E1 and E2 Decline in value of depreciating assets

Depreciating assets are capital assets, such as cars, computers or machinery. Their cost is not generally an expense at the time of purchase, but their value may decline over their effective life. This decline in value may be a deduction or a non-deductible expense.

Did the SMSF's depreciating assets decline in value?

Write at E1 and E2, as required, the amount by which the SMSF's depreciating asset declined in value during 2020–21.

If you are uncertain whether an asset is a depreciating asset or whether you can claim a deduction, see Guide to depreciating assets 2021.

E1 Deductible decline in value of depreciating assets

Write at E1 the deductible amount for the decline in value of the SMSF's depreciating assets, for example, the decline in value of a depreciating asset that the SMSF uses for the purposes of earning assessable income.

Do not include at E1 an amount for the decline in value of an asset to the extent the amount is taken into account in working out:

• foreign income (see Expenses that relate to foreign income)
• non-arm's length income (see Expenses that relate to non-arm's length income).

If the SMSF pays retirement phase income stream benefits to a member, refer to How expenses are treated when an SMSF has ECPI before you claim a deduction for the amount the SMSF's depreciating assets declined in value.

For more information, see Guide to depreciating assets 2021.

You can work out your capital allowance deductions by using the Depreciation and capital allowances tool (DCAT).

From 1 July 2017, you are generally not entitled to a deduction for decline in value of certain second-hand depreciating assets in your residential property:

• which you entered into a contract to acquire, or which you otherwise acquired, at or after 7.30pm on 9 May 2017, or
• which you used, or had installed ready for use, for any private purpose in 2016–17 or earlier, and for which you were not entitled to a deduction for a decline in value in 2016–17.

You may be entitled for these deductions if you are using your residential rental property in carrying on a business (including the business of property investing) or another exception applies.

Residential rental property is residential premises you use to provide residential accommodation for the purpose of producing assessable income.

For more information, see:

• Rental properties 2021
• Guide to depreciating assets 2021

E2 Non-deductible decline in value of depreciating assets

Write at E2 the amount for the decline in value of the SMSF's depreciating assets that is not deductible. This includes an amount for the decline in value of a depreciating asset to the extent the asset is used for the purposes of earning exempt income, such as exempt current pension income.

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