Effective life
How many years an asset is expected to be used — the base of every depreciation rate.
Effective life is the number of years the ATO expects a depreciating asset to be usable for income-producing purposes, and it sets the rate under both the prime cost and diminishing value methods. You can use the Commissioner’s determination — updated each year as a legislative instrument — or self-assess. Under the 2025 determination, laptops are two years and desktop computers four.
The determination is the instrument called Income Tax (Effective Life of Depreciating Assets) Determination 2025 (F2025L01097). Because the rate is derived from the life — 100% ÷ life for prime cost, 200% ÷ life for diminishing value — picking the wrong row moves every year of the schedule.
Worked example
A $2,000 laptop with a two-year effective life under prime cost declines $1,000 a year. The same laptop entered as four years (the desktop row) would decline $500 a year and still be on the books two years after the ATO expects it to be worthless.
Common mistake
Using the four-year computer figure that circulates online for a laptop. The determination lists laptops separately at two years; the four-year row is desktop computers.
Grounded in Federal Register of Legislation — F2025L01097 guidance. Figures last checked . General information, not tax advice.
Related terms
Depreciation (decline in value)
Claiming the cost of a big asset gradually over its life.
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.
Instant asset write-off
Immediately deduct an eligible asset instead of depreciating it.
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Questions about this term
Effective life: common questions
- Do I have to use the ATO’s effective life, or can I set my own?
- Either — you can use the Commissioner’s determination, updated each year as a legislative instrument, or self-assess. The current instrument is the Income Tax (Effective Life of Depreciating Assets) Determination 2025 (F2025L01097), and it is the figure most schedules start from.
- How does effective life turn into a depreciation rate?
- By division. Prime cost uses 100% ÷ life; diminishing value uses 200% ÷ life. A two-year life gives 50% under prime cost, so a $2,000 laptop declines $1,000 a year. Because every rate is derived from the life, picking the wrong row moves every year of the schedule.
- What happens if I enter the wrong effective life?
- The whole schedule shifts. A $2,000 laptop entered at four years (the desktop row) declines $500 a year instead of $1,000 and is still on the books two years after the ATO expects it to be worthless. The register can only be as right as the life you give it.
- Is the four-year computer figure right for a laptop?
- No — the 2025 determination lists laptops separately at two years; the four-year row is desktop computers. The four-year figure circulates widely online, which is why it is worth checking the row rather than the headline before entering an asset.
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