Depreciation & Capital Allowances

When you buy products and even services, they can be classified as either Fixed Assets or Expenses. If they are expenses they are generally tax deductible in the year you purchase them.

If the products or services are classified as Fixed Assets you obtain a tax deduction based over the life of the asset, this means that you can claim a tax deduction over the current year and or future years.

Fixed assets are tangible property that a business uses in the process of producing income. To qualify as a fixed asset, the item cannot be consumed or sold in less than a year.  Fixed assets are listed on your balance sheet and are subject to depreciation.

Depreciation (or Capital Allowances) are the two methods of allocating the cost of a tangible (Fixed) asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes.

The ATO provides rulings and rates for particular items of equipment and simplifies this for Small Business Entities (“SBE”), businesses that have turnover of less than $2million, the depreciation for these businesses is briefly:

  • for fixed assets <$1,000 written off in the year the cost was incurred.
  • for fixed assets above >$1,000
    • 15% in the first first year and
    • 30% thereafter
  • for assets excluded see the ATO link below

See the <ATO SBE link> definition of a SBE.

See the <ATO SBE Depreciation link> for depreciation for small business

Another method for claiming deductions for Fixed Assets is Capital Allowances, see what the ATO has to say on <Capital Allowances>.

Finally, Fixed Assets can includes buildings (residential or commercial) which are also depreciated but it is called Capital Works Deductions, click here to find out more <Capital Works Deductions >.