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 the definition of depreciating asset.
Most intangible assets are also excluded from the definition of depreciating asset. Only the following intangible assets, if they are not trading stock, 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 a telecommunications cable system
- certain telecommunications site access rights
- spectrum licences, and
- datacasting transmitter licences.
Improvements to land or fixtures on land - for example, windmills and fences - may be depreciating assets and are treated as separate from the land, regardless of whether they can be removed or not.
In most cases, it will be clear whether or not something is a depreciating asset. If you are not sure, contact your recognised tax adviser or the ATO.
Depreciating assets excluded from the UCA
Deductions for the decline in value of some depreciating assets are not worked out under the UCA. These assets are:
- depreciating assets for which deductions are available under the specific film provisions
- depreciating assets that are capital works - for example, buildings and structural improvements for which deductions
- are available under the separate provisions for capital works
- would be available if the expenditure had been incurred, or the capital works had been started, before a particular date
- would be available if the capital works were used in a deductible way in the income year
- cars where you use the cents per kilometre method or the 12% of original value method for calculating car expenses - these methods take the decline in value into account in their calculations
- 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 11.45am by legal time in the Australian Capital Territory (ACT) on 21 September 1999
- indefeasible rights to use a domestic telecommunications cable system or telecommunications site access rights if the expenditure was incurred before 12 May 2004 - special rules apply to deem certain of those rights to be acquired before that date, and to exclude certain expenditure incurred on or after that date that actually relates to an earlier right
- eligible work-related items, such as laptop computers, personal digital assistants, computer software, protective clothing, briefcases and tools of trade, if the item was provided to you by your employer, or some or all of the cost of the item was paid for or reimbursed by your employer, and the provision, payment or reimbursement was exempt from fringe benefits tax (there is no deduction available to you for the decline in value of such items).