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Depreciation methods

There are two depreciation methods you can use for depreciating assets. You also have the option to pool lower value assets as a single value.

In most cases, the depreciation method you use is up to you. Both methods use the same useful life of an asset, so the maximum amount of depreciation deduction you can claim will be the same whichever method you use.

Diminishing value method

The diminishing value (DV) method works out depreciation on the adjusted tax value of an asset.

To work out the adjusted tax value of an asset, subtract any depreciation claimed from the cost price.

Depreciation claimed is higher at the start, but reduces each year.

Straight line method

The straight line (SL) method works out depreciation on the cost price of an asset.

You claim the same amount each year.

Changing depreciation methods

You don't have to use the same depreciation method for all your assets. But you must use the method you choose for the full tax year.

You can change depreciation methods at the end of a year.

If you change methods you need to use the adjusted tax value not the asset cost price when you work out depreciation.

Pooling assets to depreciate as a single asset

You can choose to pool assets that cost, or have an adjusted tax value, less than $5,000. Pooled assets depreciate as a single asset.

You must take into account the following if you pool assets:

  • You must use the diminishing value method.
  • If you're registered for GST, the asset cost of value excludes GST.
  • Buildings can't be depreciated in a pool.
  • Pooled assets must only be used for business, or be liable for fringe benefit tax.
  • Use the lowest depreciation rate of all the pooled assets.