• How do you make your own estimate of a depreciating asset's effective life?

    You work out the effective life of a depreciating asset as at the time it is first used or installed ready for use for any purpose. The estimate should take into account:

    • how you expect to use the asset
    • what rate of wear and tear you would reasonably expect from that use assuming the asset is maintained in reasonably good order and condition
    • how long the asset could, in these circumstances, be used to produce income (irrespective of who used it)
    • any proposal to scrap or abandon the asset that would otherwise cut short its use for income producing purposes.

    In making your estimate, you need to take into account relevant factors such as the manufacturer's specifications, independent engineering information and your particular experience with similar assets.

    If you choose to make your own estimate of effective life, you need to indicate this at the appropriate place on your capital allowances schedule – if you are required to lodge a schedule with your income tax return.

      Last modified: 22 Aug 2016QC 16297