Depreciation Calculator

How the depreciation calculator works

Enter the cost of the asset, its effective life in years (or choose a common asset type to fill it in), the share of use for business or work, and the date you first used it or installed it ready for use. Tick the car box to apply the car limit, and the small business box if your business has aggregated turnover under $10 million.

The calculator works out each year’s decline in value under both ATO methods, starting with the part year in which you first used the asset. It shows the deductible amount (your business-use share) and the asset’s remaining value at the end of each year, charts how the value falls under each method, and shows the small business alternative if you ticked that box.

The formulas

The calculation, step by step

1. Work out the cost. The price paid plus costs to get the asset ready for use, capped at the car limit for cars.
2. Find the effective life. Use the ATO’s effective life ruling or your own reasonable estimate.
3. Count the days held in the first income year, from the date first used to 30 June.
4. Apply the formula for the method you choose.
5. Apply the business-use share to get the deduction.
6. Repeat each year on the opening value (diminishing value) or the original cost (prime cost).

Rates by effective life

Example schedule: $3,000 asset, 4-year life, full first year

How it works in plain English

When you buy something that will last several years and use it to earn income, the tax system spreads the deduction over its useful life rather than letting you claim it all at once. Each year, part of the cost is “used up” and you claim that part. The two methods differ only in how quickly they do it: diminishing value claims a fixed percentage of whatever value is left, so it front-loads the deduction; prime cost claims the same slice of the original cost each year.

The total claimed over time is similar, but diminishing value never quite reaches zero, while prime cost writes the asset off fully within its effective life. Small businesses have simpler options, including writing off assets under $20,000 immediately. Sources: ATO: Guide to depreciating assets 2026, ATO: Instant asset write-off and ATO: Car thresholds.

Diminishing value or prime cost?

Both methods use the same effective life, and both start from the date you first use the asset. The difference is the shape of the deductions:

For assets with a 2-year effective life, such as laptops, the diminishing value rate is 100%, so the asset is fully written off in the first full year of use. For longer-lived assets, diminishing value always gives more in the first year, and prime cost catches up later. You choose a method for each asset when you first claim, and you generally have to stay with it.

Working out effective life

You can use the effective life the Commissioner of Taxation sets in the ATO’s effective life ruling, which covers thousands of assets by industry and type, or work out your own effective life if you can justify it. Most people use the Commissioner’s figure because it is accepted without question.

Common effective lives include 2 years for laptops and tablets, 3 years for mobile phones, 4 years for desktop computers and 8 years for cars. For other assets, look up the ruling, which groups assets by industry. For example, a café’s commercial coffee machine, a builder’s power tools and a farmer’s tractor each have their own listed life. If an asset is not listed, a reasonable estimate based on how long you expect to use it is acceptable.

The effective life is fixed when you start using the asset. If the ATO later changes the life for that type of asset, you continue to use the life that applied when you started, although in some cases you can recalculate it if circumstances change significantly.

What counts as the cost

The cost of an asset for depreciation generally includes:

• the purchase price, less any GST you can claim back as a credit if you are registered for GST;
• delivery and installation costs;
• costs to get the asset ready for use, such as modifications;
• stamp duty on transferring the asset, for example on a car.

Running costs, such as fuel, servicing, registration and insurance for a car, are not part of the cost. They are claimed separately each year for the business-use share. For employees and other people not registered for GST, the cost includes the GST paid.

The car limit

The car limit caps the cost you can use to work out depreciation on a car. It is $69,883 for cars first used or leased in 2026–27, and $69,674 for 2025–26. The limit is indexed each year with the motor vehicle purchase part of the consumer price index.

It applies to cars, which for tax purposes are vehicles designed to carry a load of less than one tonne and fewer than nine passengers. It does not apply to utes, vans and trucks designed to carry one tonne or more, or nine or more passengers. If the car cost more than the limit, the excess cannot be depreciated, as Scenario B shows. If you are registered for GST, the maximum GST credit you can claim on a car is also limited to one-eleventh of the car limit, which is $6,353 for 2026–27.

