Depreciation calculator: diminishing value vs prime cost
Work out the tax depreciation (decline in value) of a business or work asset in Australia, using the ATO's two methods side by side: diminishing value and prime cost. You get a year-by-year schedule with the days held in the first year, business-use percentage, and the 2026-27 car limit ($69,883).
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CalculatorWorked examplesWhich method?Effective lifeFAQ
Worked examples
ATO example: $80,000 asset, 5-year effective life, held all year. This assumes 365-day years. A year that includes 29 February counts 366 days held, so the calculator's figure for that year is slightly higher.
| Year | Prime cost (20% of cost) | Diminishing value (40% of opening value) |
|---|---|---|
| 1 | $16,000 | $80,000 × 40% = $32,000 |
| 2 | $16,000 | $48,000 × 40% = $19,200 |
| 3 | $16,000 | $28,800 × 40% = $11,520 |
| 4 | $16,000 | $17,280 × 40% = $6,912 |
| 5 | $16,000 | $10,368 × 40% = $4,147.20 |
Part year: a $2,400 laptop first used on 1 October 2026, 2-year effective life, 80% work use. It's held for 273 days in 2026-27 (1 Oct to 30 Jun).
- Diminishing value: $2,400 × 273/365 × 200%/2 = $1,795.07 decline; × 80% = $1,436.06 deduction.
- Prime cost: $2,400 × 273/365 × 100%/2 = $897.53 decline; × 80% = $718.02 deduction.
Car: a $75,000 car first used on 1 July 2026, 8-year effective life. The cost is capped at the $69,883 car limit, so diminishing value year 1 = $69,883 × 25% = $17,470.75 and prime cost = $69,883 × 12.5% = $8,735.38 (before the business-use percentage).
The formulas (ATO)
- Prime cost: cost × (days held ÷ 365) × (100% ÷ effective life). Same amount each full year, until the cost is written off.
- Diminishing value: base value × (days held ÷ 365) × (200% ÷ effective life). The base value is the cost in year 1, then the opening written-down value. Use 150% if you started holding the asset before 10 May 2006.
- Days held run from the date you first used it (or installed it ready for use) to 30 June, and can be 366 in a leap year. The decline can't exceed the asset's remaining value.
- Your deduction is the decline in value × the percentage you use it for business or work.
Which method should I choose?
Diminishing value front-loads deductions, which suits assets that lose value fast (computers, phones, vehicles). Prime cost gives even deductions and writes the asset off fully within its effective life. Once you choose a method for an asset, you generally can't change it.
Check for faster options first:
- Small businesses with turnover under $10 million using simplified depreciation can usually write off assets under $20,000 in full. Use the instant asset write-off calculator.
- Employees can claim work items costing $300 or less immediately.
- Assets under $1,000 can go into a low-value pool.
Effective life examples
| Asset | Effective life | DV rate | PC rate |
|---|---|---|---|
| Laptop or tablet | 2 years | 100% | 50% |
| Mobile phone | 3 years | 66.67% | 33.33% |
| Desktop computer | 4 years | 50% | 25% |
| Passenger car | 8 years | 25% | 12.5% |
From the ATO's effective life table (Income Tax (Effective Life of Depreciating Assets) Determination 2025, which carried over the earlier figures). Look up your exact asset before relying on these. You can also work out your own effective life if you can justify it.
FAQ
How do I calculate depreciation for tax in Australia?
Use either prime cost (cost × days held ÷ 365 × 100% ÷ effective life) or diminishing value (opening value × days held ÷ 365 × 200% ÷ effective life). Multiply the result by your business or work use percentage to get the deduction.
What is the difference between diminishing value and prime cost?
Diminishing value applies a higher rate (double the prime cost rate) to the reducing balance, so deductions are bigger in the early years and smaller later. Prime cost deducts the same amount each full year until the cost is fully written off.
How much depreciation can I claim on a laptop?
A laptop has a 2-year effective life. Using diminishing value, a laptop used from 1 July is written off in the first year (200% ÷ 2 = 100%). If you buy it part-way through the year, you claim the days held: a $2,400 laptop first used on 1 October 2026 gives $1,795.07 in 2026-27. If it cost $300 or less and you’re an employee, you can claim it straight away.
What is the car limit for 2026-27?
The car limit for 2026-27 is $69,883. If a passenger car first used in 2026-27 cost more, depreciation is worked out on $69,883. The maximum GST credit on a car is one-eleventh of the limit, which is $6,353.
Can I change from diminishing value to prime cost?
Generally no. Once you’ve chosen a method for an asset, you keep using it for that asset. You can choose differently for different assets.
Do I use the price with or without GST?
If you’re registered for GST and claim the GST credit, depreciate the cost excluding GST. If you’re not registered, the cost includes GST.
Is the instant asset write-off better?
For small businesses using simplified depreciation, assets under $20,000 can usually be written off in full in the year they’re first used or installed. That’s faster than either method. Check our instant asset write-off calculator first.
Sources (checked 17 Oct 2026): ATO Prime cost (straight line) and diminishing value methods (incl. the $80,000 example); Assets costing more than $300; Car thresholds from 1 July (2026-27 car limit $69,883, published 9 June 2026); Effective life of assets (Determination 2025).
General information, not tax advice. Special rules apply to buildings (capital works), low-value pools, balancing adjustments when you sell, and primary production assets. Check with the ATO or a registered tax agent.