Free tool
Enter cost, purchase date, effective life and method to see each year. Year one is pro-rated by the days held, counting the purchase day, out of 365. The instant asset write-off calculator checks the A$20,000 rule.
Why it matters
Depreciation spreads the cost of an asset over the years you use it. It matches the cost to the income the asset helps earn and it is a tax deduction.
The method you choose changes the deduction each year, so pick one and keep to it.
The steps
- List the asset. Record cost, date first used or ready for use, and what it is.
- Check the instant asset write-off. Small businesses with aggregated turnover under A$10 million can deduct the full cost of an eligible asset costing less than A$20,000 in the year it is first used or installed ready for use. The ATO says this is permanent from 1 July 2026 and the measure is now law. If the asset qualifies, stop here.
- Find the effective life. Use the effective life in the Commissioner's determination for the asset type, or your own estimate with evidence.
- Choose a method. Prime cost: cost x days held / 365 x 100% / effective life. Diminishing value: opening value x days held / 365 x 200% / effective life.
- Work out year one. Apply the formula for the days you held the asset in the year.
- Work out later years. For prime cost the amount stays the same. For diminishing value apply the rate to the reduced value.
- Record the journal. Debit depreciation expense and credit accumulated depreciation.
- Update the register. Keep the register current with the written down value of each asset.
Worked example
Example Distribution Pty Ltd buys a A$30,000 machine on 1 July. Effective life is 10 years. It is held for the full year.
| Year | Prime cost | Diminishing value |
|---|---|---|
| Year 1 | 30,000 x 10% = A$3,000 | 30,000 x 20% = A$6,000 |
| Year 2 | A$3,000 | 24,000 x 20% = A$4,800 |
| Written down value after year 2 | A$24,000 | A$19,200 |
The machine costs A$30,000, so it is above the A$20,000 write-off limit and is depreciated. Diminishing value gives a larger deduction early.
Common mistakes
- Writing off an asset that does not qualify.
- Using the wrong effective life.
- Mixing methods for one asset.
- Forgetting to update the register after a sale.
Next step
Use the Depreciation calculator first. Then see faster month-end close with Pulsify.
Sources
Common questions
What is the instant asset write-off limit?
A$20,000 per asset for eligible small businesses (turnover under A$10 million). The ATO says it is permanent from 1 July 2026 and the measure is now law. Check the ATO page for conditions.
Where do I find effective life?
The ATO publishes effective life by asset type in the Income Tax Assessment (Effective Life of Depreciating Assets) Determination 2025. It no longer publishes them in tax rulings.
Do I depreciate land?
No. Land does not depreciate.
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