The two ATO depreciation methods
When you buy an asset to produce income, you generally cannot claim its full cost in one year. You claim it gradually as the asset declines in value across its effective life. The ATO gives you two methods, and you choose one per asset.
Prime cost, also called straight line, claims the same slice of the original cost each year. The formula is cost multiplied by days held divided by 365, multiplied by 100% divided by the effective life. The asset writes down to zero over its effective life.
Diminishing value claims more in the early years. The formula is the base value multiplied by days held divided by 365, multiplied by 200% divided by the effective life. The base value starts at the asset's cost and reduces by each year's decline, so the deduction shrinks over time and a small residual remains at the end.
A worked example
Take a $10,000 asset with a 5-year effective life, held for the full year. Under prime cost the first-year deduction is $10,000 multiplied by 100% divided by 5, which is $2,000, and it stays $2,000 every year until the asset reaches zero. Under diminishing value the first-year deduction is $10,000 multiplied by 200% divided by 5, which is $4,000, then it falls each year as the base value drops. Diminishing value gives you $2,000 more in year one, prime cost catches up later.
Assets versus the building: Division 40 and Division 43
This calculator handles depreciating assets, the plant and equipment items covered by Division 40, such as appliances, carpet, blinds and air conditioning. The building structureitself is a separate deduction called capital works under Division 43, generally 2.5% of the original construction cost each year over 40 years. The two are claimed separately. For an investment property you usually need a quantity surveyor's depreciation schedule to value each item and split the two correctly.
Frequently asked questions
How do I calculate depreciation?
You spread an asset's cost across its effective life. The ATO gives you two methods. Prime cost (straight line) claims the same slice each year: cost multiplied by days held divided by 365, multiplied by 100% divided by the effective life in years. Diminishing value front-loads the deduction: base value multiplied by days held divided by 365, multiplied by 200% divided by the effective life, where the base value reduces by each year's decline. Enter your figures above and this calculator runs both.
What is the easiest way to calculate depreciation?
The straight-line (prime cost) method is the simplest to follow, because you claim the same amount each year until the asset writes down to zero. For a $10,000 asset with a 5-year effective life, that's $2,000 a year. Diminishing value is a little more work because the base value changes each year, but it gives you a larger deduction early on. This tool shows both side by side so you don't have to do the arithmetic.
Diminishing value or prime cost, which method should I use?
Diminishing value gives you bigger deductions in the early years, which suits you if you want the tax benefit sooner or expect to sell the asset before the end of its life. Prime cost spreads the deduction evenly, which some people prefer for steady, predictable claims. Once you choose a method for an asset you generally cannot switch it, so it is worth modelling both first. This calculator lets you compare them instantly.
How is depreciation calculated on property in Australia?
An investment property has two separate deductions. The fixtures and fittings (carpet, blinds, appliances, hot water systems) are depreciating assets under Division 40, claimed by prime cost or diminishing value on each item's effective life. The building structure itself is capital works under Division 43, usually 2.5% of the construction cost a year over 40 years. This calculator handles the Division 40 asset side. For a property you generally need a quantity surveyor's depreciation schedule to value each item.
How many years do I depreciate an asset over?
You depreciate an asset over its effective life, which is how long it is reasonably expected to be used to produce income. The ATO publishes effective lives for most assets in its annual determination (Taxation Ruling TR 2025/1), or you can self-assess a reasonable life. Common examples run from a few years for small equipment up to 10 or more years for larger plant. Enter the effective life above and the schedule adjusts.
What is the difference between Division 40 and Division 43?
Division 40 covers depreciating assets, the plant and equipment items like appliances, carpet and air conditioning, claimed by prime cost or diminishing value over each item's effective life. Division 43 covers capital works, the building structure and fixed items, claimed at a flat rate (generally 2.5% a year over 40 years) on the original construction cost. They are separate deductions and this calculator focuses on the Division 40 asset side.
This tool is general information, not tax advice. For an investment property you generally need a quantity surveyor's depreciation schedule. Check your situation with the ATO or a registered tax agent.
