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. Depreciating assets include such items as computers, electric tools, furniture and motor vehicles.

Land and items of trading stock are specifically excluded from the definition of depreciating asset. Most intangible assets are also excluded from the definition of depreciating asset. Improvements to land or fixtures on land (for example, windmills and fences) may be depreciating assets and are treated as separate from the land, regardless of whether they can be removed or not.

The decline in value of a depreciating asset is worked out on the basis of its effective life. Generally, the effective life of a depreciating asset is how long it can be used for a taxable purpose. Because of this, the cost of capital assets used in gaining assessable income can be written off over a period of time as tax deductions. However, a new law was passed that allow small business to claim an immediate deduction for assets they start to use – or have installed ready for use – provided each depreciable asset costs less than $20,000. The entire cost of the asset must be less than $20,000, irrespective of any trade-in amount. The amount is GST-exclusive amount if you are registered for GST. It applies to new or second hand assets and is available for each asset acquired.

This measure started 7.30pm (AEST) 12 May 2015 and will end on 30 June 2017.

Assets that cost $20,000 or more (which can’t be immediately deducted) will continue to be deducted over time using a small business pool. Also a few items are specifically excluded from immediate assets deductibility rules, like some horticultural plants and any software developed in-house by a business.

For more information about decline in value deductions as well as any other tax related queries submit an online enquiry or call us on (02) 9223 9166.