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Deductions for the cost of depreciating assets

Last updated 26 April 2023

Depreciating assets, deductions and uniform capital allowances rules, working out decline in value and effective life.

Depreciating assets deductions

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. Generally, the value of a capital asset that 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.

Since 1 July 2001, UCA apply to most depreciating assets, including plant. Under UCA, deductions for the cost of a depreciating asset are based on the decline in value of the asset.

Simplifying tax obligations for business

The practice statement PS LA 2003/8 Practical approaches to low-cost business expenses, provides guidance on two straightforward methods that you can use, if you are carrying on a business, to help determine whether you treat expenditure incurred in acquiring certain low-cost tangible assets as revenue expenditure or capital expenditure.

Subject to certain qualifications, the two methods cover expenditure below a threshold and the use of statistical sampling to estimate total revenue expenditure on low-cost tangible assets. The threshold rule allows an immediate deduction for qualifying low-cost tangible assets costing $100 or less, including any GST. If you have a low-value pool (see Low-value pools), the sampling rule allows you to use statistical sampling to determine the proportion of the total purchases on qualifying low-cost tangible assets that is revenue expenditure.

We will accept a deduction for expenditure incurred on qualifying low-cost tangible assets calculated in accordance with this practice statement.