GRAGA AssetManager Pro v4 enables you to track your assets in accordance with Australian Tax Office (ATO) requirements, as well as depreciating assets at book value. It enables you to calculate your monthly depreciation charges and any profit or loss on the sale of your assets and easily make journal adjustments in your MYOB accounting program (or other accounting software) to reflect these changes.
Note: This material is provided solely as background information and should not be considered as professional advice. As the impact and operation of the legislation may vary according to your circumstances, MYOB recommends that you also seek competent professional advice on these matters.
The Uniform Capital Allowances System (UCA)
The Uniform Capital Allowances System (UCA) came into effect on 1 July 2001 and is compulsory for all large businesses and optional for small businesses. Small businesses have the choice of using either the UCA (non-STS) or the Simplified Tax System (STS). Note that the UCA system and non-STS system are synonymous.
The main definition of a small business is one with a turnover of less than $1 million and assets with a written-down (adjustable) value of less than $3 million dollars.
As the ATO documentation does not define a large business, it is understood that any business bigger than a small business is a large business and needs to abide by the UCA system.
Under the UCA system, the ATO has provided a number of ways to depreciate assets based on the cost and type of asset it is. Some assets costing less than $300 can be fully expensed in the same year, most assets costing less than $1000 can be pooled and software can be allocated to its own separate pool. Other assets can be depreciated using either the diminishing value or the prime cost method and adjustments can be made to either of theses methods.
The old system whereby an asset costing $300 could be fully expensed has been reintroduced, with conditions. From 1 July 2000 , if you were a large business, you lost the $300 deduction but could place small assets into a low-value pool. The $300 deduction was kept for small businesses right up to 30 June 2001 . See the ATO's publication 'Guide to depreciating assets (NAT 1996)' described in Appendix C of the User Guide for further information.
The low-value pooling system introduced from 1 July 2001 is a continuation of the system that was introduced on 1 July 2000 and it allows businesses the option to pool assets that cost, or were written down to less than $1000.
The closing balance of the low-value pool before 1 July 2000 is the opening balance of the new low-value pool, so any asset with a value of $1000 or less may be pooled. More expensive assets that have a low value, that is a written-down value of $1000 or less, can be moved to the low-value pool. Moving low-value assets to the low-value pool is at your discretion, but you cannot move assets over if they have been depreciated using the prime cost method, deal with research and development or horticulture, or cost less than $300 and were written off using the $300 rule. For example, a computer may have a value of $1100 in the second year and would be depreciated separately, but once its value dropped below $1000 in the third year, it could be transferred to the low-value pool.
Once you start using the low-value pool, any assets with a purchase value of less than $1000 must be pooled, while it is optional to transfer low-value assets (such as the computer mentioned in the example above) into the pool. Once an asset is in the pool, it cannot be taken out of the pool. Before you place a low-cost asset into the pool, you must estimate its business versus private use percentage over its effective life. The ATO calls this the asset's taxable purpose proportion. Make sure you estimate your private use of the asset before you put the asset into the low-value pool because once you decide upon that usage, you cannot change it.
In the first year, newly pooled assets are depreciated at 18.75 percent per annum. This is irrespective of the date it was purchased. For example, it would not matter if the printer was purchased on
1 July 2001 or 30 June 2002 , it would still be depreciated at 18.75 percent for the year. In the second year, low-value pool assets are depreciated at 37.5 percent per annum. Low-value assets optionally assigned to the pool are depreciated at 37.5 percent from the first year.Assets costing more than $1000 are tracked individually and can be depreciated using either the diminishing value or prime cost method. Adjustments to these methods exist to cope with changes to an asset's taxable purpose proportion and effective life.
You cannot change the way you depreciate an asset once you start depreciating it. For example, if you depreciate a van by prime cost, you cannot change to diminishing value in later years.
The calculation methods are:
Prime cost is calculated by:
Cost x 100% X Days held
Effective life No. of days in the year
Diminishing value is calculated by:
Base value X 150% X Days held
Effective life No. of days in the year
The UCA system allows you to adjust an asset’s effective life, which in turn means an adjustment to the depreciation formula used. Some reasons for adjusting an asset's depreciation are:
The formula for an adjusted prime cost is:
(Opening adjustable value for the change year
+ Any second element of cost for that year) X Days held
Remaining effective life 365
The formula for an adjusted diminishing value is: substitute the new effective life value for the old effective life value.
The cost of an asset is a combination of its first and second element of cost. For example, if you bought a new car for your business, the initial amount paid for the car would be the first element of cost. If you then installed an air conditioner in the car in the following year, the cost of the air conditioner would be attributed to a second element of cost. The costs are taken at ex-GST values and if necessary, the GST credit is adjusted to the extent of any private use.
An asset’s effective life is an estimate of how long it will last. Normally you would accept the ATO’s estimate of effective life. But if there are special circumstances tending to shorten or lengthen an asset’s effective life, you can use your own estimate that may differ from the ATO’s estimate.
The ATO publication ‘Income tax: Depreciation effective life (TR 2000/18)’ described in Appendix C of the User Guide lists the estimated effective life for different classes of assets.
This publication also contains guidelines for arriving at your own estimate. You can also refer to the publication ‘Guide to depreciating assets (NAT 1996)’ described in Appendix C of the User Guide for guidance with your own estimate.
The Simplified Tax System (STS) is a new tax system for small businesses that came into effect on 1 July 2001. The major aims of the STS system are to streamline depreciation and trading stock rules for small businesses and to allow them to account for income and expenses on a cash basis. Businesses can ignore movements in stock if the variation is no greater than $5000 over the financial year.
When a business elects to convert to STS, there are certain issues that need to be considered and certain requirements that need to be met. These are summarised below.
To be eligible to be an STS taxpayer, the business must:
Entry procedure and associated rulings:
Exit procedure and associated rulings:
The STS taxpayer can claim an immediate deduction for assets costing less than $1000 (ex GST) in the year of acquisition. The amount expensed should be adjusted to reflect any private usage.
The STS introduces pooling, where businesses can allocate assets with an adjustable value of more than $1000 to either a general STS pool or a long-life STS pool.
Whereas the general STS pool deals with assets with an effective life of less than 25 years, the long-life STS pool deals with assets with an effective life of 25 years or more. If you prefer, you can use the UCA rules for long-life assets that were acquired before 1 July 2001 and this preference must be made in the first year that the business becomes an STS taxpayer.
The general STS pool is depreciated at 15 percent in the first year and 30 percent in the second year and subsequent years, while the rates for the long-life pool are 2.5 percent and 5 percent respectively.
The full pool rate is applied to all assets when the business converts from a Non-STS business to an STS business. The notion of the ‘first year’ is the same as for the UCA rules, for example it would not matter if a general STS pool asset was purchased on 1 July 2001 or 30 June 2002, it would be depreciated at 15 percent for the year. In the second year, the same asset would be depreciated at 30 percent per annum.
As with the UCA system, last year's closing balance is this year's opening pool balance. You should account for private versus business usage of assets being pooled. Special rules apply if the business versus private usage percentage changes by more than 10 percent within a year.