GUIDANCE ON EFFECTIVE LIFE OF TRUCKS & TRAILERS
FROM AUSTRALIAN TAXATION OFFICE
Depreciation and capital expenses and allowances - secondary
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Capital allowances: statutory caps on the effective life of buses, light
commercial vehicles, minibuses, trucks and truck trailers
http://wNw.ato.qov.au/Business/Depreciation-and-capital-expenses-and-~llowances/ln-detaii/Effective-life/StatutoN-cap/Capita!­
allowances--statutorv-caps-on-the-effective-life-of-buses -lig~t-commercial-vehicles.-minibuses -trucks-and-truck-trailers/
(http://www.ato.qov.au/Business/Depreciation-and-capital-expenses-and-allowances/ln-detaii/Effective-life/Statutorv-cap/Capitalallowances--statutorv-caps-on-the-effective-life-of-buses.-light-commercial-vehicles -minibuses -trucks-and-truck-trailersD
Last modified: 01 May 2013
QC 18153
Capital allowances: statutory caps on the effective life of buses, light
commercial vehicles, minibuses, trucks and truck trailers
Statutory caps apply to the Commissioner's determinationS of the effective life of certain depreciating assets including buses, light'
commercial vehicles, trucks and truck trailers. This came into effect o~ 1 January 2005. Statutory caps are also known as legislative caps.
Taxpayers who choose to use the Commissioners determination of effective life for these depreciating assets must use the shorter of the
capped effective life and the Commissioners determined effective !ife.
What do the statutory caps apply to?
The caps apply to certain buses, light commercial vehicles, trailers and trucks (as described in the table below) which· are acquired and first
used for any purpose on, or after, 1 January 2005. The change is contained in Tax Laws Amendment (2005 Measures No. 1) Act 2005,
which received Royal Assent on 29 June 2005.
What is effective life?
The effective life is the period that the asset can be used by anyone for income producing purposes. The decline in value of a depreciating
asset is worked out using the asset's effective life. The effective life is worked out assuming that the asset will be maintained in reasonably
good order and condition, and that it will be subject to wear and tear that is reasonably expected based on the circumstances of its use.
How do the statutory caps on effective life work?
For most depreciating assets, you can choose to adopt the Commissioner's determination, or to self-assess the effective life. For
depreciating assets affected by the statutory caps you still have this choice. However, if you choose to use the Commissioners
determination, you must then use the shorter of the capped effective life and the Commissioner's determined effective life.
The Commissioner's determination of effective life and the capped effective life of the depreciating assets affected by these statutory caps
are compaied in the.table below. The capped effective life is shorter for all of the affected assets. Therefore, if you choose to use the
Commissioners determination, you must use the capped effective life as set out in the table.
Depreciating asset
Commissioner's
determination
of effective life
Capped
effective life
Buses with a gross vehicle mass
of more than 3.5 tonnes
15 years
7.5 years
Garbage compactor trucks
(including the qompactor)
10 years
7.5 years
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Depreciation and capital expenses and allowances - secondary
Light commercial vehicles with a
12 years
7.5 years
Minibuses with a gross vehicle
mass of 3.5 tonnes or less and
seats for 9 or more passengers
12 years
7.5 years
Trailers with a gross vehicle
15 years
10 years
15 years
7.5 years
Page 2 of3
carrying capacity of one tonne or
greater and a gross vehicle
mass of 3.5 tonnes or less
(including utilities, vans, and
light trucks)
mass greater than 4.5 tonnes
Trucks having a gross vehicle
mass greater than 3.5 tonnes
(other than a truck that is used in
mining operations and that is not
of a kind that can be registered
to be driven on a public road in
the place in which the truck is
operated)
Example
John purchased a truck (with a gross vehicle mass in excess of 3.5 tonnes) on 1 January 2005 and started using it immediately in his
business. John chose to use the effective life determined by the Commissioner. The effective life of John's truck as determined by the
Commissioner is 15 years. As the capped effective life of the truck of 7.5 years (row 5 of the table) is shorter than the Commissioner's
effective life, John must use the capped e~ective life.
Legislative references
Q)
Tax Laws Amendment (2005 Measures No. 1l Act 2005: Chapter 2 -Effective life of assets declining in value
lhttp:Uiaw.ato.goV.au/atolaw/view.htm?docid-NEM/EM200523/NAT/AT0/00004).
The Commissioner's determined effective life of the depreciating assets affected by these statutory caps can be found in the
schedules attached to the various effective life Taxation rUlings, accessible fr_om Capital allowances: rulings. law and objections
UBusiness/Depret:iation-and-capital-expenses-and-allowancesl!n-detaii/Rulinqs-and-law/Capital-allowances--law-and-rulingsD.
