The effective life of a depreciating asset is how long it can be used by any entity for a taxable purpose, or for the purpose of producing exempt income:
- having regard to the wear and tear you reasonably expect from your expected circumstances of use
- assuming reasonable levels of maintenance, and
- having regard to the period within which it is likely to be scrapped, sold for no more than scrap value, or abandoned.
Effective life is expressed in years, including fractions of years. It is not rounded to the nearest whole year.
For most depreciating assets, you can either make your own estimate of its effective life or adopt the effective life determined by the Commissioner. The sorts of information you could use to make your own estimate of effective life are listed in the Guide to depreciating assets.
Taxation Ruling TR 2000/18 Income tax: effective life of depreciating assets lists the Commissioner's determination of effective life for various depreciating assets. TR 2000/18 came into force on 1 January 2001 and replaced Taxation Ruling IT 2685 Income tax: depreciation.
Because the Commissioner reviews the determinations of effective life, the determined effective life may change from the beginning of, or during, an income year. If you decide to use the effective life determined by the Commissioner you generally use the effective life that applies at the time you entered into a contract to acquire the depreciating asset.
An extract from Taxation Ruling TR 2000/18 (as at 1 January 2003) showing the effective lives of some depreciating assets commonly used in rental properties is shown below.
Item |
Effective life in years given in TR 2000/18 (as at 1 January 2003) |
|---|---|
Blind, venetian |
20 |
Carpets |
10 |
Curtains and drapes |
6 ⅔ |
Electric clock |
13 ⅓ |
Electric heater |
10 |
Furniture and fittings |
13 ⅓ |
Garbage unit, compacting |
6 ⅔ |
Hot water installations |
20 |
Lawn mowers-motor |
6 ⅔ |
Lawn mowers-self-propelled |
5 |
Floor covering (linoleum and vinyl) |
10 |
Ovens – microwaves |
6 ⅔ |
Refrigerators |
13 ⅓ |
Stoves |
20 |
Television receivers |
10 |
Vacuum cleaners (electric) |
10 |
Washing machines |
6 ⅔ |
Some items found in a rental property are regarded as part of the setting for the rent producing activity and are not treated as separate assets in their own right. However, a capital works deduction may be allowed for some of these items – see Capital works deductions (formerly special building write-off). Examples of items that are not treated as separate assets in their own right are:
- built-in kitchen cupboards
- door and window fittings
- driveways and paths
- electrical wiring
- fencing and retaining walls
- floor and wall tiles
- garages and non-portable sheds
- in-ground swimming pools, saunas and spas
- plumbing and gas fittings
- reticulation piping
- roller door shutters
- roof top ventilators and skylights
- security doors and screens which are permanently fixed to the building
- sinks, tubs and baths, and
- wash basins and toilet bowls.