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  • Deductions for the cost of depreciating assets



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    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

    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