Depreciation & Capital Allowances – 2024–25 Guide

Maximise Your Deductions with the Right Depreciation Strategy

Claiming tax deductions for the decline in value of assets used in your business is a vital part of managing tax liability. These deductions fall under the Uniform Capital Allowance (UCA) system, which allows eligible businesses and taxpayers to write off capital assets over their effective life — or immediately, under certain concessions.

What Is a Depreciating Asset?

A depreciating asset is typically a tangible asset that has a limited useful life and declines in value over time. Common examples include:

  • Computers and office equipment

  • Motor vehicles

  • Furniture and machinery

  • Tools and electronics

However, some assets are excluded from depreciation under UCA, such as:

  • Land

  • Trading stock

  • Most intangible assets, except specific types like intellectual property and in-house software

  • Capital works, such as buildings and structural improvements, which are subject to separate rules

➡️ More on depreciation: ATO – Depreciating Assets

Methods of Calculating Decline in Value

You can choose one of two methods to calculate depreciation based on the asset's effective life:

  1. Prime Cost Method (Straight-Line)
    Deduction is spread evenly over the asset’s life based on its initial cost.

  2. Diminishing Value Method
    Deduction is higher in the early years and based on a percentage of the asset’s opening adjustable value each year.

💡 You can use either the ATO’s effective life estimates or self-assess based on your usage.

🔧 ATO Tool: Decline in Value Calculator

Depreciation Rules for Small Businesses

Eligible small business entities (SBE) with an aggregated turnover of less than $10 million can use simplified depreciation rules under Subdivision 328-D of the Income Tax Assessment Act 1997.

Key features (2023–24 & proposed for 2024–25):

  • Instant asset write-off for eligible assets costing less than $20,000 (proposed for assets first used or installed between 1 July 2023 and 30 June 2024)

  • Assets costing $20,000 or more are allocated to a small business depreciation pool and depreciated at 15% in the first year and 30% each subsequent year

📌 The $20,000 threshold replaces the previous $1,000 limit (subject to legislation).

➡️ Stay updated: ATO – Instant Asset Write-Off

Luxury Cars and Car Limits

Cars are depreciating assets, but the deduction is capped by the car limit, which for 2023–24 is $68,108. Any purchase cost above this limit is not depreciable.

  • Leased luxury cars are treated as a notional sale and purchase for depreciation purposes

  • The car limit also applies to GST credit claims

➡️ ATO Guide: Luxury Car Tax Thresholds

Low-Value Pooling

Assets with a cost or opening adjustable value of less than $1,000 can be allocated to a low-value pool, which allows depreciation at a flat 37.5% diminishing value rate.

Recent Changes and Transitional Incentives

✅ Previously Available (Now Ended):

  • Instant Asset Write-Off (up to $150,000): Valid from 12 March 2020 to 31 December 2020 for businesses with turnover under $500 million

  • Backing Business Investment Incentive: Between March 2020 and June 2021

  • Temporary Full Expensing: Applied from 6 October 2020 to 30 June 2023 for businesses with turnover under $5 billion

These measures were temporary stimulus responses and no longer apply after 30 June 2023.

Capital Works Deductions

While not depreciating assets under UCA, buildings and structural improvements may be eligible for deductions under Division 43 (Capital Works). This includes:

  • Commercial and industrial buildings

  • Rental property improvements

  • Structural elements (e.g. walls, driveways)

Deductions are typically spread over 25 or 40 years depending on construction start dates and usage.

➡️ Learn more: ATO – Capital Works Deductions

How We Can Help

At Complete Tax & Financial Services, we help businesses:

  • Select the most effective depreciation strategy

  • Navigate instant asset write-off eligibility

  • Apply the correct pooling and valuation methods

  • Prepare tax-effective asset registers and forecasts

  • Ensure compliance with ATO’s asset and luxury car limits

📞 Contact us today to optimise your depreciation strategy and reduce your taxable income effectively.