Balancing adjustment
What happens to the leftover value when you sell or scrap a depreciating asset.
A balancing adjustment is the difference between what you receive for a depreciating asset when you sell, scrap or stop using it and its written-down (adjustable) value at that time. If you receive more than the written-down value, the excess is generally assessable income; if you receive less, the shortfall is generally a deduction.
The adjustment exists because depreciation is an estimate. Selling for more than the written-down value means you claimed too much decline and some comes back as income; selling for less means you claimed too little and the rest is deductible. Private use during the asset’s life reduces both sides proportionally, which is why a tool can compute the figure but should leave the assessment to you and your accountant.
Worked example
Your car was written down to $12,000 and you sell it for $15,000. The balancing adjustment is $3,000 of assessable income. Sell it for $9,000 instead and the $3,000 shortfall is a deduction — before any private-use reduction.
Common mistake
Forgetting the disposal entirely. An asset that is sold but left on the register keeps depreciating on paper, and the income from the sale never reaches the return.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
Diminishing value method
Front-loaded depreciation — a bigger claim early, shrinking each year.
Prime cost method
Straight-line depreciation — the same deduction each year of the effective life.
Depreciation (decline in value)
Claiming the cost of a big asset gradually over its life.
Instant asset write-off
Immediately deduct an eligible asset instead of depreciating it.
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Questions about this term
Balancing adjustment: common questions
- What happens if I sell an asset for more than its written-down value?
- The excess is generally assessable income. A car written down to $12,000 and sold for $15,000 produces a $3,000 balancing adjustment that goes into your income — because the depreciation claimed turned out to be more than the asset actually lost in value.
- Is a balancing adjustment always income?
- No — it can go either way. Sell for less than the written-down value and the shortfall is generally a deduction: the same car sold for $9,000 gives a $3,000 deduction, before any private-use reduction. Depreciation is an estimate, and the adjustment is how the estimate is trued up.
- Does private use affect the balancing adjustment?
- Yes — private use during the asset’s life reduces both sides proportionally. That is why a tool can compute the raw figure but the assessment is best left to you and your accountant, with the register providing the written-down value and the sale price.
- What if I forget to record the disposal of an asset?
- The asset keeps depreciating on paper and the income from the sale never reaches the return. Recording the sale or scrapping in the asset register is what stops the schedule, produces the adjustment and gets the sale into the right year.
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