What are depreciating assets?
Depreciating assets are assets that have a limited effective life and can reasonably be expected to lose value over the time they are used. These assets can be used for a long time (normally more than one year). This includes items such as tools, computers or books.
The cost of buying a depreciating asset is capital expenditure, and you can't claim a deduction for the cost under normal deduction rules (known as the general deductions provisions).
You may be able to claim a deduction for the decline in value of depreciating assets each year under the capital allowances provisions. To calculate a decline in value deduction, you will need to work out the effective life and the cost of the asset.
Cost of depreciating assets
Before you can claim a deduction for a depreciating asset you need to consider the cost of the asset. There are 2 elements to the cost of an asset:
- The amount you pay for it (the purchase price) at the time you buy it and any other expenses you incur to acquire the asset (such as shipping).
- Any amounts you pay after you buy the asset, including the costs to
- bring the asset to its present condition – for example, the cost of making an improvement the asset such as attaching a towbar to your car
- bring the asset to its present location – for example, the cost of moving an asset to a different location or getting the towbar you are attaching to your car delivered to you.
There are also 2 different treatments for depreciating assets, depending on whether they cost more or less than $300.
An immediate deduction is allowable for certain depreciating assets costing $300 or less. You must satisfy the conditions of 4 tests to claim an immediate deduction.
If you're not eligible to claim an immediate deduction for the asset, you may choose to allocate the depreciating asset to a low-value pool where its cost is less than $1000.
If you're not eligible to claim an immediate deduction and you choose not to allocate it to a low-value pool, you can claim a deduction for the decline in value of a depreciating asset over its effective life where either:
- The assets cost more than $300.
- The asset forms part of a set or are identical or substantially identical items that together cost more than $300.
You can't treat items that are part of a set or identical separately to avoid working out the decline in value.
You need to apportion your claim if you use the item for both work and private purposes. You must also keep records to show how you work out your work-related use.
Jointly held assets
Generally, the owner (or owners if the asset is jointly held) of the depreciating asset can claim a deduction for its decline in value.
If you jointly own a depreciating asset with someone else, your interest (the portion you own) is the amount that is relevant as the cost of the depreciating asset. For example, if you purchase an asset that cost $500 with another person jointly, the cost of the asset for you is $250. If the cost of your interest in the asset is $300 or less, you can claim an immediate deduction (if the other tests are satisfied). This will be the case even if the total cost of the depreciating asset is more than $300.