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



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

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    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.

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    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.

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    Last modified: 01 Jun 2005QC 27453