Decline in value of a depreciating asset used for other than a taxable purpose

Decline in value of a depreciating asset used for other than a taxable purpose
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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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You calculate the decline in value and adjustable value of a depreciating asset from the start time independently of your use of the depreciating asset for a taxable purpose. However, you reduce your deduction for the decline in value to the extent your use of the asset is for other than a taxable purpose.

If you initially use an asset for other than a taxable purpose, such as for a private purpose, 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 including the years you used it for a private purpose. You can then work out your deductions for the decline in value of the asset for the years you used it for a taxable purpose.

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

Leo purchased a computer for $6,000 and used it only 50% of the time for a taxable purpose 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 initially used for other than a taxable purpose

Paul purchased a refrigerator on 1 July 2002 and immediately used it wholly for private purposes. He started a new business on 1 March 2005 and then used the refrigerator wholly in his business. Paul's refrigerator started to decline in value from 1 July 2002 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 2005 when he used the refrigerator for a taxable purpose.
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Last modified: 08 Apr 2020QC 27597