|
Former depreciation rules |
UCA |
|---|---|
|
Plant |
Depreciating asset |
|
Own |
Hold |
|
Cost |
First and second elements of cost |
|
Luxury car limit |
Car limit |
|
Income-producing use |
Taxable purpose |
|
Depreciation |
Decline in value |
|
Undeducted cost |
Adjustable value |
Adjustable value: A depreciating asset’s adjustable value at a particular time is its cost (first and second elements) less any decline in value up to that time.
The opening adjustable value of an asset for an income year is generally the same as its adjustable value at the end of the previous income year.
Balancing adjustment amount: The balancing adjustment amount is the difference between the termination value and the adjustable value of a depreciating asset at the time of a balancing adjustment event.
If an asset’s termination value is greater than its adjustable value, the difference is generally an assessable balancing adjustment amount.
If the termination value is less than the adjustable value, the difference is generally a deductible balancing adjustment amount.
Balancing adjustment event: Generally, a balancing adjustment event occurs for a depreciating asset if you stop holding it (for example, if you sell it) or you stop using it and you expect never to use it again.
Car limit: If the first element of cost of a car exceeds the car limit for the income year in which you start to hold it, that first element of cost is generally reduced to the car limit. The car limit for 2023–24 is $68,108.
Days held: Days held is the number of days you held the asset in the income year in which you used it or had it installed ready for use for any purpose.
Decline in value: Deductions for the cost of a depreciating asset are based on the decline in value. For most depreciating assets, you have the choice of 2 methods to work out the decline in value of a depreciating asset: the prime cost method or the diminishing value method, see Methods of working out decline in value.
Depreciating asset: A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used.
Some assets are specifically excluded from the definition of depreciating asset, see What is a depreciating asset?
Effective life: Generally, 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 or non-assessable non-exempt income:
- having regard to the wear and tear from your expected circumstances of use
- assuming it will be maintained in reasonably good order and condition, and
- having regard to the period within which it is likely to be scrapped, sold for no .more than scrap value or abandoned.
First element of cost: The first element of cost is, broadly, the amount paid (money or the market value of property given) or the amount taken to have been paid to hold the asset. It also includes amounts incurred that are taken to have been paid for starting to hold the asset. The amounts must be directly connected with holding the asset.
Holder: Only a holder of a depreciating asset may deduct an amount for its decline in value. In most cases, the legal owner of a depreciating asset will be its holder, see Who can claim deductions for the decline in value of a depreciating asset?
Indexation: Indexation is a methodology used in calculating a cost for capital gains tax for depreciating assets acquired before 21 September 1999 that have been used partly for a private purpose.
Second element of cost: The second element of cost is, broadly, the amount paid (money or the market value of property given) or the amount taken to have been paid to bring the asset to its present condition and location at any time, such as the cost incurred to improve the asset. It also includes expenses incurred on a balancing adjustment event occurring for the asset, such as advertising or commission expenses.
Start time: A depreciating asset’s start time is generally when you first use it (or install it ready for use) for any purpose, including a private purpose.
Taxable purpose: A taxable purpose is the purpose of producing assessable income, the purpose of exploration or prospecting, the purpose of mining site rehabilitation, or environmental protection activities.
Termination value: Generally, the termination value is what you receive, or are taken to receive, for an asset as a result of a balancing adjustment event. For example, the proceeds from selling an asset would be the asset’s termination value.
Continue to: Worksheets for depreciating assets and low-value pools