Effective life of an asset
The decline in value of a depreciating asset is generally based on its effective life. The effective life represents how long it can be used to produce income, taking into account reasonable:
- wear and tear under the circumstances in which you expect to use it
Determining effective life
For most depreciating assets, you can work out the asset’s effective life yourself, by determining how many years the asset will reasonably be expected to produce income according to its actual likely use.
Alternatively, you can use our estimates. We have estimated effective lives for most types of assets.
For certain assets, you don't have a choice – you must use our estimate of the asset's effective life. These are updated annually and specified in taxation ruling Income tax: effective life of depreciating assets.
To use either of the depreciation methods, you have to work out how long the asset can be used to produce income – its effective life.