Two methods can be applied when depreciating property; the diminishing value method or prime cost method. The intentions of the property investor will determine which depreciation method will be most suitable for them.
Under the diminishing value method, the deduction is calculated as a percentage of the balance you have left to deduct. The formula for calculating depreciation using the diminishing value method is:
Properties settled before 10th May 2006
|Opening un-deducted cost||X||
150asset's effective life (in years)
Properties settled on or after 10th May 2006
|Opening un-deducted cost||X||Days owned||X||
Note: on average this change will increase the rate of depreciation by 33%
Under the prime cost method, the deduction for each year is calculated as a percentage of the cost. The formula for determining the amount of depreciation deduction under the prime cost method is:
Prime Cost method
A complete BMT Capital Allowance and Tax Depreciation Schedule includes both the prime cost and diminishing value methods of depreciation. It’s important to remember that you cannot switch between methods of depreciation, which is why we always recommend that you consult with your Accountant or Financial Adviser to discuss your personal circumstances and investment strategy.
- Q1 What is capital works deduction (Division 43)?
- Q2 What is plant and equipment (Division 40)?
- Q3 How is the capital works deduction different to plant and equipment?
- Q4 Why itemise plant and equipment?
- Q5 Which depreciation method is best?
- Q6 How does low value pooling help to maximise my depreciation claim?
- Q7 What is scrapping?
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