The prime cost method effectively calculates depreciation on the assumption that the value of a depreciating asset decreases uniformly over its effective life. On the other hand, the calculation of depreciation under the diminishing value method assumes that the value of a depreciating asset decreases more in the early years of its effective life (and less in the later years). Refer to S.40-70, S.40-72 and S.40-75.
A taxpayer is broadly entitled to deduct depreciation on depreciating assets (calculated under the prime cost or diminishing value method) to the extent the assets are used in their business (or in gaining their assessable income). Refer to S.40-25.
An immediate deduction may be available for a depreciating asset whose cost does not exceed
$300 (for a taxpayer that does not carry on a business) or $100 (for a taxpayer that carries on a business). Refer to S.40-80(2) and Practice Statement Law Administration PS LA 2003/8.
In addition, S.40-82 broadly allows a ‘medium sized business’ (i.e., a business with aggregated turnover of less than $50 million but not less than $10 million) to claim an immediate deduction for a depreciating asset costing less than $30,000 in the 2019 and 2020 income years, provided the asset is first acquired and used between 2 April 2019 and 30 June 2020.
Note that Division 40 contains other, more specific, depreciation provisions that may apply to particular depreciating assets (e.g., Subdivision 40-F, which applies to certain primary production depreciating assets). Where applicable, the more specific provisions generally take precedence over the standard calculation of depreciation under the prime cost and diminishing value methods (as discussed above). Refer to S.40-50.