Australia (ATO)

How Australian Tax Depreciation Really Works

Australian businesses deduct the cost of depreciable assets under Division 40 of the Income Tax Assessment Act 1997. The ATO publishes Taxation Ruling TR 2024/3, which lists effective lives for more than 6,000 individual asset types — from abattoir equipment to zoo infrastructure. These statutory lives form the foundation of every depreciation calculation, whether you choose prime cost or diminishing value.

Under the prime cost method, your annual deduction equals the asset's cost multiplied by the fraction (days held ÷ 365) × (100% ÷ effective life in years). A $50,000 delivery truck with an eight-year effective life produces a $6,250 deduction every full year. Under the diminishing value method, the rate is 200% divided by the effective life — so that same truck attracts a 25% rate applied to its declining book value, giving a $12,500 first-year deduction falling to $9,375 in year two. Over a full eight-year cycle, diminishing value front-loads roughly 45% of total deductions into the first three years.

Instant Asset Write-Off: Deadline and Mechanics

The temporary $20,000 instant asset write-off threshold for small businesses (aggregated turnover under $10 million) is scheduled to expire on 30 June 2026, reverting to $1,000. Each eligible asset below the threshold is fully deducted in the income year it is first used or installed ready for use — not when it is ordered or delivered. A café owner who buys a $15,000 commercial oven in May 2026 and has it installed by 30 June can claim the full $15,000 that financial year. Assets at $20,000 or above enter the small business depreciation pool instead, depreciating at 15% in year one and 30% declining value thereafter. The pool's simplicity is its main benefit: one balance and one annual calculation rather than tracking dozens of individual assets.

Self-Assessing Effective Life

Taxpayers are not locked into ATO-published effective lives. Section 40-105 allows self-assessment when your specific circumstances differ from the ruling — for instance, if you operate machinery in unusually harsh conditions or run intensive double-shift production. A mining company using conveyor belts in an abrasive environment may self-assess a five-year life rather than the ATO's ten-year default for similar equipment, doubling the annual deduction. The ATO car limit for 2024–25 is $69,674 (GST-inclusive), capping depreciation for passenger vehicles regardless of actual purchase price. Contemporaneous documentation of your self-assessment methodology is essential, as the ATO specifically tests effective life claims during audit reviews of capital-intensive businesses.