ATO Depreciation Methods Explained
The ATO allows two main methods for depreciating assets. Both give the same total deduction over the asset's life, but the timing differs significantly.
Diminishing Value (DV): Higher deductions in early years. Rate = 200% ÷ effective life (for assets acquired after 10 May 2006). This front-loads deductions and generally improves cash flow.
Prime Cost (PC): Equal deductions every year. Rate = 100% ÷ effective life. Simpler, more predictable, and easier to explain to lenders or investors.
You must choose your method when you first claim depreciation on an asset and cannot switch later. Most businesses prefer diminishing value for the early cash flow benefit.
Common Asset Effective Lives (ATO TR 2024/1)
| Asset Type | Effective Life | DV Rate | PC Rate |
|---|
| Laptop / desktop computer | 3 years | 66.67% | 33.33% |
| Mobile phone / tablet | 3 years | 66.67% | 33.33% |
| Motor vehicle (non-commercial) | 8 years | 25.00% | 12.50% |
| Office furniture & fittings | 10 years | 20.00% | 10.00% |
| Air conditioning (commercial) | 15 years | 13.33% | 6.67% |
| Solar panels | 20 years | 10.00% | 5.00% |
| Carpets (rental property) | 10 years | 20.00% | 10.00% |
Frequently Asked Questions
Which depreciation method is better — DV or prime cost?▾
The diminishing value method is generally better for businesses because it gives larger deductions in early years when the asset is most valuable, improving cash flow. Prime cost is simpler and gives more predictable deductions — useful for property investors who want consistent annual claims. You must choose when you first claim and cannot switch later for the same asset.
Can I claim depreciation on a rental property?▾
Yes. Plant and equipment (carpets, blinds, appliances, hot water systems, ceiling fans) can be depreciated. Capital works on the building structure (Division 43) can be claimed at 2.5% per year for 40 years if construction started after 15 September 1987. Note: second-hand residential plant and equipment cannot be depreciated if purchased after 9 May 2017 (new properties are still eligible). A quantity surveyor report helps identify all available depreciation.
What is the instant asset write-off for 2025–26?▾
Eligible small businesses (turnover under $10 million) can immediately deduct the full cost of assets under $20,000 in 2025–26 rather than depreciate over time. This means a $15,000 piece of equipment gives a $15,000 deduction in year 1 instead of being spread over its effective life. Check the ATO website for current thresholds — these change frequently through budget measures.
Can I depreciate a car for work in Australia?▾
Yes, using the logbook method. You depreciate your car based on your business-use percentage and the car's cost (capped at the luxury car limit — $89,332 for 2025–26). The effective life for a standard motor vehicle is 8 years (DV rate 25%). Alternatively, use the cents per km method (88¢/km) which includes a built-in depreciation allowance and avoids the need to track actual costs.
What happens when I sell a depreciated asset?▾
When you sell an asset for more than its written-down value (original cost minus all depreciation claimed), the difference is a balancing adjustment — you include it as assessable income in that year. If you sell for less than the written-down value, you get an additional deduction. For assets held 12+ months, any capital gain above the written-down value may qualify for the 50% CGT discount.