More information
Speak to your tax adviser
Refer to Capital allowances: calculating the decline in value of a deoreciatinq asset UBusiness/Depreciation-and-capital-expenses-andallowances/ln-detaii/Depreciatinq-assets!Uniform-capital-allowance-system--calculating-the-decline-in-value-of-a·depreciatinq-assetD
for advice on self-assessing effective life
Read an overview of effective life and the review process UBusiness/Deoreciation-and-capital-expenses-and-allowances/lndetaii/Effective-life/lnformation/Capital-allowances--effective-life-reviewsD
Phone us on:
- 13 28 66 - for business tax enquiries
- 13 28 61 -for personal tax enquiries.
10
Go to the Capital allowances home page C/Business/Depreciation-and-capital-expenses-and-allowances/l.
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Income and deductions for business - secondary
•
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•
Australian Gmwnment
Aumalian Taution Office
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Uniform capital allowance system: calculating the decline in value of a
depreciating asset
http://www.ato.qov.au/Business/lncome-and-deductions-for-business/ln-detaii/Capital-allowances/Uniform-capital-allowance-systemn
calculatinq-the-decline-in-value-of-a-depreciating-asseV (http://WNW.ato.gov.au/Businessl!ncome-and-deductions-for-business/lndetaii/Capital-allowances/Uniform-capita!-a!lowance-system--calculating-the-decline-in-value-of-a-depreciatinq-asseU)
Last modified: 09 Jul2015
QC 16297
Uniform capital allowance system: calculating the decline in value of a
depreciating asset
What is the uniform capital allowance system?
From 1 July 2001 the uniform capital allowance (UCA) rules apply to most depreciating assets. Taxpayers calculate deductions for the
decline in value of their depreciating assets using these new rules.
The UCA system consolidates a range of former capital allowance provisions including those relating to plant and equipment. It does this
by providing a set of general rules to calculate a deduction for the decline in value of most depreciating assets. It maintains some
concessional tax treatments such as those applying to primary production depreciating assets and expenditure. It also introduces new
deductions for certain types of capita! expenditure that did not previously attract a deduction.
Q)
If you are using the simplified depreciation rules you generally will not use the UCA rules. Under the simplified
depreciation rules, you can claim an immediate deduction for most depreciating assets costing less than $1,000 and
pool most other depreciating assets.
You can use the simplified depreciation rules if you are a small business entity (2007-08 and later income years).
You must use the simplified depreciation rules for income years whe.re you were in the simplified tax system (2006-07 and earlier
·
income years).
For more information see ato.qov.au/sbconcessions Usbconcessions)
When does a depreciating asset start to decline in value?
http://www.ato.qov.au/Business/lncome-and-deductions-for-business/ln-detaii/Capital-allowances/Uniform-capital-allowance-system-calculatinq-the-decline-in-value-of-a-depreciatinq-assetOpage 2 (http://www.ato.qov.au/Business/lncome-and-deductions-forbusiness/Jn-detaii/Capital-a!lowances/Uniform-capital-allowance-system--calculatinq-the-decline-in-value-of-a-depreciatinq-assetJ?
page 2)
Last modified: 09 Jul 2015
QC 16297
Under the uniform capital allowance (UCA) a depreciating asset starts to decline in value when you first use it (or install it ready for use) for
any purpose, including a private purpose. However, a deduction for the decline in value is.only allowable to the extent the asset is used for
a taxable purpose. This means that if you initially use an asset for a private purpose and in later years use it for a taxable purpose (such as
in a business), you need to work out the asset~s decline in value over the period of its private use before you can work-out the decline in
value for the period you used it for taxable purposes.
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Income and deductions for business - secondary
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Example
Robyn purchased a car on 1 July 2013 for $25,000. She used the car entirely for private purposes until1 March 2014 when she
started a new business. The car was then used wholly for business purposes. The car started to decline in value from 1 July 2013
because it was being used from that date but no part of the decline was an allowable deduction before 1 March 2014 because the
car was not used for a taxable purpose before that date.
How do you work out the decline in value?
http://wwN.ato.qov.au/Businessl!ncome-and-deductions-for-business/ln-detaii/Capital-allowances/Uniform-capital-allowance-system-calculating-the-decline-in-value-of-a-depreciating-assetf?paqe=3 (http://w.Nw.ato.gov.au/Business/lncome-and-deductions-forbusinesslln-detaii/Capital-allowances/Uniform-capital-allowance-system--calculating-the-decline-in-value-of-a-depreciatinq-asset/?
page=3l
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QC 16297
You decide whether to calculate the decline in value of a depreciating asset using the prime cost or diminishing value method. In some
cases, you must use the same method used by the former holder of the asset- for example, if you acquire the asset from an associate
such as your spouse or business partner. For some intangible depreciating assets, including an item of intellectual property, you must
always use the prime cost method.
