• Depreciation and capital expenses and allowances

    You generally can't deduct spending on capital assets immediately; instead you claim the cost over time, reflecting the asset's depreciation (or decline in value).

    This applies to any taxpayer who uses depreciating assets to earn assessable income, including:

    • businesses, small and large
    • rental property investors
    • employees (for equipment and tools they provide at their own expense for use in their work).

    A depreciating asset is one that has a limited effective life and can reasonably be expected to decline in value over the time it's used. Land, trading stock and some intangible assets are not depreciating assets.

    Small businesses (those with an aggregated annual turnover of less than $2 million) can choose to use simplified depreciation rules, which among other concessions allow you to immediately write off assets that cost less than $20,000 each (up from the previous threshold of $1,000 as of 7.30 pm on 12 May 2015).

    Other businesses and individuals (including property investors and employees) use the general depreciation rules, which set out the amounts (capital allowances) that can be claimed, based on the asset's effective life.

    Under the general depreciation rules, an immediate write-off applies to:

    Different rules apply to:

    • capital works, which are written off over a longer period than other depreciating assets.
    • other business capital expenses such as the cost of setting up or ceasing a business, and project-related expenses.

    Depreciation deductions are generally available only to the legal owner of the asset. However, hire purchase arrangements are generally treated as a notional sale of goods, in which case the hirer rather than the legal owner is entitled to the deduction. Depreciation deductions for partnership assets are claimed by the partnership not the individual partners.

    The cost of an asset for depreciation purposes includes the amount you paid for it as well as any additional costs you incur in transporting and installing the asset, and repairing it immediately after you acquire it.

    Depreciation deductions are limited to the extent to which you use an asset to earn income. For example, if you use an asset 60% for business purposes and 40% for private purposes you can only claim 60% of its total depreciation for the year.

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    Last modified: 22 Aug 2016QC 17053