Depreciation Calculator
Work out the decline in value of an asset under the ATO diminishing value and prime cost methods, year by year, with the first year pro-rated by days held.
Year 1 deduction
$2,000.00A $10,000 asset with a 10-year effective life depreciates at 20.0% under the diminishing value method: $2,000 in year 1, $1,600 in year 2 and $1,280 in year 3.
| Rate | 20.00% of opening value |
|---|---|
| Year 1 | $2,000.00 (closing $8,000) |
| Year 2 | $1,600.00 (closing $6,400) |
| Year 3 | $1,280.00 (closing $5,120) |
| Year 4 | $1,024.00 (closing $4,096) |
| Year 5 | $819.20 (closing $3,277) |
| Total over 10 years | $8,926.26 |
How this was calculated
| Diminishing value rate: 200% ÷ 10 years = 20.00% of the opening value each year | 20.00% |
|---|---|
| Year 1: $10,000 × 20.00% | $2,000.00 |
| Year 2: $8,000 × 20.00% | $1,600.00 |
| Year 3: $6,400 × 20.00% | $1,280.00 |
A $10,000 asset with a 10-year effective life depreciates at 20.0% under the diminishing value method: $2,000 in year 1, $1,600 in year 2 and $1,280 in year 3.
Source: ATO Last verified How we keep this accurate
How depreciation is calculated
The ATO lets you deduct the decline in value of assets used to earn income. Two methods are available and the choice is made per asset:
- Prime cost (straight line): cost × (100% ÷ effective life) each year. A $10,000 asset with a 10-year life gives $1,000 a year.
- Diminishing value: opening adjustable value × (200% ÷ effective life). The same asset gives $2,000 in year 1, $1,600 in year 2, $1,280 in year 3, declining until the value is negligible. Assets acquired before 10 May 2006 use 150% instead of 200%.
In the first year the deduction is pro-rated by the days the asset was held: an asset bought 73 days before 30 June gets 73 ÷ 365 of a full year.
Diminishing value vs prime cost: $10,000 over 10 years
| Year | Prime cost (10%) | Diminishing value (20%) |
|---|---|---|
| 1 | $1,000 | $2,000 |
| 2 | $1,000 | $1,600 |
| 3 | $1,000 | $1,280 |
| 4 | $1,000 | $1,024 |
| 5 | $1,000 | $819 |
| Years 1–5 total | $5,000 | $6,723 |
Rental property depreciation
Two deductions apply to a rental property. Capital works (Division 43) cover the building and structural improvements at 2.5% of construction cost a year for 40 years (residential buildings built after 15 September 1987). Plant and equipment (Division 40) covers removable items such as carpets, appliances and blinds, depreciated by effective life under either method above; for second-hand residential property bought after 9 May 2017, only new items you install qualify. A quantity surveyor’s depreciation schedule itemises both, and its annual total can be entered in the negative gearing calculator.
What this calculator doesn’t cover
- The low-value pool, the instant asset write-off and temporary full expensing rules.
- Capital works at 2.5% (a flat calculation) and balancing adjustments on disposal.
- Motor vehicle cost limits and assets used partly for private purposes.
Frequently asked questions
How is depreciation calculated in Australia?
The ATO allows two methods for the decline in value of a depreciating asset. Prime cost spreads the cost evenly: cost × 100% ÷ effective life each year. Diminishing value front-loads it: the opening value × 200% ÷ effective life, so a $10,000 asset with a 10-year life gives $2,000, then $1,600, then $1,280. Both are pro-rated by days held in the first year and use the effective life from the ATO’s tables.
Diminishing value or prime cost: which is better?
Diminishing value gives larger deductions in the early years and smaller ones later; prime cost is the same every year. Total deductions are the same over the asset’s life. Investors and businesses usually prefer diminishing value for the earlier tax benefit, unless income is expected to be higher in later years. Once chosen for an asset, the method cannot be changed.
What is the effective life of an asset?
It is the period an asset can reasonably be expected to be used for income-producing purposes. The Commissioner publishes effective lives for thousands of assets in Taxation Ruling TR 2022/1 (for example, carpet 8 years, a dishwasher 10 years, a laptop 2 years). Taxpayers can self-assess a different life if they can justify it. The life sets the depreciation rate under both methods.
How does depreciation work on a rental property?
Two kinds of deduction apply. Capital works (the building and structural improvements) are claimed at 2.5% of construction cost a year for 40 years for residential buildings built after 15 September 1987. Plant and equipment (carpets, appliances, blinds) is depreciated by effective life, but for second-hand residential property bought after 9 May 2017 only new items you install can be claimed. A quantity surveyor’s schedule itemises both.
Can I claim the full cost of an asset in one year?
Small businesses can use the instant asset write-off for assets under the threshold in force for the year (check the ATO for the current limit, which has changed several times). Individuals with a rental property can immediately deduct items costing $300 or less, and pool items under $1,000 in a low-value pool at 18.75% in the first year and 37.5% thereafter. Otherwise, the two methods here apply.
Does the calculator handle the low-value pool or capital works?
Not yet. It calculates the standard prime cost and diminishing value schedules for a single asset, which is what most people need to check a figure. Capital works are a flat 2.5% (or 4% for some pre-1992 structures) of construction cost, easily worked out by hand, and the negative gearing calculator accepts a total annual depreciation figure from a quantity surveyor’s schedule.
Sources and assumptions
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