Under the prime cost method the decline in value is generally calculated as a constant percentage of the
uniform dec!ine in value over time. The formula is:
X
asse~s
cost and reflects a
100%
asset's effective life
The cost of an asset includes both the amount you pay for it as well as any additional amounts you spend on transporting it and installing it
in position. Cost also includes amounts you spend on improving the asset.
In some circumstances, such as when you change the effective life or cost of an asset, an adjusted prime cost formula must be used. For
more information, refer to Uniform capital allowance system: changing a depreciating asse~s effective life UBusiness/Depreciation-andcapital-expenses-and-allowances/ln-detaii/Depreciating-assets/Uniform-capital-allowance-system--changing-a-depreciatinq-asset-seffective-lifeD.
Under the diminishing value method the decline in value is calculated using the asset's base value. The base value of an asset is,
broadly, its cost plus any costs incurred on the asset since you first held it (say, on improvements) less the decline in value of the asset up
to the end of the prior year.
The formula for the diminishing value method is:
decline in value
150%
asset's effective life
=
if you started to hold the asset prior to 10 May 2006
decline in value
base value
X
days held
365
X
200%
asset's effective life
if you started to hold the asset on or after 10 May 2006.
This method assumes that the decline in value each year is a constant proportion of the amount not yet written-off and produces a
progressively smaller decline in value over time.
Example
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Income and deductions for business - secondary
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Depreciating Asset Pty Ltd acquires an asset for $10,000 on 1 July 2013 and starts to use it wholly for taxable purposes from that
day. The effective life of the asset is 10 years.
If Depreciating Asset Pty Ltd chose to use the diminishing value method to calculate the
deductions over the next two years would be:
asse~s
decline in value, the company's
=
2013-14 income year -10,000 x 365/365 x 200%/10 $2,000
2014-15 income year- (10,000- 2,000) x 365/365 x 200%/10 = $1,600.
If the company chose to use the prime cost method to calculate the asset's decline in value, the deductions over the two years
would be:
=
2013-14 income year -10,000 x 365/365 x 100%/10 $1,000
2014-15 income year -10,000 x 365/365 x 100%/10 = $1,000.
Example
A deduction for the decline in value of a depreciating asset is reduced by the extent it is not used for a taxable purpose. For
example, if an asset is used 40% of the time for a private purpose, the deduction for its decline in value is reduced·by 40%.
The decline in value of certain assets costing $300 or less will be the cost, that is, you will be entitled to an immediate.deduction.
For more information on which assets may be eligible for this deduction, refer to Uniform capital allowance system: $300 immediate
deduction UBusiness/Oepreciation-and-capital-expenses-and-allowances/ln-detailfdeductions/caoital-allowances--$300-immediatededuction-testsD.
What is effective life?
http://~.NNVV.ato.gov.au/Business/Jncome-and-deductions-for-business/ln-detaii/Capital-allowances/Uniform-capital-allowance-system-­
calculating-the-decline-in-value-of-a-depreciating-assetOpage-4 fhttp://wvyw.ato.gov.au/Business/lncome-and-deductions-forbusiness/!n-detailfCapital-allowances/Uniform-capital-allowance-system--calculatinq-the-dec!ine-in-value-of-a-depreciatinq-asset(?
page-4)
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OC 16297
The decline in value of a depreciating asset is generally based on the effective life of the asset. The effective life of a depreciating asset is,
broadly, the period that it can be used by anyone for income-producing purposes, assuming it will be subject to the wear and tear you
reasonably expect from your expected circumstances of use and assuming it will be maintained in reasonably good order and condition.
You decide whether to make your own estimate of a depreciating asset's effective life or to adopt the Commissioner's determination. If you
choose the latter, use the schedules attached to the effective life ruling (currently Taxation Ruling TR 2015/2
(http:l/!aw.ato.gov.au/atolaw/view.htm?docid=%22TXR%2FTR20152%2FNAT%2FAT0%2F00001 %22) ) for depreciating assets acquired
from 1 January 2001. For acquisitions before that date, use the schedule attached to Taxation Ruling IT 2685 (withdrawn)
(http:Uiaw.ato.gov.au/atolaw/view.htm?Docid~ ITRnT2685/NAT/AT0/00001 &PiT -99991231235958} .
(D
Find out more
ATO Legal Database references:
Taxation Ruling TR 2015/2 (current) (http:Uiaw.ato.qov.au/atolaw/view.htm?docid=%22TXR%2FTR20152%2FNAT%2FATO%
2F00001 %22}
Taxation Ruling IT 2685 <withdrawn) (http://law.ato.gov.au/atolaw/view.htm?
