General depreciation rules - capital allowances

To calculate your depreciation deduction for most assets you apply the general depreciation rules (unless you're eligible to use simplified depreciation for small business).

The general depreciation rules set the amounts (capital allowances) that can be claimed, based on the asset's effective life.

To calculate depreciation, you can generally use either the prime cost method or the diminishing value method. In some cases, you must use the same method used by the former holder of the asset – for example, if you acquire the asset from an associate such as your spouse or business partner.

For some intangible depreciating assets, including intellectual property, you can only use the prime cost method.

Both methods require you to determine the asset's effective life.

Different rules apply to:

To calculate depreciation for most assets for a particular income year, you can use the Decline in value calculatorExternal Link, which compares results of the two methods.

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Last modified: 22 Aug 2016QC 45983