• How do you work out your deduction?

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    You work out your deduction for the decline in value of a depreciating asset using either the prime cost or diminishing value method. Both methods are based on the effective life of the asset.

    The diminishing value method assumes that the decline in value each year is a constant proportion of the remaining value and produces a progressively smaller decline over time. The formula is:

    Base value

    x

    days held
    365

    x

          150%      
    asset's effective life

    For the income year in which an asset is first used or installed ready for use for any purpose, the base value is the asset's cost. For a later income year, the base value is the asset's opening adjustable value plus any amounts included in the asset's second element of cost for that year.

    Adjustable value of a depreciating asset is its cost less its decline in value since you first used it or installed it ready for use for any purpose, including a private purpose. The term 'adjustable value' replaces the previous terms 'written down value' and 'undeducted cost'.

    The prime cost method assumes that the value of a depreciating asset decreases uniformly over its effective life. The formula for the prime cost method is:

    Asset's cost

    x

    days held
    365

    x

          100%      
    asset's effective life

    If you use a depreciating asset for more than one purpose-for example, you use the same lawn mower at both your rental property and your private residence, you are allowed only a partial deduction for decline in value, based on the percentage it was used at your rental property.

    Last modified: 18 Jul 2008QC 16578