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What is a depreciating asset?

Last updated 26 April 2023

What is a depreciating asset, second-hand depreciating asset, and what depreciating assets are excluded from UCA.

Depreciating assets

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 us or your recognised tax adviser.

Second-hand depreciating assets in residential rental properties

From 1 July 2017, you cannot claim a deduction for the decline in value of certain second-hand depreciating assets in your residential rental property unless you are using the property in carrying on a business, including the business of letting rental properties, or you are an excluded entity.

These changes generally apply to depreciating assets:

  • for which you entered into a contract to acquire, or which you otherwise acquired, at or after 7.30pm on 9 May 2017, or
  • which you used, or had installed ready for use, for any private purpose in
    2016–17 or earlier, and for which you were not entitled to a deduction for a decline in value in 2016–17.

Residential rental property is residential premises you use to provide residential accommodation for the purpose of producing assessable income.

For more information about the limit on the deductions for decline in value of second-hand depreciating assets in your residential rental property, including on how the new rules apply to the assets allocated to low-value pools, see Rental properties 2022.

Depreciating assets excluded from UCA

Deductions for the decline in value of some depreciating assets are not worked out under UCA. These depreciating assets are:

  • 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 for calculating car expenses; this method takes the decline in value into account in its 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 AEST 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
  • work-related items (such as laptop computers, personal digital assistants, computer software, protective clothing, briefcases and tools of trade), ordinarily eligible for a depreciation deduction under UCA, will not be eligible 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
  • depreciating assets for which deductions were available under the specific film provisions.

Continue to: Who can claim deductions for the decline in value of a depreciating asset?