When is an expense not an expense? When it is an asset. The accounting definition of an asset is an item that has a life of more than 12 months.

The ATO has reams of tables concerning the effective life of assets. This then dictates the depreciation rate for the asset. Carpet, for example, has a life of 10 years according to the ATO. The depreciation rate would therefore be 10% using the straight line method, or 20% using the diminishing value method. That means that if you spend $4000 on carpet on 1 July, the depreciation expense in the first year would be $800 under the diminishing value method.

A couple of other rules apply to assets. If an asset costs less than $300, or $600 if the property is owned by a couple, then it doesn’t have to be depreciated – it can be immediately written off. And if an asset cost less than $1000, or $2000 if owned by a couple, then it can be added to a ‘low value pool’ and can be depreciated at 18.75% in the first year, and 37.5% in the second. Gobbledygook?

Your accountant can translate it for you.


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