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Edited version of your written advice
Authorisation Number: 1051494060095
Date of advice: 28 March 2019
Ruling
Subject: Depreciation
Question 1
Will the purchase of an asset qualify as expenditure under Division 40 of the Income Tax Assessment Act 1997?
Answer
Yes
Question 2
Can the small business instant write-off apply to the purchase of the asset?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You operate a business in a partnership with your spouse.
You purchased and installed an asset on your farm for the protection of yourselves and your employees.
The asset can be relocated if required.
The asset can be used by up to X people.
You employ X to X employees on a casual basis for stock handling, and X person for pasture management on a part time basis.
There are up to X people on the property at any time during business hours.
Only you and your spouse reside on the property.
The asset cost less than $20,000.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 40-25
Income Tax Assessment Act 1997 Section 328-180
Further information to consider
The Commissioner does not consider that the asset is 100% business use only, due to you having use of the asset outside of business hours if needed. As a result the deduction is reduced to the extent that it is used for a non-taxable purpose, based on a reasonable pro-rata basis.
Reasons for decision
Depreciating assets
A depreciating asset is an asset that has a limited effective life and can be expected to decline in value over the time it is used.
Section 40-25 of the Income Tax Assessment Act (ITAA 1997) allows you to claim a deduction equal to the decline in value of a depreciating asset to the extent to which it is used to produce assessable income or is installed ready for use for that purpose.
The decline in value is calculated by spreading the cost of the asset over its effective life. You can use one of two methods, either the prime cost method or diminishing value method, to calculate the deduction. If the asset is only used for part of the year or for private purposes, any deduction should be apportioned on a pro-rata basis.
Once you have made the choice on which method you are going to use for an asset you cannot change the method.
An asset’s effective life is either self-assessed or determined by the Commissioner. Taxation Ruling TR 2018/1 Income tax: effective life of depreciating assets lists the effective life of various assets as determined by the Commissioner.
It is accepted that the asset is an asset which division 40 of the ITAA 1997 applies.
Instant Asset write-off
Section 328-180 of the ITAA 1997 states that you can immediately write off an asset which costs less than $20,000. Assets costing more than $20,000 are allocated to the small business pool in accordance with their business use percentage.
As the asset cost is less than $20,000, you are entitled to immediately write off the asset.