Removal of accelerated depreciation

Accelerated depreciation allowed the full cost of an item of plant to be claimed well before the end of its effective life. Until 11.45am (by legal time in the ACT) on 21 September 1999, actual rates for depreciation were set. These rates were based on effective life with a 20 per cent loading which were then broadbanded into one of 6 common rates. The loading together with the broadbanding produced accelerated rates of deductions for depreciation.

Apart from certain small business taxpayers accelerated depreciation is no longer available for plant if:

• you acquired it under a contract entered into after 11.45am (by legal time in the ACT) on 21 September 1999
• you constructed it and the construction started after that time or
• you acquired it in some other way after that time.

Depreciation, including the use of the diminishing value method, is still able to be claimed. However, the amount is calculated differently depending on whether you are a small business taxpayer and when you acquired the plant.

Depreciation calculation for plant acquired before 11.45am on 21 September 1999 or by certain small business taxpayers

Accelerated rates of depreciation are still available for plant acquired or whose construction commenced at or before 11.45am (by legal time in the ACT) on 21 September 1999. Accelerated rates of depreciation are also available to small business taxpayers who satisfy certain conditions (see Small business taxpayers).

The accelerated rate to be used is determined by choosing the appropriate rate that corresponds to the effective life of the item of plant. The following tables show the appropriate rates.

For most general items of plant the rates are as follows:

Effective life in years	Annual depreciation percentage prime cost rate	Annual depreciation percentage diminishing value rate
Less than 3	100	100
3 to less than 5	40	60
5 to less than 6 2/3	27	40
6 2/3 to less than 10	20	30
10 to less than 13	17	25
13 to less than 30	13	20
30 and over	7	10

For most motor vehicles the following rates apply:

Effective life in years	Annual depreciation percentage prime cost rate	Annual depreciation percentage diminishing value rate
Less than 3	100	100
3 to less than 5	33	50
5 to less than 6 2/3	20	30
6 2/3 to less than 10	15	22.5
10 to less than 13	10	15
13 to less than 20	8	11.25
20 to less than 40	5	7.5
40 and over	3	3.75

The ATO has published a list of standard effective lives for various items of plant. Where an item's effective life is different from the one published by the ATO taxpayers may make their own estimate.

There are two methods of calculating depreciation:

• the prime cost method, and
• the diminishing value method.

You choose the method of calculating depreciation in the first year that you are allowed a depreciation deduction. Once you have chosen a method you cannot change to the other method for that item.

Under the prime cost method the deduction for each year is calculated as a percentage of the cost. The formula for calculating depreciation using the prime cost method is:

([Cost × days owned] ÷ 365) × prime cost rate

Under the diminishing value method the deduction is calculated by applying the diminishing value rate of depreciation from the table in the previous column to the balance you have left to deduct. The formula for calculating depreciation using the diminishing value method is:

([Opening undeducted dost × days owned] ÷ 365) × diminishing value rate

It uses a rate generally equal to one-and-a-half times the prime cost depreciation rate for that item. The deduction in the first year is equal to the depreciation rate for that item multiplied by its initial cost. In subsequent years, the rate is applied to the amount remaining after deducting the depreciation claimed in all previous years from the initial cost.

Depreciation of plant acquired at or before 11.45am on 21 September 1999 but first used or installed ready for use after that date

Accelerated rates of depreciation apply to all plant acquired at or before 11.45am (by legal time in the ACT) on 21 September 1999 even if it is first used or installed ready for use after that date. The accelerated rate is determined by choosing the appropriate rate from the published table that corresponds to the effective life of the plant. The effective life of the plant is determined at the time that it is first used or installed ready for use.

Special depreciation rates for certain items of plant acquired before 11.45am on 21 September 1999 or by certain small business taxpayers

Employees' amenities

A special minimum rate of 33 per cent prime cost or 50 per cent diminishing value apply to employees' amenities.

Employees' amenities means property used mainly to provide clothing cupboards, first aid, rest rooms, recreational facilities, cafeteria and the like for employees or for the care of the children of employees.

Works of art

Works of art that are originals or reproductions are items of plant-for example, paintings, sculptures, drawings, engravings and photographs.

Diminishing value depreciation rates for these items are worked out by dividing 1.8 by the effective life and multiplying your answer by 100. The prime cost rate is two-thirds of that rate, rounded to the nearest whole number. For example, a painting with an effective life of 100 years would have a diminishing value rate of 1.8 per cent and a prime cost rate of 1.2 per cent. However, the prime cost rate for an artwork with an effective life of fewer than 3 years is 100 per cent-that is, you can deduct the full cost immediately.