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Business income tax
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Depreciation methods

There are two methods you can choose for calculating depreciation on an asset:

  • diminishing value depreciation
  • straight line depreciation

Diminishing value depreciation

In this method depreciation is worked out on the adjusted tax value of the asset (the purchase price, less any depreciation already claimed in previous years).  Diminishing value has higher deductions in the first few years than straight line depreciation and these deductions decrease each year.

Straight line depreciation

In this method depreciation is worked out on the purchase price of the asset and the same amount is claimed each year.

Both methods deduct the same amount over the lifetime of the asset.

You don't have to use the same depreciation method for all your assets but the method you choose for an asset must be used for the full income tax year. You can change depreciation methods at the end of a year. When you change depreciation methods you'll need to use the adjusted tax value to calculate depreciation and not the original purchase price of the asset.

Pooling assets

You have the option to pool or group lower value assets and depreciate them as though they were a single asset.

  • Individual assets in a pool must cost $5,000 or less, or have been depreciated so the adjusted tax value is $5,000 or less.
  • If you're GST-registered, the maximum pooling value excludes GST.
  • Buildings can't be depreciated in a pool.
  • You must use the diminishing value method for pooled assets.
  • Pooled assets must exclusively be used for business (no private use), or be liable for fringe benefit tax.
  • Where assets in the pool have different depreciation rates, the lowest rate is applied to the pool.

Next steps

Once you've chosen a depreciation method (or methods) you need to find the rate for calculating the depreciation deduction.

More information