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 you use it. Depreciating assets include items such 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 excluded from the definition of depreciating asset. Only the following intangible assets, if they aren't trading stock, are specifically included as depreciating assets:
- 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.
Improvements to land or fixtures on land (for example, windmills and fences) may be depreciating assets and, if so, you treat them as separate from the land, regardless of whether they can be removed or not.
In most cases, it'll be clear whether or not something is a depreciating asset. If you're not sure, contact us or your registered tax adviser.
Second-hand depreciating assets in residential rental properties
You can't claim a deduction for the decline in value of certain second-hand depreciating assets in your residential rental property unless you're using the property in carrying on a business. This includes the business of letting rental properties, or you're an excluded entity.
These rules generally apply to depreciating assets that you either:
- enter into a contract to acquire, or otherwise acquire, at or after 7:30 pm on 9 May 2017
- used, or had installed ready for use, for any private purpose in 2016–17 or earlier, and for which you weren't 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 on the deduction limits for the decline in value of second-hand depreciating assets in your residential rental property, and how the rules apply to the assets you allocate to low-value pools, see Rental properties guide 2026.
Depreciating assets excluded from UCA
You don't work out deductions for the decline in value of some depreciating assets under UCA. These depreciating assets are:
- depreciating assets that are capital works – for example, buildings and structural improvements for which deductions
- would be available if you incur expenditure, or start the capital works, after a particular date
- would be available if you use the capital works in a deductible way in the income year
- are available under the separate provisions for capital works (For more detail, see Capital works deductions)
- cars, where you use the cents per kilometre method for calculating car expenses, because this method takes the decline in value into account
- 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, which won't be eligible if both:
- your employer provides you the item, or pays for or reimburses you for some or all of the cost of the item
- 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?
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