Other capital asset and expense deductions
Special rules apply to claiming deductions for the following capital expenses, some of which involve depreciating assets:
Setting up or ceasing a business
You may be able to claim a deduction for the costs associated with setting up or ceasing a business or raising finance, including the costs incurred in:
- establishing a company or other business structure
- converting your business structure to a different structure
- raising equity for your business
- defending your business against a takeover
- unsuccessfully attempting a takeover
- stopping carrying on business (including liquidating a company).
For these expenses, you can claim a deduction over a five-year period on a straight line basis (that is 20% in the year you incur them and in each of the following four years).
The costs must not be deductible under any other part of the tax law nor form part of the cost of a depreciating asset or land.
Note that from 1 July 2015, a start-up company, trust or partnership can immediately deduct a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice.
You can claim a deduction for certain capital expenses directly related to a project, such as feasibility studies or environmental assessments.
These expenses can be allocated to a pool and written off over the effective life of the project using the diminishing value method.
The costs must not be deductible under any other part of the tax law nor form part of the cost of a depreciating asset or of land.
The government has announced that, from 7:30pm (AEST) on 12 May 2015, primary producers will be able to:
- immediately deduct the cost of fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills
- depreciate over three years the cost of fodder storage assets such as silos and tanks used to store grain and other animal feed.
For expenditure before this time, primary producers can claim a deduction for the decline in value of:
- fences over a period up to 30 years
- water facilities over three years
- fodder storage assets over a period up to 50 years.
Special rules also apply to claiming depreciation deductions for horticultural plants and grapevines.
In the case of partnership assets, deductions are not claimed by the partnership (unlike partnership assets depreciated under the general depreciation rules), but are allocated to each partner who can then claim for their share of the expenditure.
A deduction for the cost of establishing trees in a carbon sink forest can be claimed as follows:
- For trees established from 1 July 2007 to 30 June 2012, you could claim an immediate deduction for the cost of establishing the trees.
- For trees established from 1 July 2012, you can claim up to 7% of the cost of establishing the trees in each year, worked out using the following formula:
Write-off days in the income year÷365
'Write-off days in the income year' is the number of days in the income year in which the trees are established. Therefore:
- for the first year it will be the number of days from the day on which the trees were established to 30 June
- for the following 13 years it will be 365, and
- for the final year it will be 470 less the number of write-off days in the first year.
You can claim an immediate deduction for capital spending on a Landcare operation in Australia.
The deduction is available to the extent you use rural land for a primary production or other business (other than including mining or quarrying).
You're entitled to the deduction even if you lease the land from the owner.
Electricity and phone connections
You may be able to claim a deduction over 10 years for capital expenditure on:
- mains electricity – connecting, upgrading or extending a connection to any land on which a business is carried on
- telephone lines – connecting or extending to land on which only a primary production business is carried on.
In the case of partnerships, deductions for this expenditure are not claimed by the partnership (unlike partnership assets depreciated under the general depreciation rules), but are allocated to each partner who can then claim for their share of the expenditure.
If you're a small business entity, you can choose to work out your deductions for costs on depreciating assets using either these special rules or the simpler depreciation rules.
If your expenditure on mains electricity or phone lines (along with similar works such as broadband telecommunications links) doesn't meet these conditions, you may be able to write it off as a capital works deduction.
Environmental protection activities
You can claim an immediate deduction for expenditure for the sole or dominant purpose of carrying on environmental protection activities (EPAs). These are activities undertaken to prevent, fight and remedy pollution, and to treat, clean up, remove and store waste from your earning activity or a site on which another entity carried on a business that you acquired and carry on substantially unchanged as your earning activity.
Earning activities are defined as those carried on for the following purposes:
- producing assessable income (other than a net capital gain)
- exploration or prospecting
- mining site rehabilitation.
You may also claim a deduction for expenditure on EPAs relating to a site if the pollution or waste is caused by another entity to which you have leased or granted a right to use the site.
Expenditure that is deductible as part of the cost of a depreciating asset is not also deductible as expenditure on an EPA.
The full cost of depreciating assets used for exploration or prospecting for minerals (including petroleum) or quarry materials may be deductible in the year in which you start to use them.
An immediate deduction may also be available for capital expenditure that doesn't form part of the cost of a depreciating asset but is incurred on:
- exploration or prospecting for minerals (including petroleum) or quarry materials
- rehabilitation of your mining or quarrying sites.
Special rules apply to in-house software you acquire or develop for business use, not for sale.
These rules do not apply to periodic payments made to use software in your business. Such costs are deductible in the year incurred.
Expenses for in-house software may be deducted in a number of ways depending on the circumstances:
- simplified depreciation for small business
- general small business pools
- prime cost method
- software development pools.
Where you use the cents per kilometre method to calculate deductions for car expenses you can't deduct any amount for the decline in value of the car as these methods take depreciation into account in their calculations.
A statutory cap applies to the effective life of some types of vehicle. This means that if you choose to adopt the Commissioner's determination, rather than self-assess the effective life, you must use the shorter of the capped effective life and the Commissioner's determined effective life.
Special rules apply to claiming deductions for certain depreciating assets and other business capital expenses, such as the cost of setting up or ceasing a business, and project-related expenses.