Depreciation (decline in value)
Claiming the cost of a big asset gradually over its life.
Depreciation lets you deduct the cost of a business asset — a laptop, tools, a vehicle — a bit each year as it wears out, rather than all at once. You spread the deduction over the asset’s effective life, which matches the expense to the years the asset earns you income.
Smaller assets can often be written off immediately under the instant asset write-off, so it’s worth checking which path gives the better result. Where an asset is used for both work and private purposes, you claim only the work-use share — the same proportion you would apply to any other mixed-use expense.
Worked example
You buy a $3,000 laptop used 80% for work. Laptops have a two-year effective life under the ATO’s 2025 determination (the four-year figure you see quoted is the desktop row). Under the prime cost method that is $1,500 of decline a year, and you claim the work-use share — $1,200 in each of the two years.
Common mistake
Claiming the whole purchase price in year one because it felt like a business expense. If the asset does not qualify for an immediate write-off, the deduction belongs across its effective life — bringing it forward is the adjustment most likely to be unwound later.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
Instant asset write-off
Immediately deduct an eligible asset instead of depreciating it.
Effective life
How many years an asset is expected to be used — the base of every depreciation rate.
Prime cost method
Straight-line depreciation — the same deduction each year of the effective life.
Diminishing value method
Front-loaded depreciation — a bigger claim early, shrinking each year.
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