The UCA provides a set of general rules that applies across a variety of depreciating assets and certain other capital expenditure. It does this by consolidating a range of former capital allowance regimes. The UCA replaces provisions relating to:
- mining and quarrying
- intellectual property
- forestry roads and timber mill buildings, and
- spectrum licences.
The UCA maintains the pre 1 July 2001 treatment of some depreciating assets and capital expenditure such as certain primary production depreciating assets and capital expenditure.
It also introduces new deductions for types of capital expenditure that did not previously attract a deduction, such as certain business and project-related costs - see Capital expenditure deductible under the UCA.
You use the UCA rules to work out deductions for the cost of your depreciating assets, including those acquired before 1 July 2001. You can generally deduct an amount for the decline in value of a depreciating asset you held to the extent that you used it for a taxable purpose.
However, an eligible small business entity may choose to work out deductions for their depreciating assets using the simplified depreciation rules - see Small business entities.
Steps to work out your deduction
Under the UCA, there are a number of steps to work out your deduction for the decline in value of a depreciating asset:
- Is your asset a depreciating asset covered by the UCA? See What is a depreciating asset?
- Do you hold the depreciating asset? See Who can claim deductions for the decline in value of a depreciating asset?
- Has the depreciating asset started to decline in value? See When does a depreciating asset start to decline in value?
- What method will you use to work out decline in value? See Methods of working out decline in value.
- What is the effective life of the depreciating asset? See Effective life.
- What is the cost of your depreciating asset? See The cost of a depreciating asset.
- Must you reduce your deduction for any use for a non-taxable purpose? See Decline in value of a depreciating asset used for a non-taxable purpose.
Some of these steps do not apply:
- if you choose to allocate an asset to a pool
- if you can claim an immediate deduction for the asset
- to certain primary production assets
- to some assets used in rural businesses.