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  • Depreciation calculation for plant acquired before 11.45am on 21 September 1999 or by certain small business taxpayers

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Accelerated rates of depreciation are still available for plant acquired or whose construction commenced at or before 11.45am (by legal time in the ACT) on 21 September 1999. Accelerated rates of depreciation are also available to small business taxpayers who satisfy certain conditions (see Small business taxpayers).

    The accelerated rate to be used is determined by choosing the appropriate rate that corresponds to the effective life of the item of plant. The following tables show the appropriate rates.

    For most general items of plant the rates are as follows:

    Effective life in years

    Annual depreciation percentage

    Prime
    cost rate

    Diminishing
    value rate

    Less than 3

    100

    100

    3 to less than 5

    40

    60

    5 to less than 6 2/3

    27

    40

    6 2/3 to less than 10

    20

    30

    10 to less than 13

    17

    25

    13 to less than 30

    13

    20

    30 and over

    7

    10

    For most motor vehicles the following rates apply:

    Effective life in years

    Annual depreciation percentage

    Prime
    cost rate

    Diminishing
    value rate

    Less than 3

    100

    100

    3 to less than 5

    33

    50

    5 to less than 6 2/3

    20

    30

    6 2/3 to less than 10

    15

    22.5

    10 to less than 13

    10

    15

    13 to less than 20

    8

    11.25

    20 to less than 40

    5

    7.5

    40 and over

    3

    3.75

    The ATO has published a list of standard effective lives for various items of plant. Where an item's effective life is different from the one published by the ATO taxpayers may make their own estimate.

    There are two methods of calculating depreciation:

    • the prime cost method, and
    • the diminishing value method.

    You choose the method of calculating depreciation in the first year that you are allowed a depreciation deduction. Once you have chosen a method you cannot change to the other method for that item.

    Under the prime cost method the deduction for each year is calculated as a percentage of the cost. The formula for calculating depreciation using the prime cost method is:

    Cost x days owned
    365

    X

    Prime
    cost rate

    Under the diminishing value method the deduction is calculated by applying the diminishing value rate of depreciation from the table in the previous column to the balance you have left to deduct. The formula for calculating depreciation using the diminishing value method is:

    Opening undeducted cost x days owned
    365

    X

    Diminishing
    value rate

    It uses a rate generally equal to one-and-a-half times the prime cost depreciation rate for that item. The deduction in the first year is equal to the depreciation rate for that item multiplied by its initial cost. In subsequent years, the rate is applied to the amount remaining after deducting the depreciation claimed in all previous years from the initial cost.

    Example-prime cost method

    An item of plant costing $1,000 with an effective life of 9 years would have a prime cost rate of depreciation of 20 per cent. This would mean a claim of 20 per cent of $1,000 or $200 each year for 5 years. The accelerated depreciation rate is determined by choosing the appropriate rate from the table in the previous column that corresponds to the effective life of the item. Taking account of the days owned as a fraction of the year produces a proportionate deduction where the plant has been owned or installed ready for use for less than the full year.

    Example-diminishing value method

    If the cost of an item of plant is $1,000 and the prime cost rate of depreciation is 20 per cent, then the depreciation by the diminishing value method will, in the first year, be 30 per cent of $1,000, or $300. The value for depreciation in the next year will be $700, and the depreciation claim will therefore be 30 per cent of $700 or $210 and so on.

    Depreciation of plant acquired at or before 11.45am on 21 September 1999 but first used or installed ready for use after that date

    Accelerated rates of depreciation apply to all plant acquired at or before 11.45am (by legal time in the ACT) on 21 September 1999 even if it is first used or installed ready for use after that date. The accelerated rate is determined by choosing the appropriate rate from the published table that corresponds to the effective life of the plant. The effective life of the plant is determined at the time that it is first used or installed ready for use.

    Last modified: 07 Jan 2005QC 27380