Guide to depreciating assets 2013 - Australian Taxation Office

Accelerated depreciationFor plant acquired between 27 February 1992 and 11.45am(by legal time in the ACT) on 21 September 1999, acceleratedrates of depreciation and broadbanding were available. Therates were based on effective life adjusted by a loading of 20%and broadbanded into one of seven rate groups. The loading,together with the broadbanding, produced accelerated ratesof depreciation.Generally, accelerated rates of depreciation have not beenavailable for plant acquired after 11.45am (by legal time in theACT) on 21 September 1999. To be taken to be plant acquiredbefore that time, the plant must have been:n acquired under a contract entered into before that timen constructed, with construction starting before that time, orn acquired in some other way before that time.However, small business taxpayers have been able to continueto use accelerated rates for plant acquired after 21 September1999 but before 1 July 2001 if they met certain conditionswhen the plant was first used or installed ready for use.Small business taxpayers have not been able to useaccelerated rates of depreciation for assets they:n started to hold under a contract entered into after30 June 2001n constructed, with construction starting after 30 June 2001, orn started to hold in some other way after 30 June 2001.You continue to use accelerated rates to work out the declinein value under the UCA if:n you used accelerated rates of depreciation for an item ofplant before 1 July 2001, orn you could have used accelerated rates had you used theplant, or had you had it installed ready for use, for producingassessable income before that day.You replace the effective life component in the formula forworking out the decline in value with the accelerated rate youwere using. For a list of Accelerated rates of depreciationsee page 38.EXAMPLE: Working out decline in value usingaccelerated rates of depreciation, ignoring anyGST impactPeter purchased a machine for use in his business for$100,000 on 1 July 1999.As the machine was acquired before 21 September1999, Peter can use accelerated rates of depreciation tocalculate his deductions. Using the prime cost method,a depreciation rate of 7% applies as the machine has aneffective life of 30 years.To work out his deduction for the 2012–13 income year,Peter continues to use the same cost, method and ratethat he was using before the start of the UCA.The decline in value of the machine for the 2012–13 incomeyear is $7,000, worked out as follows:asset’s cost 5100,000 5*can be 366 in a leap yeardays held*3653653655 prime cost rate5 7%Decline in value of a depreciating assetused for a non-taxable purposeYou calculate the decline in value and adjustable value of adepreciating asset from the start time independently of your useof the depreciating asset for a taxable purpose. However, youreduce your deduction for the decline in value to the extent thatyour use of the asset is for a non-taxable purpose.If you initially use an asset for a non-taxable purpose, such asfor a private purpose, and in later years use it for a taxablepurpose, you need to work out the asset’s decline in value fromits start time including the years you used it for a private purpose.You can then work out your deductions for the decline in value ofthe asset for the years you used it for a taxable purpose.EXAMPLE: Depreciating asset used partly fora taxable purpose, ignoring any GST impactLeo purchased a computer for $6,000 and used it only50% of the time for a taxable purpose during the incomeyear. If the computer’s decline in value for the income year is$1,500, Leo’s deduction would be reduced to $750, being50% of the computer’s decline in value for the income year.The adjustable value at the end of the income year would be$4,500, irrespective of the extent of Leo’s use of the assetfor taxable purposes.EXAMPLE: Depreciating asset initially usedfor a non-taxable purposePaul purchased a refrigerator on 1 July 2010 andimmediately used it wholly for private purposes. He starteda new business on 1 March 2013 and then used therefrigerator wholly in his business. Paul’s refrigerator startedto decline in value from 1 July 2010 as that was the dayhe first used it. He needs to work out the refrigerator’sdecline in value from that date. However, Paul can onlyclaim a deduction for the decline in value for the periodcommencing 1 March 2013 when he used the refrigeratorfor a taxable purpose.Decline in value of leisure facilitiesYour deduction for the decline in value of a leisure facilitymay be reduced even though you use it, or install it readyfor use, for a taxable purpose. Your deduction is limited tothe extent that:n the asset’s use is a fringe benefit, orn the leisure facility is used (or held for use) mainly in theordinary course of your business of providing leisure facilitiesfor payment, to produce your assessable income in thenature of rents or similar charges, or for your employees’use or the care of their children.Decline in value of boatsYour deduction for the decline in value of a boat that you useor hold may be reduced if the total of the amounts that youcould otherwise deduct in respect of the use or holding of theboat exceeds your assessable income from using or holdingthe boat. The total amount of the deductions is reduced bythe amount of the excess.8 ato.gov.au GUIDE TO DEPRECIATING ASSETS 2013