Small business depreciation

Businesses with aggregated turnover under $10 million can use simplified depreciation rules:

• Instant asset write-off: assets costing less than $20,000 each can be deducted in full in the year they are first used or installed ready for use. The government has made the $20,000 threshold permanent from 1 July 2026. The threshold applies per asset, so several assets can each be written off.
• Small business pool: assets costing $20,000 or more go into a general pool. The pool is depreciated at 15% in the year an asset is added, regardless of the date, and 30% of the pool balance each year after.
• Pool balance write-off: if the pool balance falls below the instant asset write-off threshold at the end of a year, the whole balance can be written off.

These rules can make a big difference in the first year, as Scenario C shows. A business that chooses simplified depreciation must generally use it for all its eligible assets. Our instant asset write-off calculator looks at these rules in more detail.

Depreciation for employees

Employees can claim depreciation on assets they use for work, such as laptops, phones, tools and home office furniture, for the work-use share. Items costing $300 or less that are used mainly to earn non-business income can be claimed in full in the year they are bought. Items costing more are depreciated over their effective life.

Items that form part of a set, or identical items bought together, are treated as one asset if their combined cost is more than $300. A set of tools bought together for $400 must be depreciated, even if each tool cost less than $300.

Employees can also use a low-value pool for assets that cost less than $1,000, or that have a written-down value under $1,000. Assets in the pool are depreciated at 18.75% in the first year and 37.5% after, which simplifies record keeping for many small assets. Our work from home calculator includes equipment claims for working from home.

Depreciation on rental properties

Investors in rental properties can claim two types of depreciation:

• Plant and equipment: removable or mechanical items, such as appliances, carpets, blinds, air conditioners and hot water systems, depreciated over their effective lives using this calculator’s methods.
• Capital works: the building itself and structural improvements, generally deducted at 2.5% a year of the construction cost for residential buildings built after mid-September 1987, over 40 years.

For residential rental properties, individuals generally cannot claim depreciation on second-hand plant and equipment, such as appliances that were in the property when it was bought after 9 May 2017. New items they buy and install can still be depreciated. A quantity surveyor’s depreciation schedule is the usual way to work out capital works and plant values for a newly purchased property.

Selling or disposing of an asset

When you sell, give away, lose or stop using an asset, a balancing adjustment event happens. You compare the asset’s termination value, usually what you received for it, with its adjustable value, which is the cost less all the decline in value worked out so far.

• If you received more than the adjustable value, the difference is assessable income.
• If you received less, the difference is a further deduction.

Only the business-use share of the adjustment is assessable or deductible. For cars and other assets also used privately, part of the adjustment may relate to private use. For example, if you sell a laptop with an adjustable value of $500 for $700, and it was 100% business use, $200 is assessable income.

A worked example by hand

Here is Scenario B worked through. Emma buys an $80,000 car on 1 October 2026 and uses it 70% for work. The car limit for 2026–27 is $69,883 and the effective life is 8 years.

Cost used: the lower of $80,000 and $69,883, so $69,883.

Days held in 2026–27: 1 October 2026 to 30 June 2027 is 273 days.

Diminishing value, year 1: $69,883 × 273 ÷ 365 × (200% ÷ 8) = $13,067.16. At 70% business use, the claim is $9,147.01.

Value at 30 June 2027: $69,883 − $13,067.16 = $56,815.84.

Year 2: $56,815.84 × 25% = $14,203.96, of which 70% is $9,942.77.

Prime cost, year 1: $69,883 × 273 ÷ 365 × (100% ÷ 8) = $6,533.58, of which 70% is $4,573.51.

Repairs, improvements and capital costs

Not every amount you spend on an asset is depreciated. The ATO distinguishes between repairs, which are deductible straight away, and capital improvements, which add to the asset’s cost and are depreciated.

• Repairs restore an asset to its original condition, such as replacing a broken screen on a laptop or fixing a car’s brakes. They are deductible in the year you pay for them, for the business-use share.
• Improvements make an asset better than it was, such as upgrading a laptop’s memory or adding a canopy to a ute. They are added to the asset’s cost and depreciated over its remaining effective life.
• Initial repairs to fix defects in an asset when you buy it are part of its cost, not an immediate deduction.

