Income tax Dates
This method uses a rate of an asset's adjusted tax value each year. The depreciation deduction gets lower over an asset’s life.
This method is sometimes called the written down value or tax book value.
Find your asset's rate
Use our Depreciation rate finder and calculator to find the depreciation rate and calculate depreciation for a business asset.
Or use the IR265 guide to find the depreciation rate for your asset and method and continue with these steps.
Use this tool to find the depreciation rate and calculate depreciation for a business asset.
Go to this tool
If you bought a commercial espresso machine for your café business, the IR265 guide’s contents page will direct you to ‘Hotels, motels, restaurants, cafes, taverns and takeaway bars’ on page 20.
Then on page 20 you’ll see ‘coffee makers’ with a diminishing value (DV) rate of 30%.
Work out depreciation for the first year
For the first year, depreciate using the rate you’ve identified and the asset’s cost value – how much it cost you to buy.
Cost value × diminishing value rate % = amount of depreciation to claim in your income tax return
The asset’s new adjusted tax value is its cost value minus how much depreciation you’ve claimed.
If you bought the asset partway through the year, or if you do not use it 100% for business, you also need to follow steps 3 and 4.
If you paid $10,000 for a commercial espresso machine with a diminishing value rate of 30%, work out the first year’s depreciation like this.
Cost value $10,000 × DV rate 30% = $3,000 depreciation to claim in your tax return
The remaining $7,000 is the espresso machine’s adjusted tax value to use in next year’s return.
If you bought the machine partway through the year, or if you do not use it 100% for business, you also need to follow steps 3 and 4.
Work out how many months you've used the asset
If you bought the asset partway through the financial year, or if you started using it for business partway through the year, then you need to work out depreciation for the number of months you used it for business. Count part-months as whole months.
Use the depreciation amount from step 2.
Depreciation × months used = 12
If you used the asset in business for the full 12 months of the financial year, you do not need to do this step.
If your financial year is 1 April to 31 March, and you bought the espresso machine on 20 May, then you’ve used it in your business for 11 months (counting part-months as whole months).
Using the depreciation amount from step 2:
Depreciation $3,000 × 11 months ÷ 12 = $2,750
Work out business use percentage
If you use the asset personally throughout the year as well as for business, you also need to:
- work out how much the asset is used for business, as a percentage
- multiply your final depreciation amount by that percentage.
Depreciation amount × business use percentage = depreciation to claim in your return.
If you use the asset 100% for business, you do not need to do this step.
If you use your espresso machine for business 70% of the time and personally 30% of the time, and you’ve worked out depreciation at $2,750 in the previous step, do this calculation.
Depreciation amount $2,750 × business use percentage 70% = $1,925 depreciation to claim in your return.
Work out depreciation for following years
For the second year and each year afterwards, depreciate using the same rate and the asset’s new adjusted tax value. You only depreciate assets while they are used in your business.
Adjusted tax value × diminishing value rate % = amount of depreciation to claim in your tax return
If you stopped using the asset partway through the year, or if you do not use it 100% for business, you’ll need to do the extra calculations from step 3 and 4.
Using our example from step 2, your commercial espresso machine’s adjusted tax value is $7,000, with a diminishing value rate of 30%. You use it 100% for business for the full year, so do not need to work out business use percentage or months used.
Work out the depreciation like this:
Year 2: Adjusted tax value $7,000 × DV rate 30% = $2,100 to claim in your tax return.
Your new adjusted tax value is $4,900. ($7,000 − $2,100)
Year 3: Adjusted tax value $4,900 × DV rate 30% = $1,470 to claim in your tax return.
Your new adjusted tax value is $3,430. ($4,900 − 1,470)
Year 4: Adjusted tax value $3,430 × DV rate 30% = $1,029 to claim in your tax return.
Your new adjusted tax value is $2,401. ($3,430 − $1,029)
What happens next
Keep working out your depreciation like this until you’ve done one of the following.
- You’ve claimed the asset’s full cost value – its original purchase price or valuation.
- You no longer use the asset in your business.
For more information, see our Depreciation guide for businesses – IR260.
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