Register card 01Business use and the clock
Business use, and the clock on each asset record
The ATO allows a deduction only for the business share of a depreciating asset, so a register needs a business-use percentage for each asset, and for an asset in the small business pool that figure is reviewed every year for the first 3 years after the year it joined. Most records are then kept for 5 years, but the 5 years start at different moments for different records, and some clocks wait until the asset itself has gone.
This is general information, not tax advice. The ATO is the official place to check how the business-use and record-keeping rules apply to your business.
Business useThe figure every deduction leans on
Whichever method a business uses, the ATO says the deduction for an asset’s decline in value is reduced by the extent it is used for a non-taxable purpose: an asset used 40% of the time privately has its deduction cut by 40%. The simplified depreciation rules set the same limit.
The ATO’s record-keeping rules ask for clear documents showing the business portion wherever an expense covers both business and personal use. The estimate is a record in its own right, since the ATO counts any document setting out an estimate or calculation the business makes, and how it was made, among the records to keep. The ATO’s full list of what to keep for each depreciating asset asks for “any reduction for use of the asset for a non-taxable purpose” beside the deduction itself.
Robyn buys a $4,000 laptop on 1 July 2024 and uses it only privately. A year later, on 1 July 2025, she starts a business and uses the laptop half the time for it, without electing to use simplified depreciation. The laptop’s decline in value runs from 1 July 2024, the first day it was ready for use, but she can claim only from 1 July 2025, and only 50% of the decline.
On a register, that is two dates on one card: first ready for use, and first used for the business.
Three reviewsIn the pool, the estimate is checked for 3 years
For an asset in the small business pool, the ATO says business use must be reviewed every year for the first 3 years after the year it joined the pool. If the share has moved by more than 10% from the latest estimate, the opening balance of the pool holding the asset is adjusted, and that happens before the year’s pool deduction is worked out.
The ATO’s formula is: adjustment = reduction factor × asset value × (current year estimate − last estimate). The last estimate is either the original one or the most recently adjusted one. A rise increases the opening pool balance and the year’s deduction; a fall lowers both.
The reduction factor falls with each review. For an asset first used while the business was on the simplified rules it is 0.85, 0.595 and 0.417 for the first, second and third year after the asset joined the pool; otherwise it is 0.70, 0.49 and 0.343.
Grace starts using the simplified depreciation rules in 2024–25. She already holds a car with an adjustable value of $22,000, used 60% for business, so $13,200 goes into her pool. During 2024–25 her business use rises to 75%, an increase of 15%. Her opening pool balance for 2025–26 rises by 0.7 × $22,000 × (75% − 60%) = $2,310.
The history is read once more when a pooled asset is sold. If business use changed while it was in the pool, the taxable purpose share of what it sold for is the average across the income years it was there. When an asset leaves the business works through the Act’s example.
The clocksWhen each record’s 5 years begin
The ATO’s general rule is 5 years for most records, counted from when the record was prepared or obtained, or from when the transaction or act it relates to was completed, whichever is later. Some records are kept longer, including to cover the period of review for an assessment that relies on them.
| Record | How long, and from when |
|---|---|
| Under the simplified rules: how the opening pool balance was worked out, any change in business use, and assets disposed of | 5 years, in line with the record-keeping rules for taxpayers generally |
| An asset allocated to a low-value pool | Generally 5 years from the end of the income year it was allocated |
| A cost added after the asset joined a low-value pool | 5 years from when the expenditure is incurred |
| An acquisition tied to a delayed GST input tax credit claim | At least 5 years after lodgment |
| A notice received under automatic rollover relief | “5 years after the asset is disposed of / lost or destroyed (whichever happens earlier)” |
| A jointly chosen rollover agreement | The business handing the asset over: 5 years after the event. The business receiving it: 5 years after the asset’s next balancing adjustment event |
For the business receiving an asset, the last two clocks start only when the asset is disposed of, lost or destroyed, or at its next balancing adjustment event, so those papers stay on file at least until that event and for 5 years after it.
The formatA record that outlasts its clock
A clock is only useful if the record survives it. The ATO says records must be protected from change or damage, and the original data must still be able to be reconstructed if the record-keeping system changes over time. Keeping the register safe reads those rules against a register held in cloud software.
On the cardWhat this asks of a register
These habits are this guide’s reading of the rules, not the ATO’s words.
- A business-use percentage for each asset, with the date it applies from and the working behind it, kept beside every earlier figure rather than written over it.
- For each pooled asset, the original estimate and each review up to the third year after the year it joined, with any adjustment made to the opening balance. The small business pool, worked through shows where that adjustment lands.
- For each record, the event that starts its clock: the end of an income year, the day a cost was incurred, a lodgment, or the day the asset leaves.