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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.

    Simplifying tax obligations for business

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

    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 (see Low-value pools), 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.

    The Tax Office will accept a deduction for expenditure incurred on qualifying low-cost tangible assets calculated in accordance with this Practice Statement.

    Last modified: 27 Aug 2007QC 27892