Capital Allowances

Capital Allowances

The Uniform capital allowance system (UCA) changed from first of July 2001. From this date, there are new rules for working out deductions for your depreciating assets, such as your plant and equipment. These new rules are part of the uniform capital allowance system or UCA.

The UCA also introduced some new deductions for business related capital expenditure that was previously not deductible. The expenditure is written off over five years. The deduction is only available for amounts incurred from 1 July 2001.

If your business earns income that is not assessable, such as exempt income, your deduction is reduced.

The UCA allows a deduction over five years for capital expenditure to establish your business structure. Your business structure means the entity, such as a company or trust that carries on your business and holds the business assets. However, if you are an individual taxpayer, the non-commercial loss rules may defer your deductions for pre and post-business expenditure.

Other types of capital expenditure that are now deductible under the UCA include the costs to stop carrying on your business and to convert your business structure to a different structure – for example, if you are a sole trader and decide to start carrying on your business through a company. These costs may also be written off over five years. The relevant expenditure is deductible to the extent that the sole trader business was, and the company business is proposed to be, carried on for a taxable purpose.

Small businesses can use the simplified depreciation rules as an alternative to the uniform capital allowances (UCA) rules to work out deductions for most depreciating assets.

Business means the individual, partnership, company or trust that carries on the business activity.
Small business means ‘small business entity’, which is an individual, partnership, trust or company with aggregated turnover of less than $2 million.

In general, you can:

  • Immediately write off most depreciating assets costing less than $1,000 each,
  • Pool most other depreciating assets (irrespective of their effective life) in the general small business pool and depreciate at the rate of 30%
  • Depreciate most newly acquired assets at 15% in the first year, regardless of when they were acquired during that year
  • Claim an accelerated initial deduction for motor vehicles.