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What is a depreciating asset?

Last updated 10 December 2019

A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Depreciating assets include such items as computers, electric tools, furniture and motor vehicles.

Land and items of trading stock are specifically excluded from being depreciating assets.

Most intangible assets are also excluded from being depreciating assets. Only the following intangible assets are specifically included as depreciating assets:

  • in-house software—see In-house software
  • certain items of intellectual property (patents, registered designs, copyrights and licences of these)
  • mining, quarrying or prospecting rights and information
  • certain indefeasible rights to use an international telecommunications submarine cable system
  • spectrum licences
  • datacasting transmitter licences.

Improvements to land or fixtures on land-for example, windmills and fences-are treated as separate from the land regardless of whether they can be removed or not and may be depreciating assets.

In most cases, it will be clear whether or not something is a depreciating asset. If you are not sure, contact your professional adviser or the ATO.

Depreciating assets excluded from the UCA

Deductions in relation to certain types of depreciating assets are not worked out under the UCA. These are:

  • depreciating assets in relation to which deductions are available under the specific film provisions
  • depreciating assets that are capital works – for example, buildings and structural improvements for which deductions would be available under the separate provisions for capital works (or would have been deductible had the expenditure been incurred or the works started at specified times)
  • cars where you use the ‘cents per kilometre’ method or the ‘12 per cent of original value’ method for calculating car expenses, methods which take the decline in value into account in their calculation
  • indefeasible rights to use an international telecommunications submarine cable system if the expenditure was incurred or the system was used for telecommunications purposes at or before 11.45 am [by legal time in the Australian Capital Territory (ACT)] on 21 September 1999.