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  • How are depreciation deductions calculated?



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

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    For all plant acquired after 21 September 1999 the depreciation deduction is determined solely by reference to effective life as determined by the taxpayer or by the Commissioner. Accelerated rates of depreciation no longer apply except for certain small business taxpayers.

    There are two methods of calculating depreciation:

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

    Under the diminishing value method the deduction is calculated as a percentage of the balance you have left to deduct. The formula for calculating depreciation using the diminishing value method is:

    Opening undeducted cost × (days owned ÷ 365) × (150% ÷ plant's effective life in years)

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

    Cost × (days owned ÷ 365) × (100% ÷ plant's effective life in years)

    If you use a depreciable item of plant for more than one purpose-for example, you may use the same lawn mower at both your rental property and your private residence, you are allowed only a partial depreciation deduction, based on the percentage it was used at your rental property.

    Last modified: 28 Jul 2003QC 16187