Applying the ‘carrying on a business’ exclusion
Broadly, where the depreciation restriction applies, it will deny a depreciation deduction for assets otherwise depreciated over their effective life. It also applies for assets costing $300 or less and otherwise eligible to be wholly written-off in the year of purchase under S.40-80(2), and for assets costing less than $1,000 otherwise eligible to be depreciated as part of a low-value pool.
The depreciation restriction for residential rental properties will not apply where a taxpayer uses residential premises to provide residential accommodation in the course of carrying on a business.
For example, deductions for depreciation will generally continue to be available for a taxpayer that carries on a business of property investing (i.e., renting properties), renting holiday apartments , and even operating a hostel or boarding house.
In some cases, it will be clear that income derived from the relevant premises is being derived in the course of carrying on business (e.g., in the case of a hotel, boarding house, retirement village, and aged care facility).