You generally cannot deduct spending on capital assets immediately; instead you claim the cost over time, reflecting the asset’s depreciation (or decline in value).
A depreciating asset is one that has a limited effective life and can be reasonably expected to decline in value over the time period it is being used. Land, trading stock and some intangible assets are not depreciating assets.
To calculate your depreciation deduction for most assets you apply the general depreciation rules, unless you are eligible to use the simplified depreciation method, generally for small businesses. The general depreciation rules set the amounts (capital allowances) that can be claimed, based on the assets effective life.
The general depreciation rules are:
- Prime Cost Method – Assumes that the value of a depreciating asset decreases uniformly over its effective life
- Diminishing Value Method – Assumes that the value of a depreciating asset decreases more in the early years of its effective life
To calculate depreciation for most assets for a particular income year you can use the decline in value calculator which compares results of these two methods