The first element of a depreciating asset's cost is the market value of the asset at the time you start to hold it if:
- the first element of the asset's cost would otherwise exceed its market value and you do not deal at arm's length with another party to the transaction, or
- you started to hold the asset under a private or domestic arrangement (for example, as a gift from a family member).
Similar rules apply to the second element of a depreciating asset's cost. For example, if something is done to improve your depreciating asset under a private or domestic arrangement, the second element of the asset's cost is the market value of the improvement when it is made.
The market value may need to be reduced for any input tax credits to which you would have been entitled - see GST input tax credits.
Note that there are special rules for working out the effective life and decline in value of a depreciating asset acquired from an associate, such as a spouse or partner - see Depreciating asset acquired from an associate.