27399