Last modified: 13 July 2020
Capital allowances: effective life reviews
What is a depreciating asset’s effective life?
A depreciating asset’s effective life, as used in the Income Tax Assessment Act 1997 (ITAA 1997), is the period of time over which it can be used by any entity to produce assessable income:
- if it is subject to wear and tear at a reasonable rate
- if it is maintained in reasonably good order and condition
- considering the period within which it is likely to be scrapped, sold for no more than scrap value or abandoned.
The effective life of a depreciating asset is used to work out the asset’s decline in value for which an income tax deduction can be claimed.