• STS taxpayers

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    You need to know

    You show at M Depreciation expenses item P8 the total depreciation deductions being claimed under the STS capital allowances (depreciation) rules and for the business use of other assets under the uniform capital allowance (UCA) rules. This includes your deduction under the STS capital allowances (depreciation) rules for depreciating assets used for work-related or self-education purposes. However this excludes any amount included at part B of item P1.

    You do not need to complete a Capital allowances schedule 2006.

    STS taxpayers can claim an immediate deduction for most depreciating assets costing less than $1,000 (excluding input tax credit entitlements) and can pool most of their other depreciating assets. There are two STS pools a:

    • general STS pool for depreciating assets with an effective life of less than 25 years
    • long-life STS pool for depreciating assets with an effective life of 25 years or more.

    Some depreciating assets are excluded from the STS rules but a deduction may be available under the UCA rules.

    Information about the STS capital allowances (depreciation) rules is available. Also see the publication: The simplified tax system - a guide for tax agents and small businesses, or visit our website or phone the Business Infoline on 13 28 66.

    Calculating your depreciation deductions

    If your accounting system or financial statements provide you with the amounts to complete worksheet 4 write these amounts in the worksheet. Otherwise, use calculations 1 to 5  to calculate your depreciation deductions.

    The amounts you write in worksheet 4 must be tax values and not accounting values.

    Definitions

    Adjustable value of a depreciating asset is its cost (excluding input tax credit entitlements) less its decline in value since you first used it or installed it ready for use for any purpose, including a private purpose.

    Assessable balancing adjustment amount arises where the termination value of the depreciating asset is more than the adjustable value.

    Cost addition amounts include the cost of capital improvements to assets and costs reasonably attributable to disposing of or permanently ceasing to use an asset (this may include advertising and commission costs or the costs of demolishing the asset).

    Decline in value (previously 'depreciation') is the value that an asset loses over its effective life.

    Deductible balancing adjustment amount arises where the termination value of the depreciating asset is less than the adjustable value.

    Depreciating asset is an asset with a limited effective life which declines in value over that life.

    Taxablepurpose includes the purpose of producing assessable income.

    Taxable purpose proportion is the extent to which you use the asset for a taxable purpose, such as for the purpose of producing assessable income.

    Termination value includes money received from the sale of an asset or insurance money received as the result of the loss or destruction of an asset. Exclude the GST component where the amount received is for a taxable supply.

    Calculation 1: Low-cost assets

    A low-cost asset is an asset:

    • whose cost at the end of the year was less than $1,000 (excluding input tax credit entitlements), and
    • that qualifies for a deduction under the STS capital allowances (depreciation) rules.

    Work out the taxable purpose proportion of each depreciating low-cost asset you acquired in 2005-06 and used or held ready for use for the purpose of producing assessable income. You calculate the deduction for each eligible asset as follows:

    asset's adjustable value

    x

    taxable purpose proportion

    Note

    The adjustablevalue of an asset, at the time you first used it (or held it ready for use) for a taxable purpose, will be its cost, unless you previously used or held the asset solely for private purposes. For example, for a tool set bought on 1 December at a cost of $800 (excluding input tax credit entitlements) and used for producing assessable income from that date at an estimated 70% of the time, the immediate deduction would be

    $800

    x

    70%

    =

    $560

    Add up these results and write the total at (a) in worksheet 4.

    Do not include depreciating assets which cost less than $1,000 that you acquired before entering the STS. You allocate these assets to the general STS pool (see calculation 2).

    Calculation 2: STS pool deductions

    To calculate your deductions for both the general and long-life STS pools you must first calculate the opening pool balance of each pool.

    If you are entering the STS, allocate each depreciating asset you hold at the start of the income year to the appropriate pool according to the asset's effective life. Only include the taxable purpose proportion of the adjustable value of each depreciating asset. For example, for an asset with an adjustable value of $10,000 that is used only 50% for an income-producing purpose, you will only add $5,000 to the pool.

    You can choose not to allocate an asset to your long-life STS pool if you first used it or installed it ready for use for a taxable purpose before 1 July 2001.

    You calculate the opening pool balance for each STS pool by adding the value of all depreciating assets allocated to the relevant pool.

    If you are continuing in the STS, the opening pool balance of each STS pool is the closing pool balance for the 2004-05 income year, except where you make an adjustment to reflect the changed business use of a pooled asset.

    Calculate your deduction for each STS pool as follows:

    General STS pool deduction:

    opening pool balance ($)

    x

    30%

    Long-life STS pool deduction:

    opening pool balance ($)

    x

    5%

    Where necessary make a reasonable apportionment for each STS pool deduction between primary production and non-primary production activities.

    Write the result of your general STS pool deduction at (b) in worksheet 4.

    Write the result of your long-life STS pool deduction at (c) in worksheet 4.

    If either pool balance is below $1,000 (after taking into account additions and disposals but before working out the deductions in calculations 2 and 3), you work out the deduction for the pool using calculation 5(b).

    Calculation 3: Depreciating assets first used for a taxable purpose during 2005-06 and cost addition amounts for assets already allocated to a pool

    You calculate your deduction at half the relevant pool rate for:

    • depreciating assets that you first used or installed ready for use for a taxable purpose during the year, and
    • cost addition amounts for assets already allocated to an STS pool.

