• Definition

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    Depreciatingasset - an asset with a limited effective life which can reasonably be expected to decline in value over the time it is used. Some assets are specifically excluded from the definition.

    There is a set of general rules for working out deductions for the decline in value of depreciating assets.

    Generally, you work out the decline in value of a depreciating asset using either the prime cost or diminishing value method. Both methods are based on the effective life of an asset. The decline in value calculator on our website will help you with the choice and the calculations. For most depreciating assets, you choose whether to self-assess the effective life or use the Commissioner's determination which is in Taxation Ruling TR 2000/18 - Effective life of depreciating assets.

    Your deduction for decline in value is reduced by the extent you use the asset, or have it installed ready for use, for other than a taxable purpose. A taxable purpose includes the purpose of producing assessable income.

    You can allocate low-cost assets and low-value assets you hold to a low-value pool and work out the decline in value of all the assets in the pool in a single calculation.

    A low-cost asset is a depreciating asset (except a horticultural plant) whose cost at the end of the year in which you start to use it is less than $1,000 (excluding input tax credit entitlements). A low-value asset is a depreciating asset (except a horticultural plant) that is not a low-cost asset but which has an opening adjustable value of less than $1,000, and for which you have worked out any available deductions for decline in value for a previous income year under the diminishing value method.

    The adjustable value of a depreciating asset is its cost (excluding any input tax credit entitlements) less its decline in value since you first used it or installed it ready for use for any purpose, including a private purpose.

    These rules for working out decline in value apply to most depreciating assets used in primary production. However, there are special rules for working out deductions for the decline in value of some primary production depreciating assets and certain other capital expenditure.

    For more information about the general rules for working out decline in value, see the Guide to depreciating assets 2005-06 (NAT 1996-6.2006).

    Last modified: 31 Aug 2010QC 18464