Assets costing more than $300

Claiming the decline in value of depreciating assets

Assets that have a limited effective life and can reasonably be expected to lose value over the time they are used are depreciating assets.

For depreciating assets that you use while performing your work duties and cost more than $300, you can claim a deduction for the cost over the effective life of the asset. The amount you claim as a deduction over the asset's effective life is called the decline in value.

Alternatively, you may choose to allocate the depreciating asset to a low-value pool where its cost is less than $1000.

For depreciating assets that cost $300 or less, see Assets costing $300 or less.

The amount you can claim for the decline in value deduction depends on all of the following:

• Methods for calculating decline in value
• Effective life of a depreciating asset
• Work-related use

Methods for calculating decline in value

You will need to choose either the prime cost method or the diminishing value method to calculate the decline in value.

You can choose whichever method you prefer however, the method you choose may affect how much you can claim as a deduction. Once you have made a choice, you can't change the method in future income years.

If you get the asset from an associate, such as your spouse, you must continue using the same method that they chose to depreciate the asset.

Select one of the following methods to calculate the decline in value of a depreciating asset:

• prime cost method
• diminishing value method.

Prime cost method

The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life. Calculate the annual decline in value using the formula:

Asset's cost × (Days held ÷ 365) × (100% ÷ Asset's effective life)

If you use the depreciating asset for both work and private purposes, you can only claim the percentage of work-related use as the decline in value deduction.

Diminishing value method

The diminishing value method assumes that the value of a depreciating asset decreases faster earlier in its effective life. Calculate the annual decline in value in the income year where the asset's start time occurs using the formula:

Base value × (Days held ÷ 365) × (200% ÷ Asset's effective life)

If you use the depreciating asset for both work and private purposes, you can only claim the percentage of work-related use as the decline in value deduction.

The base value for the income year in which the asset's start time occurs is the asset's cost.

In future years, the base value is the asset's opening adjustable value for that year, plus any amount for costs to improve the asset, incurred in the year.

Effective life of a depreciating asset

A depreciating asset's effective life is how long it can be expected to be used by any entity for a specified purpose, including the purpose of producing assessable income. An asset begins to decline in value when you first use or install it for any purpose. This is known as the start time.

The effective life involves considering how the asset will be used.

To calculate the decline in value, you can use the effective life:

• we publish annually to calculate the decline in value
• you estimate based on your expected pattern of use of the asset.

For more information on the Commissioner of Taxation's determination of effective life, see TR 2022/1 Income tax: effective life of depreciating assets (applicable from 1 July 2022).

You can recalculate the effective life of an asset if:

• you make an improvement to the asset that increases its cost by 10% or more in the income year
• circumstances arise that result in your initial estimate of the effective life being inaccurate.

Start time of a depreciating asset

The start time of a depreciating asset is when you first use it, or install it ready to use for any purpose, including a private purpose.

Assets begin decline in value from their start time, but you can only claim a deduction for the decline in value when you start using it for work.

If you first buy an asset for private use, then later use it for work, you need to work out the decline in value from when you first started using it for a private purpose, that is, its start time.

You will also need to work out your work-related use of a depreciating asset and show how you work this out.

If you start using a depreciating asset for work after its effective life has ended and it has fully declined in value, you can't claim any deduction in relation to the asset.

Work-related use

You can claim your work-related use of a depreciating asset.

If you use a depreciating asset for both work and private purposes, you must keep records (for example, a diary) to show how you calculate your percentage of work and private use.

If you are keeping a diary, you should:

• keep it for a continuous 4-week period
• fill it in at the time you undertake the activity, not retrospectively
• include sufficient detail to support your calculations

If you record a continuous 4-week period that represents your work-related use of your depreciating assets, you can use it across the rest of the income year to work out your full deduction. However, if your work pattern changes substantially you need to create a new record.

You must reduce your deduction for the decline in value to account for your private use.

Calculating your deduction

To help you work out your deduction for the decline in value for a depreciating asset, use our depreciation and capital allowances tool.

Alternatively, you can manually calculate the decline in value using the formula for the method you have chosen.

Find out how to claim a decline in value deduction for a depreciating asset you use for work and cost more than $300.