Docid-ITR/IT2685/NAT/AT0/00001 &PiT -99991231235958}
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Income and deductions for business - secondary
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In some situations, you do not have a choice of self-assessing or adopting the Commissioner's determination. For example, if you acquire
the asset from an associate (such as your spouse or business partner), you must use the same effective life that your associate used {if
they used the diminishing value method) or the effective life that is yet to elapse (if they used the prime cost method). For some intangible
depreciating asse~s, including items of intellectual property, the effective life is set out in the uniform capital allowance rules so you cannot
self-assess.
How do you make your own estimate of a depreciating asset's effective life?
http:!IWWN.ato.qov.au/Business/lncome-and-deductions-for-business/ln-detaii/Capital-allowances/Uniform-capital-allowance-system-calculatinq-the-decline-in-value-of-a-depreciatinq-assetOpaqe-5 (http:/fww.N.ato.qov.au/Business/Jncome-and-deductions-forbusiness/ln-detaii/Capital-a!lowances/Uniform-capital-allowance-system--calculatinq-the-decline-in-value-of-a-depreciatinq-assetO
page 5)
Last modified: 09 Jul 2015
QC 16297
You work out the effective life of a depreciating asset as at the time it is first used or installed ready for use for any purpose. The estimate
should take into account:
how you expect to use the asset
what rate of wear and tear you .would reasonably expect from that.use assuming the asset is maintained in reasonably good order and
condition
how long the asset could, in these circumstances, be used to produce income (irrespective of who used it)
any proposal to scrap or abandon the asset that would otherwise cut short its use for income Producing purposes.
In making your estimate, you need to take into account relevant-factors such as the manufacturer's specifications, independent engineering
information and your particular experience with similar assets.
If you chOose to make your own estimate of effective life, you need to indicate this at the appropriate place on your capital allowances
schedule- if you are required to lodge a schedule with your income tax return.
Can you alter the effective life you are using?
http://www.ato.qov.au/Business/lncome-and-deductions-for-business/ln-detaii/Capital-allowancesfUniform-capital-allowance-system-ca!culatinq-the-decline-in-value-of-a-depreciatinq-assetOpage 6 (http://wvvw.ato.qov.au/Business/lncome-and-deductions-forbusinessl!n-detaii/Capital-allowancesfUniform-capital-allowance-system--calculatinq-the-decline-in-value-of-a-depreciating-asset/?
page 6)
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QC 16297
You can choose to recalculate the effective life you aie usirm for an income year if your circumstances of use change and the effective life
you have been using is no longer accurate. You can do this irrespective of whether you are using our estimate or your own and you can
recalculate each time your circumstances change. In addition, if you make an improvement to an asset that results in its cost increasing by
10% or more in an income year, you may be obliged to recalculate the effective life. For more information, refer to Uniform capital allowance
system: changing a depreciating asset's effective·life UBusiness/Depreciation-and-capital-expenses-and-allowances/ln-detaii/Depreciatinqassets/Uniform-capital-allowance-system--chanqinq-a-depreciating-asset-s-effective-lifeD.
·
How is the decline in value of assets in a low-value pool calculated?
http:/lwww.ato.qov.au/Businesslincome-and-deductions-for-business/ln-detaii/Capital-allowances/Uniform-capital-allowance-system-calculatinq-the-decli ne-in-value-of-a-depreci ati nq-assetOpage-7 (http :1/wvvw.ato .qov .au/Business/! ncome-and-deducti ons-forbusinessl!n-detaii/Capital-allowancesfUniform-capital-allowance-system--calculatinq-the-decline-in-value-of-a-depreciating-assetf?
page-?)
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Income and deductions for business - secondary
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QC 16297
The decline in value of certain assets with a cost or opening adjustable value of less than $1 ,ODD can be calculated through a low-value
pool at a diminishing value rate of 37.5%.
For additional information on low-value pools refer to:
Uniform capital allowance system: low-value pools Ubusiness/depreciation-and-capital-expenses-and-a!lowanceslgeneral-depreciationrules---capital-allowancesllow-value-assets-(poollD
Capital allowances: low-cost assets- sampling rule for large business UBusiness/Oepreciation-and-capital-expenses-andallowances/ln-detaii!Low-value-pools/Capital-allowances--low-cost-assets---samplinq-rule-for-larqe-businessD
Capital allowances: low-cost assets- sampling rule for small business UBusiness/Depreciation-and-capital-expenses-andallowances/ln-detaii/Low-value-pools/Capital-allowances--low-cost-assets---samp!ing-rule-for-small-businessD.
More information
http://WoNW.ato.qov.au/Business/lncome-and-deductions-for-business/ln-detai!/Capital-allowances/Uniform-capital-allowance-system-calculatinq-the-decline-in-value-of-a-depreciatinq-asset/?paqe=B (http://www.ato.qov.au/Businessl!ncome-and-deductions-forbusinessnn-detaii/Capital-allowances/Uniform-capital-allowance-system--calculatinq-the-decline-in-value-of-a-depreciatinq-assett?
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