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Tax Facts – Depreciation Allowances

Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income for tax purposes. The rules that apply to small businesses can be found at:

You must claim depreciation on fixed assets used in your business that have a useful lifespan of more than 12 months.

Not all fixed assets can be depreciated. Land is a common example of a fixed asset that cannot be depreciated.

You will have to keep a fixed asset register to show assets you will be depreciating. This should show the depreciation claimed and adjusted tax value of each asset. The adjusted tax value is the asset’s cost price, less all depreciation calculated since purchase.

In most circumstances you can choose between the diminishing value and straight line methods of calculating depreciation.

Diminishing Value Depreciation

The amount of depreciation is worked out on the adjusted tax value of the asset. This value is the original cost less any depreciation already claimed in previous years. If you are registered for GST the original cost price should not include GST you have already claimed in your BAS.

Straight line Depreciation

Depreciation is calculated on the original cost price of the asset, and the same amount is claimed each year. If you are registered for GST, the cost excludes any GST you have already claimed in your BAS.

You do not have to use the same depreciation method for all your assets, but you must use whatever method you choose for an asset for the full year. The method used for an asset can be changed from year to year.