To calculate your depreciation deduction for most assets you apply the general depreciation rules (unless you're eligible to use instant asset write-off or 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:
- capital works such as buildings and structural improvements
- horticultural plants and water supply facilities used in primary production
- electricity and phone connections
- assets used in mining exploration.
To calculate depreciation for most assets for a particular income year, you can use the Depreciation and capital allowances tool, which compares results of the two methods.
Recent changes
Stimulus measures for COVID-19
The government implemented a number of measures to help businesses recover from the impact of the coronavirus pandemic (COVID-19).
Most of these measures relate to claiming tax concessions, deductions, and depreciation of assets at tax time. They will support businesses through the economic impacts of COVID-19 for the 2020–21 and 2021–22 financial years.
Eligible businesses may want to know which tax depreciation incentive is right for them.
We have prepared a high-level snapshot to help you work out how temporary full expensing, instant asset write-off or backing business investment incentives may apply to you. See Interaction of tax depreciation incentives.
- Prime cost (straight line) and diminishing value methods
- Instant asset write-off for eligible businesses
- Backing business investment – accelerated depreciation
- Effective life of an asset
- Low-value assets (pool)
- Disposing of a depreciating asset
- Depreciation and capital allowances tool
- COVID-19