Prime cost method
Straight-line depreciation — the same deduction each year of the effective life.
The prime cost method claims the same amount of decline in value each year over an asset’s effective life. The ATO formula is: cost × (days held ÷ 365) × (100% ÷ effective life). Days held are the actual days in the year you held the asset, so a mid-year purchase is prorated, and the figure can be 366 in a leap year.
Prime cost is simpler to follow and suits assets whose usefulness is spread evenly. The alternative, diminishing value, claims more in the early years. Whichever you choose for an asset, you generally keep it for that asset’s life.
Worked example
A $2,000 laptop, two-year effective life, bought on 1 January and held 181 days to 30 June: $2,000 × 181 ÷ 365 × 50% = $496 of decline in year one. Year two is a full $1,000, and the remaining $504 lands in year three.
Common mistake
Claiming a full year in the year of purchase. The days-held fraction is part of the formula, and a December purchase earns roughly half a year’s decline, not a whole one.
Grounded in ATO — Prime cost and diminishing value methods guidance. Figures last checked . General information, not tax advice.
Related terms
Diminishing value method
Front-loaded depreciation — a bigger claim early, shrinking each year.
Effective life
How many years an asset is expected to be used — the base of every depreciation rate.
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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