Private ruling: Managing tax affairs
Published: September 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for the decline in value of a computer used solely to prepare your tax returns? | A1: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 25-5 | Income Tax Assessment Act 1997 Section 40-25 | Income Tax Assessment Act 1997 Subsection 40-80(2)

Reasons for decision: Summary: An expense for managing income tax affairs is deductible under section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997). This section also provides that property used for managing a taxpayer's tax affairs is considered to be property used for the purpose of producing assessable income. However it also provides that no deduction for capital expenditure can be claimed. The example given in the section states: You buy a computer to prepare your tax return. The expenditure you incur in buying the computer is capital expenditure and cannot be deducted under this section. However, to the extent that you use the computer in preparing your income tax return, you will be able to deduct the decline in value of your computer under Division 40. That is because, under this subsection, the computer is property that you are taken to use for the purpose of producing assessable income. In your case, you intend purchasing a computer for the sole purpose of completing your tax return. The cost of the computer would not be deductible as it is considered to be a capital expense. However, the use you make of the computer will be taken to be for the purpose of producing assessable income. This will enable depreciation to be claimed on the computer used for meeting your taxation obligations. Division 40 of the ITAA 1997 allows a deduction equal to the amount of the decline in value for an income year of a depreciating asset held at any time during the year. This deduction is referred to as a capital allowance deduction, is only available to the extent that the depreciating asset is used for a taxable purpose, and is generally claimed over a number of years, depending on the effective life of the asset. The effective life starts when you begin to use the asset or have it installed ready for use. Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (formerly called depreciation) of a depreciating asset owned and used, or installed for use, in the production of assessable income. An immediate deduction is available under subsection 40-80(2) of the ITAA 1997 for certain depreciating assets costing $300 or less to the extent the asset is used for a taxable purpose during the respective income year. As the computer you intend purchasing is more than $300, you can claim a deduction for the use over the effective life of the computer.

Relevant facts: You intend purchasing a computer costing in excess of $300 to be used solely to prepare your tax returns.