The general depreciation rules set the amounts (uniform capital allowances) that can be claimed, based on the asset's effective life.
To calculate your depreciation deduction for most assets you apply the general depreciation rules (unless you're eligible to use instant asset write-off or simplified depreciation for small business).
You can claim an immediate deduction for certain depreciating assets that meets all of these 4 tests. The asset:
- cost $300 or less
- is used mainly to produce non-business assessable income
- is not part of a set costing more than $300
- is not one of a number of items that are identical, or substantially identical, that together cost more than $300.
When a depreciating asset starts to decline in value
Under uniform capital allowances, a depreciating asset starts to decline in value when you first use it (or install it ready for use) for any purpose, including a private purpose. However, a deduction for decline in value is only allowable for the period of time the asset is used for a taxable purpose.
This means if you initially use an asset for a private purpose, and in later years use it for a taxable purpose (such as in a business), you need to work out the asset's decline in value over the period of its private use before you can work out the decline in value for the period you used it for taxable purposes.
Example: working out start date of decline in value
Robyn purchases a car on 1 July 2021 for $25,000. She uses it entirely for private purposes until 1 March 2022 when she starts a new business. The car is then used wholly for business purposes.
The car starts to decline in value from 1 July 2021 because it is being used from that date, but no part of the decline in value is an allowable deduction before 1 March 2022. This is because the car is not used for a taxable purpose before that date.
End of exampleHow to work out the decline in value
To calculate depreciation, you can generally use either the prime cost (straight line) method or the diminishing value method to calculate the decline in value. In some cases, you must use the same method used by the former holder of the asset – for example, if you acquire the asset from an associate such as your spouse or business partner.
For some intangible depreciating assets, including intellectual property, you can only use the prime cost method.
Both methods require you to determine the asset's effective life.
Different rules apply to:
- capital works such as buildings and structural improvements
- horticultural plants and water supply facilities used in primary production
- electricity and phone connections
- assets used in mining exploration.
To calculate depreciation for most assets for a particular income year, you can use the Depreciation and capital allowances tool, which compares results of the 2 methods.
Low cost or low value assets
You can calculate the depreciation of certain low-cost and low-value assets by allocating them to a low-value pool and depreciating them at a set annual rate.
If you no longer use or hold a depreciating asset
If you dispose of or cease to hold or use a depreciating asset, a balancing adjustment event may occur.
Record keeping
It's important to understand the record-keeping requirements for capital allowances for:
Stimulus measures for COVID-19
The government implemented a number of measures to help businesses recover from the impact of the coronavirus pandemic (COVID-19).
Most of these measures relate to claiming tax concessions, deductions, and depreciation of assets at tax time. They will support businesses through the economic impacts of COVID-19 for the 2020–21 and 2021–22 financial years.
Eligible businesses may want to know which tax depreciation incentive is right for them.
We have prepared a high-level snapshot to help you work out how temporary full expensing, instant asset write-off or backing business investment incentives may apply to you. See Interaction of tax depreciation incentives.