Private ruling: Depreciation
Date of advice: 21 September 2016
Published: November 2016
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Question and answer | Is the vehicle a depreciating asset for the purposes of section 40-25 of the Income tax Assessment Act 1997 ? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are a business. You purchased a vehicle to use in your business. The vehicle is currently not being used in the business.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 40-25

Reasons for decision: Summary: Deductions for capital expenditure on assets used to produce assessable income will generally be available under either: (a) Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) for depreciating assets, or (b) Division 43 of the ITAA 1997 for capital works. Depreciating assets A depreciating asset is an asset that has a limited effective life and can be expected to decline in value over the time it is used. Section 40-25 of the ITAA 1997 allows you a deduction equal to the decline in value of a depreciating asset to the extent to which it is used to produce assessable income or is installed ready for use for that purpose. The decline in value is calculated by spreading the cost of the asset over its effective life. You can use one of two methods, either the prime cost method or diminishing value method, to calculate the deduction. If the asset is only used for part of the year, any deduction should be apportioned on a pro-rata basis. Once you have made the choice on which method you are going to use for an asset you cannot change the method. An asset's effective life is either self-assessed or determined by the Commissioner. Taxation Ruling TR 2016/1 lists the effective life of various assets as determined by the Commissioner. Depreciating assets include plant, articles, machinery, tools and rolling stock. The vehicle is not currently being used as part of the business and is therefore not a depreciating asset under section 40-25 of the ITAA 1997.