Depreciation Rates Australia 2026 — Complete Guide for Small Business
Depreciation is one of the most overlooked tax deductions for Australian small businesses. Every piece of equipment, furniture, vehicle, and technology your business owns is losing value — and the ATO lets you claim that decline as a tax deduction.
The catch? You need to use the right rates, the right method, and keep proper records.
Here's everything you need to know about depreciation for the 2025-26 financial year.
How Depreciation Works in Australia
When your business buys an asset — say, a $2,000 laptop — you don't deduct the full $2,000 in the year you buy it (unless it qualifies for instant write-off). Instead, you spread the deduction over the asset's effective life, which the ATO determines.
The Two Methods
Diminishing Value Method Calculates a higher deduction in the early years, declining over time. Most common for small businesses.
Formula: Base Value × (Days Held ÷ 365) × (200% ÷ Effective Life in Years)
Prime Cost (Straight-Line) Method Equal deductions each year over the asset's life. Simpler, but front-loads less.
Formula: Cost × (Days Held ÷ 365) × (100% ÷ Effective Life in Years)
Which Method Should You Choose?
For most small businesses, diminishing value is better because:
- Higher deductions in the early years when you need the cash flow
- Better match to reality — most assets lose more value early on
- Once you choose a method for an asset, you can't switch
Common Depreciation Rates (2025-26)
The ATO publishes effective life determinations for thousands of asset types. Here are the most common ones for small businesses:
Technology & Computing
| Asset | Effective Life | Diminishing Value Rate | Prime Cost Rate |
|---|---|---|---|
| Desktop computer | 4 years | 50% | 25% |
| Laptop | 4 years | 50% | 25% |
| Tablet / iPad | 2 years | 100% | 50% |
| Computer monitor | 4 years | 50% | 25% |
| Printer / scanner | 5 years | 40% | 20% |
| Server | 5 years | 40% | 20% |
| Mobile phone | 3 years | 66.67% | 33.33% |
| Software (general) | 5 years | 40% | 20% |
| Website | 5 years | 40% | 20% |
Office Furniture & Equipment
| Asset | Effective Life | Diminishing Value Rate | Prime Cost Rate |
|---|---|---|---|
| Office desk | 10 years | 20% | 10% |
| Office chair | 10 years | 20% | 10% |
| Filing cabinet | 15 years | 13.33% | 6.67% |
| Air conditioning unit | 10 years | 20% | 10% |
| Fridge | 10 years | 20% | 10% |
| Dishwasher | 10 years | 20% | 10% |
Vehicles
| Asset | Effective Life | Diminishing Value Rate | Prime Cost Rate |
|---|---|---|---|
| Passenger vehicle (car) | 8 years | 25% | 12.5% |
| Light commercial vehicle (ute, van) | 8 years | 25% | 12.5% |
| Motorcycle | 8 years | 25% | 12.5% |
| Trailer | 10 years | 20% | 10% |
| Forklift | 11 years | 18.18% | 9.09% |
Hospitality & Food Service
| Asset | Effective Life | Diminishing Value Rate | Prime Cost Rate |
|---|---|---|---|
| Commercial oven | 10 years | 20% | 10% |
| Espresso machine | 10 years | 20% | 10% |
| Commercial fridge | 12 years | 16.67% | 8.33% |
| Point-of-sale system | 4 years | 50% | 25% |
| Tables and chairs | 10 years | 20% | 10% |
| Coffee grinder | 7 years | 28.57% | 14.29% |
Construction & Trades
| Asset | Effective Life | Diminishing Value Rate | Prime Cost Rate |
|---|---|---|---|
| Power drill | 5 years | 40% | 20% |
| Portable generator | 10 years | 20% | 10% |
| Scaffolding | 10 years | 20% | 10% |
| Compressor | 10 years | 20% | 10% |
| Welder | 10 years | 20% | 10% |
| Work ute tray fitout | 5 years | 40% | 20% |
Note: These are general effective life determinations from the ATO. Specific assets may differ — always check the ATO's effective life tables for your exact asset type.
Small Business Depreciation Concessions
If your business has an aggregated turnover of less than $10 million, you're eligible for the simplified depreciation rules. These are significant.
Instant Asset Write-Off
For the 2025-26 financial year, small business entities can immediately deduct assets costing less than the threshold in the year they're purchased (check the current threshold on the ATO website as it changes frequently).
This means no depreciation schedules, no spreading over multiple years — the full cost goes as a deduction in year one.
Small Business Pool
Assets that don't qualify for instant write-off go into a general small business pool:
- First year: Claim 15% of the asset's cost
- Each year after: Claim 30% of the pool's closing balance
The pool is simpler than tracking individual assets, but you still need to know what's in it.
Backing Business Investment (BBI)
Check current ATO guidance for any temporary full expensing or accelerated depreciation measures in effect. These have changed frequently in recent years.
Depreciation Calculation Examples
Example 1: Laptop (Diminishing Value)
| Detail | Value |
|---|---|
| Purchase price | $2,400 |
| Effective life | 4 years |
| Method | Diminishing value |
| Year | Opening Value | Depreciation | Closing Value |
|---|---|---|---|
| 1 | $2,400 | $1,200 | $1,200 |
| 2 | $1,200 | $600 | $600 |
| 3 | $600 | $300 | $300 |
| 4 | $300 | $300 | $0 |
Example 2: Work Vehicle (Prime Cost)
| Detail | Value |
|---|---|
| Purchase price | $45,000 |
| Effective life | 8 years |
| Method | Prime cost |
Annual depreciation: $45,000 ÷ 8 = $5,625 per year for 8 years.
Example 3: Partial Year
You buy a $3,000 printer on 1 March 2026 (122 days until 30 June).
Diminishing value: $3,000 × (122 ÷ 365) × (200% ÷ 5 years) = $400
Common Depreciation Mistakes
1. Not Claiming Depreciation at All
Surprising how many small businesses forget. If you own assets, you're likely leaving money on the table.
2. Using the Wrong Effective Life
Don't guess — use the ATO's published tables. A commercial espresso machine (10 years) is very different from a domestic one (12 years).
3. Forgetting Installation Costs
The cost of an asset includes delivery, installation, and any modifications needed to make it operational. A $5,000 air conditioning unit with $1,500 installation costs is a $6,500 asset.
4. Not Tracking Assets When They Move
If you have assets across multiple locations (common for trades and construction), you need to know where they are for insurance and stocktake purposes.
5. Keeping Everything in Your Head
Depreciation records need to be defensible if the ATO audits you. Proper records beat memory every time.
Track Depreciation Without the Spreadsheet Headaches
Calculating depreciation in a spreadsheet gets messy fast — especially when you have assets bought on different dates, using different methods, with partial-year adjustments.
Asset Shark automates all of this. Enter your assets, set the depreciation method, and let the software calculate everything — including partial-year adjustments, disposal proceeds, and EOFY reports for your accountant.
Disclaimer: This guide provides general information about depreciation in Australia. It's not tax advice. Always consult your accountant or tax agent for advice specific to your situation.