ATO seeks input from the ECEC sector about the effective life of early childhood assets

The Australian Taxation Office (ATO) is currently seeking input from those working in the early childhood education and care (ECEC) sector in relation to capital allowances and the effective life of assets in early childhood services. 

Every asset which is purchased for use in an ECEC setting, (such as furniture, electronic whiteboards, shade sails, playground equipment) becomes a depreciating asset to the service. 

The decline in value of a depreciating asset is based on its effective life; that is, how long it can be used to produce income, taking into account: 

• whether it’s subject to wear and tear at a reasonable rate
• whether it’s maintained in reasonably good order and condition
• the period within which it is likely to be scrapped, sold for no more than scrap value or abandoned.

It is important for the ATO to have accurate guidelines for the effective life of assets in ECEC settings, because these guidelines are used to work out the asset’s decline in value (depreciation) for which an income tax deduction can be claimed. 

For the majority of ECEC services, the ATO’s determinations of effective life, which are published in annually updated taxation rulings, are used by default, so if the guidelines are not accurate, services are potentially denying themselves legitimate deductions. 

The ATO has proposed a number of new determinations about the effective life of ECEC assets, which will apply to assets purchased or otherwise first used or installed ready to use, on or after 1 July 2020 (within the meaning of section 40-95 of the Income Tax Assessment Act 1997).

Those with an interest in the draft effective lives of assets are invited to contact the ATO prior to 28 February for comment, including offering more realistic suggestions for effective life spans.

Comments or questions are best directed to Susan Li via phone – 07 3119 9891, or email to [email protected]