Depreciating assets held before 1 July 2001
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To work out the decline in value of depreciating assets you held before 1 July 2001, you generally use the same cost, effective life and method that you were using under the former law.
The undeducted cost of the asset at 30 June 2001 becomes its opening adjustable value at 1 July 2001. The undeducted cost of the asset is worked out under the former depreciation rules. It is the asset's cost less the depreciation for the asset up to 30 June 2001, assuming that it was used wholly for producing assessable income.
Working out the decline in value of a depreciating asset held before 1 July 2001 (ignoring any GST impact)
Audrey purchased a computer on 1 July 2000 for $3200 and started using it from that date for producing assessable income. The effective life of the computer is four years. Audrey used the computer 25 per cent for private purposes during the 2000-01 income year.
Using the prime cost method, Audrey's depreciation deduction in the 2000-01 income year was $600. The undeducted cost of the computer at 30 June 2001 was $2400. This is the computer's cost of $3200 less its depreciation up to that time, assuming it was used wholly for producing assessable income ($800). The undeducted cost of the computer at 30 June 2001 becomes its opening adjustable value at 1 July 2001.
To work out the decline in value of the computer in the 2001-02 income year, Audrey uses the same cost, effective life and method that she used under the former rules. On that basis, the decline in value of the asset is $800:
If Audrey used the computer only 75 per cent for taxable purposes in that income year, her deduction is reduced to $600, being 75 per cent of $800.
The adjustable value of the computer at 30 June 2002 would be $1600-the opening adjustable value ($2400) less the decline in value for the income year ($800).
For a depreciating asset that is an item of intellectual property or a spectrum licence and for certain depreciating assets used in mining, quarrying or minerals transport, the opening adjustable value at 1 July 2001 is the amount of unrecouped expenditure for the asset at 30 June 2001 as these assets do not have an undeducted cost under the former rules.
Special transitional rules apply to plant for which you used accelerated rates of depreciation before 1 July 2001 or could have had you used the plant for producing assessable income. These rules ensure that accelerated rates continue to apply under the UCA-see Accelerated depreciation.
If you have a substituted accounting period for your income year that includes 1 July 2001, you need to work out your deduction in two parts. First, you need to calculate your deductions under the former rules from the beginning of the substituted accounting period to 30 June 2001. You then need to work out the decline in value of the depreciating assets from 1 July 2001 to the end of the substituted accounting period under the new rules. If you use the diminishing value method, your deduction may be less than it would have been had you done only one calculation for the income year under the former rules. In that case, you can increase your deduction by the difference between the two amounts.
Last modified: 01 Jun 2005QC 27399