Income tax, CGT and entities

Depreciation (decline in value)

Depreciation, which the tax law calls the decline in value of a depreciating asset, is the deduction available for the cost of an asset used to produce income, spread over its effective life. The Income Tax Assessment Act 1997 sets the rules, and an entity can generally work out the deduction using either the prime cost method or the diminishing value method. Assets used partly for private purposes are only deductible for the business or income-producing share. The ATO publishes effective life guidance for common assets. Tax depreciation often differs from the depreciation in the accounts, so the reconciliation records the difference. A register of assets with dates and costs supports every figure.

General information, not tax advice. The rules change, so check the source page above for the current position. Fedix is developed by Tax7 R&D Pty Ltd.