Depreciation vs. Full Claim – What Are The Benefits to You?

Information verified correct on October 29th, 2016

tax-timeThis tax year business will have two options for tax relief on asset purchases, but which is better?

The Australian Taxation Office (ATO) defines depreciation as, ‘an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Depreciating assets include such items as computers, electric tools, furniture and motor vehicles.’

Now, in plain English that means that depreciation is how much the ATO says that assets decrease in value as they age. Each tax year it is possible for taxpayers to claim depreciation on assets that they own, by claiming the loss of value that the aging of your assets has cost you.

What’s a full claim?

This year, however, the government also announced a tax claim that would allow small businesses to write off the entire cost of any asset purchase less than $20,000. This is designed to increase spending and to allow small business the opportunity to grow.

Which is better?

Business have always been able to claim some tax relief on capital assets through depreciation, but now the $20,000 write off will give them another option. So which is best? First of all, remember that is not here to give financial or tax advice, our role here is to help you understand your options, the final decision must be made by you and any registered financial assistance that you opt for.

There are really two ways to reach the answer to the question which is better. Firstly, you should remember that in order to reclaim the tax of an asset purchase up to $20,000, you first have to purchase assets worth that much. That’s a significant purchase, especially for a small business, and should only be taken with significant thought and a thorough cost/benefit analysis.

If at the end of this you decide that your business can afford the purchase and it will benefit the growth of the business then you will probably find that the full claim is better for you, as cash flow is always a high priority and claiming in this way means the benefits will be felt this year rather than over the course of the next several years as would be the case with claiming depreciation. However, this will change depending on the circumstance of your business. If you’re unsure, seek professional financial help.

If you’re thinking buying a capital asset to take advantage of the $20,000 tax claim, then be sure that you’re doing it for the right reasons. Remember, this isn’t free money, and whatever you buy should add meaningful value to your business. This tax year business will have two options for tax relief on asset purchases, but which is better?

DISCLAIMER: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information applicability to their own particular circumstances.

Shirley Liu

Shirley is's publisher for banking and investments. She is currently studying a Masters in Commerce (Finance) and is the author of hundreds of articles. She is passionate about helping Aussies make an informed decision, save money and find the best deal for their needs.

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