Depreciation Rate for Power Tools in Australia (2026 ATO Guide)
What Is the Depreciation Rate for Power Tools in Australia?
According to the Australian Taxation Office (ATO), power tools have a effective life of 5 years. This gives you two depreciation rate options:
| Method | Rate | How It Works |
|---|---|---|
| Diminishing Value | 40.00% | Higher deductions in earlier years |
| Prime Cost | 20.00% | Equal deductions each year |
Diminishing value rate = 200% ÷ effective life (200% ÷ 5 = 40.00%). Prime cost rate = 100% ÷ effective life (100% ÷ 5 = 20.00%).
Worked Example: $1,000 Power Tools
Purchase power tools for $1,000 on 1 July 2025 (start of the financial year) for a full-year deduction:
Diminishing Value Method (40.00%)
| Financial Year | Opening Value | Deduction | Closing Value |
|---|---|---|---|
| 2025–26 | $1,000 | $400 | $600 |
| 2026–27 | $600 | $240 | $360 |
| 2027–28 | $360 | $144 | $216 |
| 2028–29 | $216 | $86 | $130 |
| 2029–30 | $130 | $52 | $78 |
| 2030–31 | $78 | $31 | $47 |
| 2031–32 | $47 | $19 | $28 |
Prime Cost Method (20.00%)
| Financial Year | Opening Value | Deduction | Closing Value |
|---|---|---|---|
| 2025–26 | $1,000 | $200 | $800 |
| 2026–27 | $800 | $200 | $600 |
| 2027–28 | $600 | $200 | $400 |
| 2028–29 | $400 | $200 | $200 |
| 2029–30 | $200 | $200 | $0 |
Which method is better? Diminishing value gives you $400 in Year 1 vs $200 with prime cost. Most small businesses prefer diminishing value for the bigger upfront deduction.
First-Year Pro-Rata Rule
If you purchase the power tool partway through the financial year, your first-year deduction is pro-rated based on the number of days you held the asset.
Example: Buy power tools for $1,000 on 1 January 2026 (181 days remaining in the FY).
- Diminishing value: $1,000 × 40.00% × (181/365) = $198
- Prime cost: $1,000 × 20.00% × (181/365) = $99
Instant Asset Write-Off
If your power tool costs less than the instant asset write-off threshold ($20,000 for the 2024–25 income year), you may be able to deduct the entire cost immediately rather than depreciating over 5 years. This applies to small businesses with aggregated turnover under $10 million.
Always check the current ATO guidance as thresholds can change each financial year.
What Counts as “Power Tools” for ATO Purposes?
The ATO’s 5-year effective life applies to:
- Drills and impact drivers
- Circular saws and jigsaws
- Angle grinders
- Sanders and planers
- Nail guns and compressor tools
Hand tools also have a 5-year effective life. If a tool costs less than $300, you may be able to claim an immediate deduction without depreciating.
How to Claim Depreciation
- Must be used for business purposes. Only claim the business-use percentage. If you use the power tool 70% for work, claim 70% of the depreciation.
- Choose your method — diminishing value or prime cost. You must stick with the same method for the life of that asset.
- Keep records — purchase receipt, proof of business use percentage, and your depreciation schedule.
- Report in your tax return — include the deduction amount in your business expenses or work-related deductions.
Calculate Your Depreciation
Use our free depreciation calculator to get an instant depreciation schedule — just select “Power Tools” and enter the purchase price and date.
Frequently Asked Questions
What is the ATO effective life for power tools?
The ATO sets the effective life at 5 years for power tools.
Should I use diminishing value or prime cost?
Most small businesses use diminishing value because it gives a bigger deduction in the first year ($400 vs $200 on a $1,000 power tool).
Can I claim the full cost as an immediate deduction?
If the power tool costs less than the instant asset write-off threshold and you are an eligible small business, yes — you can deduct the full cost in the year of purchase. If you also use it personally, only claim the business-use percentage.
What if I sell or dispose of the power tool before it’s fully depreciated?
You’ll need to do a balancing adjustment. If you sell it for more than the written-down value, the difference is assessable income. If you sell for less, you can claim the remaining amount as a deduction.