ATO Depreciation Rules 2026: Straight-line vs Diminishing
Depreciation allows businesses to deduct the cost of depreciating assets over their effective life. The ATO recognizes two main methods: Prime Cost (straight line) which spreads deduction evenly, and Diminishing Value which accelerates deductions in early years. This calculator helps you estimate first-year and ongoing deductions.
FAQ
Q1: What is the Instant Asset Write-off (IAW)?
For 2025-26, small businesses (aggregated turnover <$10M) can immediately deduct the full cost of eligible assets up to $20,000 (threshold may vary). This provides an immediate tax benefit. Assets must be first used/installed ready for use in the income year. IAW thresholds are temporary and may change; check current ATO announcements.
Q2: How does Prime Cost differ from Diminishing Value?
Prime Cost: Equal deduction each year: (Cost - any instant write-off) / Effective life. Simple, predictable. Diminishing Value: Base depreciates each year. Deduction = Decline in value (cost × (200%/life) or 150%/life depending on asset). Results in larger deductions early, smaller later. Once you choose a method for an asset, you generally must stick to it, but you can switch from Diminishing to Prime Cost later.
Q3: Where do I find the effective life for my asset?
ATO publishes effective life tables (in years) for thousands of assets. For example, a computer might be 4 years, office furniture 10 years, building 40 years. You can also self-assess if your asset's life differs from ATO estimate. Using ATO tables ensures compliance. This calculator requires you to input the effective life.
Important: Depreciation rules are complex. Consider also luxury car limits, pools (low-value, small business), and balancing adjustments when you dispose of an asset. For tax compliance, use a registered tax agent.