The Uniform Capital Allowance (UCA) system provides a set of general rules that apply across a variety of depreciating assets and certain other expenditures. Simplified rules may apply in the case of small businesses.

The UCA system provides a mechanism that taxpayers can use to deduct certain capital expenditure over time, including expenditure on the acquisition of capital assets.

The effective life of a depreciating asset is limited and its value can reasonably be expected to decrease in value over its useful life. Land trading stock and most intangible assets (excluding exceptions such as intellectual property and in-house software) are not depreciating assets.

There are two options for calculating the decline in the value of an asset under the UCA system:

• Prime cost method – Decline is calculated as a % of the initial cost of the asset
• Diminishing value method – Decline for each income year is calculated on the balance of the asset’s cost that remains after the decline in value for previous income years has been considered

The ATO allows recalculation of the effective life of an asset if the circumstances of use change and the effective life initially chosen is no longer accurate.

Contact us to chat about Capital Allowances in your business.