Private ruling: Depreciation
Date of advice: 17 February 2017
Published: July 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Can shed structures be claimed under Division 40 as depreciating assets? | A1: Yes. | Q2: Can the small business instant write-off apply to assets which cost less than $20,000.00? | A2: Yes.

Relevant facts and circumstances: You are a small business entity. You completed a farming project in the 2017 income year. Part of the project included shed structures. You have some assets which meet the instant write-off rules which were purchased for less than $20,000.00.

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. | Detailed Reasoning - 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. TR 2016/1 lists the following farming related assets as depreciating assets: ● Cattle yards ● Sheds ● Yards and races ● Cattle laneways ● The above items are depreciating assets and include the entire structure, walls, floors and roof. You are able to depreciate these assets under division 40 of the ITAA 1997. | Detailed Reasoning - Instant Asset write-off: On 12 May 2015 the government introduced the instant asset write-off for assets costing less than the threshold of $20,000.00. Assets purchased after EST 7.30 on 12 May 2015 are able to be immediately written off if they cost less than $20,000.00. Any depreciating assets that cannot be written off immediately are allocated to the small business pool.