The distinction matters most for rental properties, where replacing part of something, such as a few damaged floorboards, is usually a repair, while replacing the whole floor with a better one is usually a capital improvement.

Second-hand assets

You can depreciate second-hand assets you buy for your business or work, using the price you paid as the cost. The effective life is the remaining life you expect, which can be the Commissioner’s figure or your own estimate of how long you will use it. For example, a three-year-old car bought for business use might be given a shorter effective life than a new one.

The main exception is second-hand plant and equipment in residential rental properties. For individual investors, these items acquired after 9 May 2017 generally cannot be depreciated, although the cost can be taken into account when working out a capital gain or loss on sale.

Leased assets and hire purchase

How you pay for an asset affects who claims the depreciation.

• Bought outright or with a loan: you own the asset, so you claim depreciation, and interest on a business loan is deductible separately.
• Hire purchase: for tax purposes, the buyer is generally treated as the owner, so you claim depreciation on the cost and the interest component of payments.
• Operating lease or rental: the leasing company owns the asset and claims depreciation. You claim the lease payments for the business-use share.
• Novated lease: an employee’s car leased through their employer. The employer or lessor deals with the tax, and the employee does not claim depreciation.

Our hire purchase calculator and novated lease calculator help compare the costs of different ways to pay for a vehicle or equipment.

When business use changes

The business-use percentage is not fixed forever. If you start using a car mainly for personal trips, or a laptop moves from work to family use, the deductible share of each year’s decline in value changes too. Use the percentage that reflects your actual use for each year, supported by records such as a logbook.

The decline in value itself is still worked out on the whole asset, so the asset’s value continues to fall even in years when the business share is low. That means the closing values in the calculator’s schedule stay the same whatever the business-use percentage, while the claimable amount changes. If you stop using the asset for business entirely, that is a balancing adjustment event.

Depreciation and GST

If you are registered for GST and can claim a GST credit when you buy an asset, the cost for depreciation is the price excluding GST. For a $3,300 laptop, the cost is $3,000 and the $300 GST is claimed back on your BAS. If you are not registered for GST, such as most employees, the cost includes the GST.

The same applies to the instant asset write-off threshold: for a GST-registered business, an asset costing $21,000 including GST is $19,090.91 excluding GST, so it falls under the $20,000 threshold. For cars, the maximum GST credit is limited to one-eleventh of the car limit.

Keeping a depreciation register

A simple register keeps your claims consistent each year. For each asset, record:

The calculator’s PDF schedule is a good starting point for each asset. Keep it with the purchase invoice. Bookkeeping software often includes a fixed asset register that calculates depreciation automatically.

Planning purchases before 30 June

Because the first-year deduction depends on the days held, an asset first used on 1 July gives a full year’s deduction in that year, while one first used on 25 June gives only a few days’ worth. For small businesses using the instant asset write-off, the full cost is deductible whenever in the year the asset is first used or installed ready for use, which is why many businesses buy equipment before 30 June.

A deduction only saves tax at your marginal rate, so buying something you do not need just for the deduction still costs you most of its price. Buy assets when your business needs them, and use the timing rules to your advantage where it makes sense.

Depreciation in different businesses

The rules are the same for everyone, but the assets that matter differ by industry.

• Trades and construction: utes, vans, trailers, power tools and specialised equipment. Utes designed to carry a tonne or more are not subject to the car limit. Many tools cost less than $20,000 and qualify for the instant asset write-off.
• Hospitality: coffee machines, ovens, fridges, furniture and point-of-sale systems. Fit-outs can be a mix of depreciating assets and capital works, so a breakdown helps.
• Professional services: computers, phones, office furniture and software. Short effective lives mean deductions come quickly.
• Transport and delivery: vehicles are usually the biggest asset. Trucks and vans have their own effective lives, and running costs are claimed separately.
• Agriculture: tractors, machinery and some farm improvements, with special rules for primary producers, such as water facilities and fencing.
• Rental property investors: appliances, carpets, blinds and air conditioners, plus capital works for the building.

