Guide to depreciating assets 2021

1 For more information go to Guide to depreciating assets2021To help you complete your tax return for 1 July 2020 30 June 2021 Covers deductions you can claim for depreciating assets and other capital expenditureGuide for taxpayers with depreciating assetsOUR COMMITMENT TO YOUWe are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your you follow our information in this publication and it is either misleading or turns out to be incorrect, and you make a mistake as a result, we must still apply the law correctly. If that means you owe us money, you must pay it but we will not charge you a penalty. Also, if you acted reasonably and in good faith we will not charge you interest.

2 If correcting the mistake means we owe you money, we will pay it and pay you any interest you are entitled you feel that this publication does not fully cover your circumstances, or you are unsure how it applies to you, you can seek further help from have a Taxpayers Charter which will help you understand what you can expect from us, your rights and obligations and what you can do if you are not satisfied with our decisions, services or actions. For more information, go to and search for Taxpayers Charter helping you to get things right .We regularly revise our publications to take account of any changes to the law, so make sure that you have the latest information. If you are unsure, you can check for more recent information on our website at or contact publication was current at June 2021.

3 AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA, 2021 You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).PUBLISHED BYAustralian Taxation Office Canberra June 2021DE-23358 Guide TO depreciating assets 2021 1 CONTENTSA bout this Guide 2 Abbreviations used in this publication 2 Deductions for the cost of depreciating assets 2 Uniform capital allowances 2 What is a depreciating asset? 3 Who can claim deductions for the decline in value of a depreciating asset? 4 Working out decline in value 5 Immediate deduction for certain non-business depreciating assets (costing $300 or less) 11 Effective life of depreciating assets 13 The cost of a depreciating asset 15 What happens if you no longer hold or use a depreciating asset?

4 18 Low-value pools 23In-house software 25 Common-rate pools 26 depreciating assets and taxation of financial arrangements (TOFA) 27 Primary production depreciating assets 28 Capital expenditure deductible under UCA 31 Small business entity concessions 37 Certain start-up expenses immediately deductible 37 Record keeping 39 Definitions 40 Guidelines for using the depreciating assets worksheet 41 Guidelines for using the low-value pool worksheet 42 Worksheet 1: depreciating assets 43worksheet 2: Low-value pool 44 More information inside back cover2 Guide TO depreciating assets 2021 ABOUT THIS GUIDEAs a general rule, you can claim deductions for expenses you incurred in gaining or producing your income (for example, in carrying on a business) but some expenditure, such as the cost of acquiring capital assets , is generally not deductible.

5 However, you may be able to claim a deduction for the decline in value of the cost of capital assets used in gaining assessable to depreciating assets 2021 explains:n how to work out the decline in value of your depreciating assetsn what happens when you dispose of or stop using a depreciating asset, andn the deductions you may be able to claim under uniform capital allowances (UCA) for capital expenditure other than on depreciating this Guide , the words ignoring any GST impact mean that if you are not entitled to claim an input tax credit for GST for a depreciating asset that you hold, then the cost of the depreciating asset includes any should use this Guide ?Use this Guide if you bought capital assets to use in gaining or producing your assessable income and you would like to claim a deduction for the assets decline in value.

6 Also use this Guide if you incurred other capital expenditure and want to know whether you can claim a deduction for the business entity concessionsSmall business entities may choose to use simplified depreciation rules. For more information see Small business entity concessions on page and servicesTo find out how to get a publication referred to in this Guide and for information about our other services, see the inside back termsUnfamiliar terms are shown in bold when first used in this Guide . For an explanation of these unfamiliar terms, see Definitions on page USED IN THIS PUBLICATIONACT Australian Capital TerritoryCGT capital gains taxCommissioner Commissioner of TaxationEPA environmental protection activitiesforex foreign exchangeGST goods and services taxLCA low-cost assetLVA low-value assetOAV opening adjustable valueTOFA Taxation of financial arrangementsTR Taxation RulingTV termination valueUCA uniform capital allowancesDEDUCTIONS FOR THE COST OF depreciating ASSETSU nder income tax law, you are allowed to claim certain deductions for expenditure incurred in gaining or producing assessable income, for example, in carrying on a business.

7 Some expenditure, such as the cost of acquiring capital assets , is generally not deductible. Generally, the value of a capital asset that provides a benefit over a number of years declines over its effective life. Because of this, the cost of capital assets used in gaining assessable income can be written off over a period of time as tax 1 July 2001, the cost of plant (for example, cars and machinery) and software was written off as depreciation 1 July 2001, UCA apply to most depreciating assets , including plant. Under UCA, deductions for the cost of a depreciating asset are based on the decline in value of the tax obligations for businessThe practice statement Law Administration Practice Statement PS LA 2003/8 Practical approaches to low-cost business expenses, provides guidance on two straightforward methods that you can use if you are carrying on a business to help determine whether you treat expenditure incurred in acquiring certain low-cost tangible assets as revenue expenditure or capital to certain qualifications, the two methods cover expenditure below a threshold and the use of statistical sampling to estimate total revenue expenditure on low-cost tangible assets .

8 The threshold rule allows an immediate deduction for qualifying low-cost tangible assets costing $100 or less, including any GST. If you have a low-value pool (see Low-value pools on page 23), the sampling rule allows you to use statistical sampling to determine the proportion of the total purchases on qualifying low-cost tangible assets that is revenue will accept a deduction for expenditure incurred on qualifying low-cost tangible assets calculated in accordance with this practice CAPITAL ALLOWANCESUCA provide a set of general rules that apply across a variety of depreciating assets and certain other capital expenditure. UCA do this by consolidating a range of former capital allowance regimes. UCA replace provisions relating to:n plantn softwaren mining and quarryingn intellectual propertyn forestry roads and timber mill buildings, andn spectrum maintain the pre-1 July 2001 treatment of some depreciating assets and capital expenditure such as certain primary production depreciating assets and capital introduced deductions for some types of capital expenditure such as certain business and project-related costs; see Capital expenditure deductible under UCA on page TO depreciating assets 2021 3 You use these rules to work out deductions for the cost of your depreciating assets , including those acquired before 1 July 2001.

9 You can generally deduct an amount for the decline in value of a depreciating asset you held to the extent that you used it for a taxable , an eligible small business entity may choose to work out deductions for their depreciating assets using the simplified depreciation rules; see Small business entity concessions on page to work out your deductionUnder UCA, there are a number of steps to work out your deduction for the decline in value of a depreciating Is your asset a depreciating asset covered by UCA? See What is a depreciating asset? Do you hold the depreciating asset? See Who can claim deductions for the decline in value of a depreciating asset? on the next Has the depreciating asset started to decline in value? See When does a depreciating asset start to decline in value?

10 On page What method will you use to work out decline in value? See Methods of working out decline in value on page What is the effective life of the depreciating asset? See Effective life of depreciating assets on page What is the cost of your depreciating asset? See The cost of a depreciating asset on page Must you reduce your deduction for any use for a non-taxable purpose? See Decline in value of a depreciating asset used for a non-taxable purpose on page of these steps do not apply:n if you choose to allocate an asset to a pooln if you can claim an immediate deduction for the assetn to certain primary production assetsn to some assets used in rural Working out decline in value on page IS A 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.