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"The Uniform Capital Allowance (UCA) system
provides a set of general rules that applies across a variety of
depreciating assets and certain other expenditure" (ATO Guide to
depreciating assets 2008, p.3). These rules were change in 2001 and
provide a means to deduct the cost of a range of depreciating assets
by all taxpayers where the assets are used to generate assessable
income.
A depreciating asset is one that's effective life
is limited, and can reasonably be expected to decrease in value over
its useful life. However, the following are not depreciating assets:
A depreciating asset can be any asset used in the
course of generating assessable income which has a limited useful
effective life and does not include the following.
- Land;
- Trading stock;
- Most intangible assets, such as Goodwill but
there are exceptions which include intellectual property and
in-house software.
Under the UCA system there are two options for
calculating the decline in the value of an asset:
Depreciation, under the UCA system can be
calculated using two methods just as before and these are:
- Prime cost method where the decline in value
is a straight line reduction over the effective life of the
asset;
- Diminishing value method – is a rapid
depreciation method which is calculated as a percentage based on
twice the effective life of the asset and a function of the
closing written down value from the previous year; it has not
changed indeed, other than the fact the prior to 2001 the
calculation was 1.5 times and not 2 times the rate of decline.
Now the ATO will allow recalculation of the
effective life of an asset where necessary. If an asset is improved
by a factor greater than 10% will result in a requirement to
recalculate the effective life of an asset.
If your turn over is less than $2million per annum
you can elect to be a small business entity and that will entitle
you to an immediate write off of assets costing less than $1,000
with a requirement that your assets be pooled. Pooling in a General
Pool affords you rapid depreciation at a diminishing rate of
15% for the whole year, no matter when in the financial year the
asset had been purchased with subsequent years calculated at 30%
diminishing value rate. Other long life assets are pooled in a Long
Life Pool where the first year depreciation is at 2.5% no
matter when in the year the asset was acquired with subsequent years
calculated at 5% diminishing value method.
More information may be obtained:
Guide to depreciating assets 2007-2008
and the
Capital Allowances homepage on the ATO website.
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