A depreciating asset's effective life is the period of time over which it can be used by any entity to produce assessable income:
- if it is subject to wear and tear at a reasonable rate
- if it is maintained in reasonably good order and condition
- considering the period within which it is likely to be scrapped, sold for no more than scrap value or abandoned.
The effective life of a depreciating asset is used to work out the asset’s decline in value for which an income tax deduction can be claimed.
For more information, see Depreciation and capital allowances tool.
You can choose to self-assess the effective life of a depreciating asset or rely on our determination of the effective life. Our effective life determinations are published under Capital allowances: effective life – rulings, law and objections.
If we have not made an effective life determination for an asset you use, you must self-assess the effective life.
Our effective life determinations will not be challenged in any audit process and have been referred to as ‘safe harbour lives'.
You do not have to use our effective life determinations. However, in some situations, you don't have a choice.
For example, if you acquire the asset from an associate (such as your spouse or business partner), you must use the same effective life they used (if they used the diminishing value method) or the effective life that is yet to elapse (if they used the prime cost method).
For some intangible depreciating assets, including intellectual property, you must use the effective life set out in the uniform capital allowance rules.
For some types of transport and agricultural machinery and gas production and distribution plant, the ATO's determination of effective life is capped by statute.
If you self-assess the effective life of a depreciating asset, either because we have not already made a determination for it or you feel our determination is not appropriate for your circumstances, we may ask you to explain your choice of effective life.
For information about self-assessing the effective life of a depreciating asset, refer to section 40-105 of the ITAA 1997.
If you think a determination of the effective life of assets used in your industry is needed, you can contact us:
For more information on our approach to developing and managing public advice and guidance, see How we develop public advice and guidance
You can choose to recalculate the effective life of an asset if circumstances change and the effective life you've been using is no longer accurate. You may have to recalculate the effective life if you make an improvement to an asset that increases its cost by 10% or more in a year.
To recalculate a depreciating asset's effective life use the uniform capital allowance system.
For more information see:
- Updating how effective life determinations are published
- Uniform capital allowance system: calculate decline in value
- Capital allowances: effective life – rulings, law and objections
- Capital allowances: statutory caps on the effective life of buses, light commercial vehicles, minibuses, trucks and truck trailers