← Guides / Australia

Australia Depreciating Assets Guide

Australian depreciating assets (capital allowances). The guide covers: the depreciating assets under the Division 40 — the 'depreciating asset' is the 'asset that has the 'effective life' of more than '12 months' and is 'subject to the decline in value' (the 'depreciation') under the 'Division 40 of the ITAA 1997'; the 'depreciating assets' include: the 'machinery and equipment' (the 'manufacturing equipment', the 'office equipment', the 'IT equipment'), the 'motor vehicles' (the 'cars', the 'trucks', the 'vans'), the 'computers and the software', the 'office furniture', the 'electrical equipment', the 'plant and equipment in the rental property' (the 'Division 40 assets' — the 'carpets', the 'blinds', the 'air conditioners', the 'hot water systems'), and the 'intangible assets' (the 'patents', the 'copyrights', the 'licences'); the effective life of the assets — the 'effective life' is the 'period' that the 'depreciating asset' is 'expected to be used' by the 'taxpayer' (the 'useful life'); the 'effective life' is determined by the 'ATO' (the 'ATO effective life schedule' — the 'Commissioner's effective life determination') or by the 'taxpayer' (the 'self-assessment of the effective life'); the 'ATO effective life' for the 'common assets' includes: (i) the 'cars' — the '8 years', (ii) the 'computers' — the '4 years', (iii) the 'office furniture' — the '10 to 15 years', (iv) the 'plant and equipment' — the '5 to 20 years' (depending on the 'asset type'), (v) the 'patents' — the '20 years', (vi) the 'copyrights' — the '25 years'; the prime cost method — the 'prime cost method' (the 'straight-line method') calculates the 'decline in value' as the 'cost of the asset' divided by the 'effective life' (the 'equal annual deductions'); the 'prime cost formula' is: the 'cost' × (the 'days held' / the '365 days') / the 'effective life'; the diminishing value method — the 'diminishing value method' (the 'accelerated method') calculates the 'decline in value' as the 'base value' × (the 'days held' / the '365 days') × (the '200% effective life rate' or the '150% effective life rate'); the 'diminishing value rate' for the 'assets acquired after the 10 May 2006' is the '200% division rate' (the '200% of the effective life rate') — the 'formula' is: the 'base value' × (the 'days held' / '365') × (the '200% / the effective life'); the 'diminishing value method' provides the 'higher deductions' in the 'early years' of the 'asset's life'; the instant asset write-off for the small businesses — the 'instant asset write-off' (the 'temporary full expensing' or the 'immediate deduction') allows the 'eligible small businesses' (the 'aggregate turnover below $10 million') to claim the 'immediate deduction' for the 'depreciating assets' that cost $20,000 or less (the 'instant asset write-off threshold for the 2024-25 year'); the 'instant asset write-off' is available for the 'assets that are 'first used' or 'installed ready for use' between the '1 July 2023' and the '30 June 2025'; the 'small business entity (SBE)' can also use the 'simplified depreciation rules' (the 'pooling' of the 'low-cost assets' into the 'general small business pool').

Depreciation Methods

  • Prime cost method: The 'straight-line method' — the 'equal annual deductions' over the 'effective life'. The 'formula': the 'cost' × (the 'days held' / '365') / the 'effective life'.
  • Diminishing value method: The 'accelerated method' — the 'higher deductions in the early years'. The 'formula': the 'base value' × (the 'days held' / '365') × (the '200% / the effective life').
  • Choice of method: The 'taxpayer' can choose the 'prime cost method' or the 'diminishing value method' for each 'depreciating asset'.

For the small business tax concessions and the instant asset write-off, see our Small Business Concessions Guide →.

Effective Life of Assets

  • ATO effective life: The 'ATO publishes the effective life schedule' for the 'common assets' — the 'cars (8 years)', the 'computers (4 years)', the 'office furniture (10 to 15 years)'.
  • Self-assessment: The 'taxpayer' can 'self-assess the effective life' if the 'asset is not covered' by the 'ATO schedule' or the 'taxpayer's use is different'.

For the capital works deduction (the 'building depreciation'), see our Rental Property Expenses Guide →.

Instant Asset Write-Off

  • $20,000 threshold: The 'instant asset write-off' for the '2024-25 year' allows the 'immediate deduction' for the 'assets costing $20,000 or less'.
  • Eligibility: The 'small business entity (SBE)' with the 'aggregate turnover below $10 million'.
  • Simplified depreciation pool: The 'SBE' can pool the 'low-cost assets' into the 'general small business pool' and claim the 'depreciation at 15% in the first year' and '30% in the subsequent years'.

For the business expenses and the deductions for the business assets, see our Business Expenses Guide →.