Depreciation, profit and cash flow

Depreciation is a non-cash expense. You pay for the asset when you buy it, but the deduction is spread over several years. That means your taxable profit can be quite different from the cash you have in the bank. In the year you buy an expensive asset, cash falls sharply while profit only falls by the first year’s depreciation. In later years, you still get a deduction even though no cash goes out.

The instant asset write-off brings the deduction and the cash outflow closer together, which is one reason small businesses value it. For larger assets, financing through a loan or hire purchase spreads the cash outflow over time, roughly in line with the deductions. When you plan a big purchase, look at both the cash impact and the tax impact over several years.

Tax depreciation and accounting depreciation

Businesses that prepare financial statements may depreciate assets differently in their accounts than for tax. Accounting standards ask businesses to depreciate assets over their expected useful lives in a way that reflects how they are used, while tax depreciation follows the tax law, including effective lives, the car limit and small business concessions.

The difference is normal and is dealt with when preparing the tax return. Small businesses often keep it simple by using tax depreciation in their management accounts. Larger businesses and companies that must report under accounting standards keep separate records and may recognise deferred tax for the differences.

Sole traders, partnerships and companies

The decline in value rules apply to all taxpayers, whether you are an employee, a sole trader, a partnership, a trust or a company. What differs is the value of the deduction. For a sole trader, it reduces taxable income taxed at personal rates, so a $10,000 deduction saves $3,200 at the 30% rate plus Medicare. For a company paying 25% tax, the same deduction saves $2,500 of company tax.

Small business concessions, such as the instant asset write-off and the small business pool, depend on aggregated turnover, which includes the turnover of connected entities and affiliates. A group of related businesses can exceed the $10 million threshold even if each one is small on its own.

Assets used for a job and a business

If you are an employee who also runs a side business, one asset, such as a laptop or phone, may be used for your job, your business and private purposes. Work out the share of use for each, and claim the job share as an employee deduction and the business share in your business schedule, using the same decline in value figure. The private share is not deductible. Small business concessions only apply to the business share, and only if the business qualifies.

Common assets and how they are treated

These are general patterns. The exact treatment depends on your circumstances, the effective life of the specific asset, and whether you are registered for GST. Employees using the cents per kilometre method for car expenses cannot also claim depreciation on the car, because the rate already includes it.

A full diminishing value schedule for a car

Using Scenario B, here is how the value of Emma’s car falls under diminishing value, at 25% a year after the part first year, with her 70% business share claimed each year.

After four years, she has claimed $32,139.67, and the car’s adjustable value is $23,969.18. If she then sells it for $30,000, the $6,030.82 difference is a balancing adjustment, of which the business share is assessable income.

Questions to ask your accountant

• Which effective life should I use for this asset, and is there a better one in the ATO’s ruling?
• Should I use diminishing value or prime cost for my situation?
• Does my business qualify for the instant asset write-off and the small business pool?
• Is this expense a repair, an improvement or part of the asset’s cost?
• How should I record business use, and how often should I update it?
• What happens when I sell or replace this asset?

Bring the calculator’s schedule and your purchase invoices. A good accountant will also check that your depreciation register agrees with your tax returns from previous years.

A year-end depreciation checklist

1. List new assets bought or first used this year, with invoices and the date each was first used or installed ready for use.
2. Check each asset’s cost, excluding GST if you are registered, and applying the car limit for cars.
3. Choose the effective life and method for each new asset and record them in your register.
4. Update business-use percentages for existing assets, with logbooks or usage records.
5. Work out this year’s decline in value for every asset still in use, continuing from last year’s closing values.
6. Record disposals and work out any balancing adjustments.
7. Apply small business rules if eligible: write off assets under $20,000 and update the pool.
8. Keep the schedule with your tax records for at least five years after the last claim.

Doing this once a year, ideally before you meet your accountant, makes sure no deduction is missed and every claim can be supported. The calculator’s PDF schedule for each asset is a convenient way to keep the figures together, and it can be updated each year with the new opening value.

If you discover you missed depreciation in an earlier year, you can usually amend that year’s return within the amendment period, which is generally two years for individuals and small businesses with simple affairs. The asset’s value should still be reduced by the decline in value for the missed year, even if it was not claimed, so it is worth fixing promptly.

