Find out when you can claim an immediate deduction for the cost of certain non-business depreciating assets.
The decline in value of certain depreciating assets costing $300 or less is their cost. This means you get an immediate deduction for the cost of the asset to the extent that you used it for a taxable purpose during the income year in which the deduction is available.
The immediate deduction is available if all of the following tests are met for the asset:
- it cost $300 or less; see Cost is $300 or less
- you used it mainly for the purpose of producing assessable income that was not income from carrying on a business; see Used mainly to produce non-business assessable income
- it was not part of a set of assets you started to hold in the income year that cost more than $300; see Not part of a set, and
- it was not one of a number of identical or substantially identical assets you started to hold in the income year that together cost more than $300; see Not one of a number of identical or substantially identical items.
If you are not eligible to claim the immediate deduction, you work out the decline in value of the asset using the general rules for working out decline in value. Alternatively, you may be able to allocate the asset to a low-value pool; see Low-value pools.
This immediate deduction is not available for in-house software if you have allocated expenditure on it to a software development pool; see Software development pools.
The amount of the immediate deduction may need to be reduced if the changes which limit deductions for decline in value of certain second-hand depreciating assets in residential rental properties apply to the asset; see Second-hand depreciating assets in residential rental properties.
If you are entitled to a GST input tax credit for the asset, the cost is reduced by the input tax credit before determining whether the cost is $300 or less.
If you hold an asset jointly with others and the cost of your interest in the asset is $300 or less, you can claim the immediate deduction even though the depreciating asset in which you have an interest costs more than $300; see Jointly held depreciating assets.
Example: Cost is $300 or less, ignoring any GST impact
John, Margaret and Neil jointly own a rental property in the proportions of 50%, 25% and 25%. Based on their respective interests, they contribute $400, $200 and $200 to acquire a new refrigerator for the rental property. Margaret and Neil can claim an immediate deduction because the cost of their interest in the refrigerator does not exceed $300. John cannot claim an immediate deduction because the cost of his interest is more than $300.End of example
Some examples of depreciating assets used to produce non-business income are:
- a briefcase or tools of trade used by an employee
- freestanding furniture in a residential rental property that was purchased as new after 9 May 2017 and had never been used previously
- a calculator used in managing an investment portfolio.
To claim the immediate deduction, you must use the depreciating asset more than 50% of the time for producing non-business assessable income.
If you meet this test, you can use the asset for other purposes (such as to carry on a business) and still claim the deduction. However, if you use the asset mainly for producing non-business assessable income but you also use the asset for a non-taxable purpose, then the amount of deduction must be reduced by the amount attributable to the use for a non-taxable purpose.
Example: Depreciating asset used mainly to produce non-business assessable income, ignoring any GST impact
Rob buys a calculator for $150. The calculator is used 40% of the time by him in his business and 60% of the time for managing his share portfolio. As the calculator is used more than 50% of the time for producing non-business assessable income, he can claim an immediate deduction of $150.
If Rob used his calculator 40% of the time for private purposes and 60% of the time for managing his share portfolio, he is still using the calculator more than 50% of the time for producing non-business assessable income. However, his deduction would be reduced by 40% to reflect his private use of the asset.End of example
You need to determine whether items form a set on a case-by-case basis. You can regard items as a set if they are:
- dependent on each other
- marketed as a set, or
- designed and intended to be used together.
It is the cost of a set of assets you acquire in the income year that must not exceed $300. You cannot avoid the test by buying parts of a set separately.
Example: Set of items, ignoring any GST impact
In 2021–22, Paula, a primary school teacher, bought a series of six progressive reading books costing $65 each. The books are designed so that pupils move on to the next book only when they have successfully completed the previous book. The books are marketed as a set and are designed to be used together. The six books would be regarded as a set. Paula cannot claim an immediate deduction for any of these books because they form part of a set which she acquired in the income year, and the total cost of the set was more than $300.End of example
Example: Not a set, ignoring any GST impact
Marie, an employee, buys a range of tools for her tool kit for work (a shifting spanner, a boxed set of screwdrivers and a hammer). Each item costs $300 or less. While the tools add to Marie’s tool kit, they are not a set. It would make no difference if Marie purchased the items at the same time and from the same supplier or manufacturer. An immediate deduction is available for all the items, including the screwdrivers. The screwdrivers are a set as they are marketed and used as a set. However, as the cost is $300 or less, the deduction is available.End of example
A group of assets acquired in an income year can be a set in themselves, even though they also form part of a larger set acquired over more than one income year. If the assets acquired in an income year are a set, then the total cost of that set must not exceed $300. Assets acquired in another income year that form part of a larger set are not taken into account when working out the total cost of a set and whether items form a set.
Example: Set of items part of a larger set, ignoring any GST impact
In 2021–22, Paula, a primary school teacher, hears about a series of 12 progressive reading books. The books are designed so that pupils move on to the next book only when they have successfully completed the previous book. The first six books are at a basic level while the second six are at an advanced level.
Paula buys one book a month beginning in January and by 30 June 2022, she holds the first six books (the basic readers) at a total cost of $240. Because of the interdependency of the books, the six books are a set even though they can be purchased individually and they form part of a larger set. An immediate deduction is available for each book because the cost of the set Paula acquired during the income year was not more than $300.
If Paula acquires the other six books (the advanced readers) in the following income year, they would be regarded as a set acquired in that year.End of example
The concept of a set requires more than one depreciating asset. In some cases, however, more than one item may be a single depreciating asset. An example would be a three volume dictionary. This is a single depreciating asset, not a set of three separate depreciating assets, as the three volumes have a single integrated function.
Items are identical if they are the same in all respects. Items are substantially identical if they are the same in most respects even though there may be some minor or incidental differences. Factors to consider include colour, shape, function, texture, composition, brand and design.
The total cost of the asset and any other identical or substantially identical asset that you acquired in the income year must not exceed $300. Do not take into account assets that you acquired in another income year.
Example: Substantially identical items, ignoring any GST impact
Jan buys three new kitchen stools for her rental property in 2021–22. The stools are all wooden and of the same design but they are different colours. The colour of the stools is only a minor difference which is not enough to conclude that the stools are not substantially identical.
The stools cost $150 each. Jan cannot claim an immediate deduction for the cost of each individual stool because they are substantially identical and the total cost of the three stools exceeds $300.End of example
Example: Not substantially identical items
Jan also buys some new chairs for her rental property: a canvas chair for the patio, a high-back wooden chair for the bedroom dressing table and a leather executive chair for the study. While these are all chairs, they are not identical or substantially identical. Jan can claim the cost of each chair as an immediate deduction if the chair costs $300 or less.End of example
Continue to: Effective life of a depreciating asset