Show download pdf controls
  • Deductions for the cost of depreciating assets



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

    End of attention

    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 that 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.

    Since 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 practice statement Law Administration Practice Statement PS LA 2003/8 External LinkTaxation treatment of expenditure on low cost items for taxpayers carrying on a business, provides guidance on two straightforward methods that you can use, if you are carrying on a business, to help determine whether you treat expenditure incurred in acquiring certain low-cost tangible assets as revenue expenditure 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, 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. See Low-value pools.

    We will accept a deduction for expenditure incurred on qualifying low-cost tangible assets calculated in accordance with this practice statement.

    Last modified: 20 Nov 2015QC 44162