What depreciation is really worth

A depreciation deduction does not give you back the cost of the asset. It reduces your taxable income, so the tax you save is the deduction multiplied by your tax rate. For an employee on the 30% rate plus the 2% Medicare levy, a $1,500 deduction saves $480. For a company paying 25%, it saves $375. The rest of the cost is still yours to bear.

Timing also matters. Diminishing value and the small business concessions bring deductions forward, which means the tax saving arrives sooner. Money saved today is worth more than the same amount saved in five years, especially for a growing business that can reinvest it. That is the main reason most businesses prefer diminishing value or the instant asset write-off where they can use them.

Finally, remember that depreciation can be clawed back. If you sell an asset for more than its written-down value, the difference becomes assessable income. Assets that hold their value well, such as some vehicles and machinery, can produce a balancing adjustment that reduces the overall benefit of fast depreciation. Keeping good records lets you see this coming and plan for it.

A sensible way to think about depreciation is as a tax benefit that follows a genuine business decision, not a reason to buy. Decide what equipment your business or job needs, buy it at the best price you can, and then use the calculator to make sure you claim every dollar you are entitled to, at the right time, with records that will stand up if the ATO ever asks. Used that way, depreciation reduces the after-tax cost of the tools that help you earn your income, year after year, without any surprises at tax time. Review your asset register once a year, check that each asset is still in use, and remove anything you have sold, scrapped or given away, so that next year’s claims start from the right values. If you are unsure about any asset, ask a registered tax agent before you lodge, and keep a note of the advice with your register.

Glossary

• Decline in value: the ATO’s term for tax depreciation of a depreciating asset.
• Effective life: how long an asset can be used to earn income, in years.
• Base value: the value diminishing value is worked out on; the cost in the first year, then the opening value.
• Adjustable value: cost less decline in value so far, sometimes called written-down value.
• Balancing adjustment: the income or deduction when an asset is sold or stops being used.
• Car limit: the maximum cost of a car for depreciation, $69,883 for 2026–27.
• Instant asset write-off: immediate deduction for small business assets costing less than $20,000.
• Small business pool: a combined pool for small business assets, depreciated at 15% then 30%.
• Low-value pool: a pool for assets costing less than $1,000, depreciated at 18.75% then 37.5%.

Common depreciation mistakes

1. Claiming the full cost of an asset over $300. Unless a small business rule applies, it must be depreciated.
2. Ignoring the days held. The first year is pro-rated from the date first used.
3. Forgetting private use. Only the business or work share is deductible.
4. Exceeding the car limit. The cost of a car is capped.
5. Claiming second-hand plant in a residential rental. Generally not allowed for individuals after 9 May 2017.
6. Forgetting the balancing adjustment. Selling an asset can create income or a deduction.

How we tested this calculator

The calculator handles one asset at a time. It does not track low-value pools, balancing adjustments, capital works deductions or changes in business use during the asset’s life.

Three real Australian examples

All figures come from this calculator’s engine.

Three expert tips

Depreciation FAQs

Definitions and eligibility

Maths and technical rules

State and territory differences

Edge cases and ATO compliance

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Editorial transparency and sources

We check the formulas, car limit and small business rules on this page against the ATO’s Guide to depreciating assets and its car threshold and instant asset write-off pages each year. The 2026–27 car limit of $69,883 and the permanent $20,000 instant asset write-off from 1 July 2026 are from the ATO and Treasury. The page was last checked on 29 October 2026. Read our editorial policy and report errors on our contact page.

General Advice Warning: this calculator and page provide general information for educational purposes only. They are not tax advice. Depreciation depends on the asset, how it is used and your circumstances. Speak to a registered tax agent before making claims. AUFinanceCalculators.com does not hold an Australian Financial Services Licence and is not a registered tax agent. See our full disclaimer.

Official sources

• Australian Taxation Office: Guide to depreciating assets 2026
• Australian Taxation Office: Instant asset write-off
• Australian Taxation Office: Car thresholds
• Treasury: Small business tax measures