Depreciation and Capital Expenses and Allowance

You generally can’t deduct spending on capital assets immediately; instead you claim the cost over time, reflecting the asset’s depreciation (or decline in value). This applies to any taxpayer who uses depreciating assets to earn assessable income, including:

  • businesses, small and large
  • rental property investors
  • employees (for equipment and tools they provide at their own expense for use in their work).

A depreciating asset is one that has a limited effective life and can reasonably be predictable to decline in value over the time it’s used. Land, trading stock and some intangible assets are not depreciating assets.

Small businesses (those with an aggregated annual turnover of less than $2 million) can choose to use easy depreciation rules, which among other concessions allow you to instantly write off assets that cost less than $20,000 each Other businesses and persons (including property investors and employees) use the general depreciation rules, which set out the amounts (capital allowances) that can be claimed, based on the asset’s efficient life.

Under the general depreciation rules, a direct write-off applies to:

  • items costing up to $100 used to earn business income (but note the higher immediate write-off limit for small businesses mentioned above)
  • items costing up to $300 used to earn income other than from a business (such as employee-provided tools and equipment)

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