In your business you are likely to have assets. These are generally land, computers, equipment, shares in companies, intellectual property rights and patents.

Some of your assets may be depreciating assets. These are assets which have a limited effective life and can reasonably be expected to decline in value over the time they’re used. An asset’s effective life is an estimate of how long it can be used to produce income.

Generally, you can claim a deduction for the decline in value of depreciating assets each year over their effective life to the extent you use these assets to produce income in your business or for other income producing purposes. Deductions for depreciation are claimed in your tax return.

For example, if you own a café, your dishwasher, coffee machine and microwave are depreciating assets which decline in value so you may be entitled to claim a deduction.

When you cease to hold or use a depreciating asset (for example, you sell it), you must do a balancing adjustment calculation. This calculation will tell you whether you need to include an amount in your assessable income, or whether you can claim a deduction.