Self Assessment of Depreciation Rates

Choosing to self-assess effective life

When you choose to self-assess the effective life of your depreciable assets, or perhaps are considering the advantages, how do you go about it?

What factors are taken into account?

The Tax Office provides some detailed guidance contained as additional information with the Commissioner’s Effective Life schedules. The substance of that advice is to follow the same methodology the Tax Office itself uses.

There is one crucial difference: The Tax Office assesses effective life according to what may be considered as “normal” patterns of use in typical circumstances. If the circumstances of your industry or asset usage are not typical, a self-assessment method of determining effective life which takes into account factors specific to your situation, may be a preferred (i.e. more tax effective) choice.

Such specific factors may imply a shorter asset life than normal, and there may be some advantage in using a self-assessment to accelerate depreciation claims. (However note that depending on your circumstances, there could also be disadvantages to accelerating tax depreciation deductions, something that should be weighed up by comparing the net income of adjacent tax years – and to be carefully reviewed with your professional tax advisor).

The Tax Office details the effective life assessment methodology in their Effective Life tables publications.

Relevant Factors

The effective life assessment methodology outlined by the Tax Office is worth studying in full, if you are considering going down that road. The following is an extracted non-exhaustive list of relevant factors to consider when making an effective life determination. They include:

  • the physical life of the asset;
  • engineering information;
  • the manufacturer’s specifications;
  • the way in which the asset is used by an industry;
  • the past experience of users of the asset;
  • the level of repairs and maintenance adopted by users
    of the asset;
  • industry standards;
  • the use of the asset by different industries;
  • retention periods;
  • obsolescence;
  • scrapping or abandonment practices;
  • if the asset is leased, the period of the lease;
  • economic or financial analysis indicating the period over which that asset is intended for use; and
  • where the asset is actively traded in a secondary
    market, conditions in that market.

The Commissioner only makes determinations in respect of new assets. If you buy a second-hand asset whose condition indicates a shorter life, then you can choose to take that into account by means of a self assessment.

See also: Effective life of an asset

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This page was last modified on 2018-12-06