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Deductions for the cost of depreciating assets

Last updated 31 May 2005

Under income tax law, you are allowed to claim certain deductions for expenditure incurred in gaining or producing assessable income-for example, in carrying on a business. Some expenditure, such as the cost of acquiring capital assets, is generally not deductible.

The value of a capital asset which provides a benefit over a number of years declines over its effective life. Because of this, the cost of capital assets used in gaining assessable income can be written off over a period of time as tax deductions.

Before 1 July 2001, the cost of plant (for example, cars and machinery) and software was written off as depreciation deductions.

From 1 July 2001, the uniform capital allowance system (UCA) applies to most depreciating assets, including plant. Under the UCA, deductions for the cost of a depreciating asset are based on the decline in value of the asset.

This publication covers how to work out the decline in value of your depreciating assets and what happens when you dispose of or stop using a depreciating asset. It also looks at the deductions available under the UCA for capital expenditure other than on depreciating assets.