    Calculate your deduction as follows:

    • the taxable purpose proportion of the adjustable value of each depreciating asset first used for a taxable purpose this year multiplied by 15% (general STS pool assets) or 2.5% (long-life pool assets), plus
    • the taxable purpose proportion of the cost addition amounts multiplied by 15% (general STS pool assets) or 2.5% (long-life pool assets).

    Write the total deduction for general STS pool assets at (d) and the total deduction for long-life STS pool assets at (e) in worksheet 4.

    If either pool balance (after taking into account additions and disposals but before calculating the deductions in calculations 2 and 3) is below $1,000, work out your deduction for these assets using calculation 5(b).

    Calculation 4: Other depreciating assets

    Work out your deduction for the decline in value of all your other depreciating assets that are not included in calculations 1 to 3.

    See the Guide to depreciating assets 2005-06 (NAT 1996-6.2006) for information on how to calculate the decline in value of these assets. To find out how to get this publication, see More information.

    Write your total deduction for other depreciating assets at (f) in worksheet 4.

    Do not include at (f) in the worksheet depreciating assets which qualify for a deduction under Subdivision 40-F or 40-G of ITAA 1997 as water facilities or landcare operations in your primary production business and for which you have chosen to claim a deduction under those Subdivisions and not the STS rules. Show these deductions at W Landcare operations and business deduction for decline in value of water facility item P8 Reconciliation items.

    Calculation 5: Disposal of depreciating assets

    (a) Low-cost assets

    If you have disposed of a low-cost asset for which you have claimed an immediate deduction in calculation 1 this year or in a prior year, include the taxable purpose proportion of the termination value in the Reconciliation items section of item P8. For example, for a low-cost asset used only 50% for an income producing purpose which was sold for $200 (excluding GST), only $100 will be assessable and included as a reconciliation adjustment.

    (b) Assets allocated to STS pools

    Where you dispose of depreciating assets that have been allocated to either the general or long-life STS pools, you deduct the taxable purpose proportion of the termination value from the closing pool balance. For example, for a pooled depreciating asset used only 50% for an income-producing purpose which was sold for $3,000 (excluding GST), only $1,500 will be deducted from the closing pool balance. If the balance of a pool is below $1,000 but greater than zero (after taking into account any additions and disposals but before calculating the deductions in calculations 2 and 3) you can claim an immediate deduction for this amount. Write this deduction against the appropriate pool at (b) or (c) in worksheet 4.

    If the closing pool balance is less than zero, you include the amount below zero in your assessable income in the Reconciliation items section of item P8. For more information about closing pool balances, see below.

    If expenses are incurred in disposing of a depreciating asset, these expenses may be taken into account in calculation 3.

    (c) Other depreciating assets

    See the Guide to depreciating assets 2005-06 (NAT 1996-6.2006) for information on how to calculate any balancing adjustment amounts on the disposal of other depreciating assets.

    Balancing adjustment amounts are included in the Reconciliation items section of item P8. See What are income reconciliation adjustments? and What are expense reconciliation adjustments?

    Closing pool balance

    The closing balance of each STS pool for an income year is the:

    • opening pool balance (see calculation 2), plus the
    • taxable purpose proportion of the adjustable value of assets that were first used or installed ready for use for a taxable purpose during the year (see calculation 3), plus
    • taxable purpose proportion of any cost addition amounts for assets in the pool during the year (see calculation 3), less
    • taxable purpose proportion of the termination value of any pooled assets disposed of during the year [see calculation 5(b)], less
    • STS pool deduction (see calculation 2), less
    • deduction for assets first used by you during the year (see calculation 3), less
    • deduction for any cost addition amounts for pooled assets during the year (see calculation 3).

    If your closing pool balance is less than zero, see calculation 5(b).

    The closing pool balance for this year becomes the opening pool balance for the 2006-07 income year except where you made an adjustment to reflect the changed business use of a pooled asset.

    You will need your opening pool balance to work out the pool deduction next year. Do not write your closing pool balance on your tax return (supplementary section).

    Worksheet 4: Depreciation deductions for STS

     

    Primary production ($)

    Non-primary production ($)

    Total ($)

    Low-cost assets

       

    (a)

    General pool

       

    (b)

    Long-life pool

       

    (c)

    General pool (1/2 rate)

       

    (d)

    Long-life pool (1/2 rate)

       

    (e)

    Other assets

       

    (f)

    Depreciation expenses [add (a), (b), (c), (d), (e) and (f)]

       

    (g)

    Completing this item

    Step 1, Write your total primary production depreciation deductions at Depreciation expenses in the Primary production column, item P8 on page 3 of your schedule. Do not show cents.

    Step 2, Write your total non-primary production depreciation deductions at Depreciationexpenses in the Non-primary production column. Do not show cents.

    Note

    Do not show any amount included at PartB of item P1.

    Step 3, Transfer the amount at (g) in worksheet 4 to M Depreciation expenses. Do not show cents.

    Step 4, Transfer the amount at (a) in worksheet 4 to A item P10 STS depreciating assets on page 4 of your schedule. Do not show cents.

    Step 5, Add up the amounts at (b) and (d) in worksheet 4 and write the total at B item P10. Do not show cents.

    Step 6, Add up the amounts at (c) and (e) in worksheet 4 and write the total at C item P10. Do not show cents.

    Step 7, Go to Motor vehicle expenses.

    Last modified: 01 Sep 2006QC 18499