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  • Decline in value of depreciating asset used for non-taxable purpose

    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 decline in value and adjustable value of a depreciating asset are calculated from the start time independently of your use of the depreciating asset for a taxable purpose. However, your deduction for the decline in value is reduced to the extent your use of the asset is not for a taxable purpose.

    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. You can then work out your deductions for the decline in value of the asset for the years it is used for a taxable purpose.

    Example: Depreciating asset used partly for a non-taxable purpose (ignoring any GST impact)

    Leo purchased a computer for $6,000 and used it only 50% of the time for taxable purposes during the income year. If the computer's decline in value for the income year is $1,500, Leo's deduction would be reduced to $750, being 50% of the computer's decline in value for the income year. The adjustable value at the end of the income year would be $4,500, irrespective of the extent of Leo's use of the asset for taxable purposes.

    End of example

     

    Example: Depreciating asset used initially for a non-taxable purpose

    Paul purchased a refrigerator on 1 July 2001 and immediately used it wholly for private purposes. He started a new business on 1 March 2003 and then used it wholly in his business.

    Paul's refrigerator started to decline in value from 1 July 2001 as that was the day he first used it. He needs to work out the refrigerator's decline in value from that date. However, Paul can only claim a deduction for the decline in value for the period commencing 1 March 2003 when the refrigerator was used for a taxable purpose.

    End of example
    Last modified: 01 Jun 2005QC 27453