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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Questions about this term
Depreciation (decline in value): common questions
- Can I claim the full cost of a laptop in the year I buy it?
- Only if it qualifies for an immediate write-off. Otherwise the deduction belongs across the asset’s effective life — a bit each year as it wears out — which matches the expense to the years the asset earns you income. Claiming the whole price in year one because it felt like a business expense is the adjustment most likely to be unwound later.
- How does private use change a depreciation claim?
- You claim only the work-use share. A $3,000 laptop used 80% for work has a two-year effective life; under prime cost that is $1,500 of decline a year, and the claim is 80% of it — $1,200 in each of the two years. The same proportion you would apply to any mixed-use expense applies here.
- Is “decline in value” the same thing as depreciation?
- Yes — decline in value is the ATO’s name for the same deduction, and “capital allowance” is another. All three describe deducting the cost of a business asset gradually over its effective life rather than all at once. Whichever term you meet, the arithmetic and the work-use rule are the same.
- Where does Fin keep track of depreciation?
- In the asset register. 2Fin holds each depreciating asset with its cost, effective life and any private-use share, and produces the depreciation schedule from it, so each year’s decline is worked out rather than remembered. That is the asset register and depreciation schedule feature linked from this term.
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