• Deductions for the cost of depreciating assets

    Under income tax law, you are allowed to claim certain deductions for expenditure incurred in gaining or producing assessable income - for example, in carrying on a business.

    Some expenditure, such as the cost of acquiring capital assets, is generally not deductible.

    Generally, the value of a capital asset which provides a benefit over a number of years declines over its effective life. Because of this, the cost of capital assets used in gaining assessable income can be written off over a period of time as tax deductions.

    Before 1 July 2001, the cost of plant (for example, cars and machinery) and software was written off as depreciation deductions.

    From 1 July 2001, the uniform capital allowance system (UCA) applies to most depreciating assets, including plant. Under the UCA, deductions for the cost of a depreciating asset are based on the decline in value of the asset.

    This publication covers:

    • how to work out the decline in value of your depreciating assets
    • what happens when you dispose of or stop using a depreciating asset, and
    • deductions available under the UCA for capital expenditure other than on depreciating assets.

    Simplifying tax obligations for business

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    The Commissioner has released Practice Statement PS LA 2003/8 - Taxation treatment of expenditure on low cost items for taxpayers carrying on a business. The practice statement provides guidance on two straightforward methods which can be used if you are carrying on a business to help determine whether expenditure incurred to acquire certain low-cost tangible assets is to be treated as revenue or capital.

    Subject to certain qualifications, the two methods cover expenditure below a threshold and the use of statistical sampling to estimate total revenue expenditure on low-cost tangible assets. The threshold rule allows an immediate deduction for qualifying low-cost tangible assets costing $100 or less (including any GST). If you have a low-value pool, the sampling rule allows you to use statistical sampling to determine the proportion of the total purchases on qualifying low-cost tangible assets that is revenue expenditure.

    A deduction for expenditure incurred on qualifying low-cost tangible assets calculated in accordance with this Practice Statement will be accepted by tax officers.

    Last modified: 31 Oct 2005QC 27521