Calculate the annual straight-line depreciation expense and book value of an asset over its useful life.
This calculator computes the annual straight-line depreciation expense for an asset, given its cost, estimated salvage value, and useful life. It shows the annual depreciation charge and the asset's declining book value over each year of its useful life. Straight-line depreciation is the simplest and most widely used method for financial accounting purposes in Australia.
Straight-line depreciation spreads the depreciable amount (cost minus salvage value) equally over the useful life, resulting in the same depreciation charge each year.
Formula: Annual Depreciation = (Asset Cost − Salvage Value) ÷ Useful Life. Book Value at Year End = Previous Book Value − Annual Depreciation. The book value reaches the salvage value at the end of the useful life.
Example: An asset costing A$50,000 with a A$5,000 salvage value and a 10-year useful life: Annual Depreciation = (A$50,000 − A$5,000) ÷ 10 = A$4,500 per year. Book value at end of year 1 = A$50,000 − A$4,500 = A$45,500; at end of year 2 = A$41,000; ... at end of year 10 = A$5,000 (the salvage value). Total depreciation over the asset life = A$45,000.
In Australia, the straight-line depreciation calculated by this tool is an accounting depreciation method used for financial reporting (profit and loss statements and balance sheets) under Australian Accounting Standards (AASB). For income tax purposes, the method and rate of depreciation deductions are determined by the Australian Tax Office (ATO), not by accounting standards — these tax deductions are called "capital allowances" or "Division 40 deductions" and follow the effective life estimates published by the ATO for various asset classes. The ATO provides two methods for calculating Division 40 deductions: the diminishing value method (applying a fixed percentage to the declining balance each year, producing higher deductions in early years) and the prime cost method (equivalent to straight-line, using a fixed percentage of the original cost each year). The effective life of an asset for tax purposes — which determines the depreciation rate — is either the ATO's published effective life for that asset class, or the taxpayer's own reasonable estimate if the asset has specific circumstances that differ from the ATO's general guidance. Additionally, small business instant asset write-off rules have allowed businesses with turnover below certain thresholds to immediately deduct the full cost of eligible assets in the year of purchase, rather than depreciating them over their effective life — check the ATO website for current thresholds and eligibility, as these rules have changed frequently in recent years.
Accounting depreciation (as modelled by this calculator) is the amount charged to the profit and loss statement under Australian Accounting Standards — based on management's estimate of the asset's useful life and method. Tax depreciation (Division 40 capital allowances) is the amount deductible for income tax purposes — determined by the ATO's effective life tables and either the diminishing value or prime cost method. The two figures can differ materially, creating a "temporary difference" that gives rise to deferred tax in the accounts. For tax advice, consult a registered tax agent.
The diminishing value method applies a fixed percentage to the declining book value each year, producing higher deductions in early years and lower deductions later. Straight-line applies the same dollar amount each year. For ATO purposes, the diminishing value rate is 200% ÷ Effective Life (years), and the prime cost rate is 100% ÷ Effective Life. Both methods ultimately deduct the same total amount over the asset's life, but the timing differs — diminishing value front-loads the deduction, improving early-year cash flow by reducing taxable income sooner.
The ATO publishes tables of effective life estimates for thousands of asset types, representing the ATO's estimate of how long the asset will be used to produce income. Effective life determines the rate at which you can deduct the cost for tax purposes — a 5-year effective life allows a 40% diminishing value rate or 20% prime cost rate. You can use the ATO's published effective life or self-assess a different effective life if you have evidence that the asset's actual useful life differs, but self-assessment is subject to ATO scrutiny. See the ATO website for the current effective life guide (TR 2023/1 or later).
The small business instant asset write-off allows eligible small businesses (with aggregated turnover below a threshold set by the government, which has varied between A\$10 million and A\$50 million in recent years) to immediately deduct the full cost of eligible depreciating assets in the income year the asset is first used or installed ready for use. This is a significant cash flow benefit — instead of deducting the cost over several years, the business takes the full deduction in year one. Check the ATO website for the current threshold and any limitations on asset cost or type, as the rules change frequently.
Generally not for the land component (land cannot be depreciated) and only partially for buildings. For tax purposes, the structural elements of commercial buildings (not residential) constructed after specific dates may be deducted under the "Division 43" capital works provisions at 2.5% per year of original construction cost (straight-line over 40 years) — separate from the Division 40 plant and equipment rules. The depreciating assets within a rental property (carpets, hot water systems, appliances, etc.) are depreciable under Division 40. Consult a quantity surveyor or tax professional for property depreciation schedules.
Salvage value (also called residual value or scrap value) is the estimated amount you expect to receive for the asset at the end of its useful life — from sale, trade-in, or scrap. It is often difficult to estimate accurately, particularly for specialised equipment or assets with long useful lives. For assets that will be fully used up (consumed) at end of life, use zero. For vehicles or equipment with an active second-hand market, use a realistic estimate of resale value at end of the expected holding period. For ATO purposes, the ATO's effective life estimates implicitly assume a residual value of zero at end of effective life.
Disclaimer: The information and figures provided on this page are for educational and illustrative purposes only and do not constitute financial, accounting, or tax advice. This calculator models straight-line (prime cost) accounting depreciation only. Actual tax deductions for depreciating assets are governed by the ATO's Division 40 rules, effective life determinations, and applicable small business concessions, which may differ from the results shown here. Consult a registered tax agent or accountant for depreciation and capital allowance advice specific to your business.