Tax

Tax Depreciation Schedule Australia: Small Business Guide 2026

15 June 2026 · 9 min read

Quick Answer

A tax depreciation schedule is a formal record of every depreciating asset your business owns, its cost, effective life, and the deduction you're claiming each year. Small businesses under $10 million aggregated turnover use the Simplified Depreciation Rules — including the instant asset write-off threshold, currently set at $20,000 for assets first used or installed ready for use before 30 June 2025. From 1 July 2025, the threshold reverts to $1,000 unless Parliament legislates otherwise, so the method you use for new assets purchased now may differ from those bought last financial year.

If you own a van, a laptop, a coffee machine for the cafe, or a tile saw on a job site, the ATO expects you to track how those assets lose value over time. That process is called depreciation, and the document that records it is your tax depreciation schedule. It is not optional — it is how you prove to the ATO that every deduction you claim for a business asset is legitimate.

For most Australian small businesses, depreciation is also one of the largest legitimate tax deductions available. Done correctly, it can reduce taxable income by thousands of dollars per year. Done incorrectly — wrong effective life, wrong method, assets mixed between personal and business use without proper apportionment — it triggers amended assessments, penalties, and interest charges that wipe out the benefit entirely.

This guide covers how depreciation works under Australian tax law in 2026, which method applies to your business, how to build and maintain a compliant schedule, and what the ATO actually looks for. The rules are set by the Income Tax Assessment Act 1997 and administered by the ATO. No accountant jargon — just the mechanics you need to get this right.

What Is a Tax Depreciation Schedule and Who Needs One?

A tax depreciation schedule is a line-by-line record of every depreciating asset in your business. For each asset it records: the date of purchase, the cost base, the depreciation method being applied, the effective life used, the opening value at the start of the income year, the deduction claimed for that year, and the closing value carried into the next year. You attach the total deduction figure to your tax return — the schedule itself lives in your records and must be produced if the ATO asks.

Every business that owns assets used to produce assessable income needs one. That includes sole traders working from home who own a dedicated laptop or desk, tradies who own tools and vehicles, café owners who own equipment, and companies with significant plant and machinery. The only assets excluded are trading stock (covered under separate rules), land (which does not depreciate), and certain intangible assets with specific treatment under Division 40 of the ITAA 1997.

If you run a rental property, you need a separate depreciation schedule for that property — typically prepared by a quantity surveyor and covering both Division 40 plant and equipment and Division 43 capital works. This guide focuses on business assets under Division 40, which covers the depreciating assets most small businesses actually deal with.

ATO record-keeping rule: You must keep depreciation records for five years after you dispose of the asset or stop using it for business — not just five years from purchase.

Every line in your depreciation schedule should contain:

Purchase date and cost (including GST-exclusive amount if you are GST-registered)
Asset description and location
Depreciation method: prime cost or diminishing value
Effective life: ATO-determined or self-assessed
Business-use percentage if the asset has any private use
Opening adjustable value, deduction for the year, closing adjustable value

Simplified Depreciation Rules: The System Most Small Businesses Use

If your aggregated turnover is under $10 million, you are eligible for the Simplified Depreciation Rules under Subdivision 328-D of the ITAA 1997. These rules replace the general Division 40 rules for eligible small businesses and make the calculations significantly easier. There are two pools: the small business general pool, and the low-value pool for assets below the instant asset write-off threshold.

Under the Simplified Depreciation Rules, the general pool is depreciated at 30% diminishing value during a full income year and 15% in the first year (the year of purchase), regardless of when during the year the asset was actually bought. This 15% first-year rate applies even if you bought the asset on 29 June. The pool balance itself is what you depreciate — not individual assets — so once an asset enters the pool, you stop tracking it separately.

If the opening pool balance before depreciation is less than the instant asset write-off threshold, you write off the entire pool balance in that year. This is called the low pool balance rule and it is one of the most commonly missed deductions in Australian small business tax returns. Check your pool balance every year at 30 June — if it is under the threshold, the whole thing goes to zero.

Opting out of Simplified Depreciation is allowed from 1 July 2019 onwards — but if you opt out, you cannot opt back in for five years. Most small businesses are better off staying in.

Key rules for the Simplified Depreciation system:

Aggregated annual turnover must be under $10 million
New assets below the instant asset write-off threshold are written off immediately in the year of first use
Assets at or above the threshold enter the general pool at 15% in year one, 30% diminishing value thereafter
Low pool balance rule: if total pool balance is below the threshold, write it all off in that income year
Once you opt into simplified depreciation, you must apply it to all eligible assets — you cannot cherry-pick

Instant Asset Write-Off in 2026: What the Current Rules Actually Say

The instant asset write-off allows eligible businesses to deduct the full cost of a qualifying asset in the income year it is first used or installed ready for use, rather than depreciating it over several years. This is not a new concession — it has existed in various forms since 2015 — but the threshold has changed repeatedly, and the current position in mid-2026 is critically important to understand before you buy any significant asset.

For assets first used or installed ready for use between 1 July 2023 and 30 June 2025, the threshold was $20,000 per asset (exclusive of GST for GST-registered businesses). This applied to businesses with aggregated turnover under $10 million. An asset costing $19,999 was written off immediately. An asset costing $20,001 entered the general pool at 15% in year one. The $20,000 threshold was extended through the 2024-25 Federal Budget.

From 1 July 2025, in the absence of further legislation, the threshold reverts to $1,000. As of June 2026, no Budget measure has legislated a new elevated threshold for 2025-26. This means assets purchased in this current financial year and costing more than $1,000 go into the general pool under the Simplified Depreciation Rules — they are not written off immediately. Watch the ATO's news feed and Treasury announcements closely, because this threshold has been extended at Budget time every year since 2015. But do not assume it will be extended until it is legislated.

URGENT CHECK: If you are planning a capital purchase above $1,000 before 30 June 2026, confirm the current legislated threshold at ato.gov.au before assuming you can claim it immediately. The $20,000 threshold applied to assets first used before 30 June 2025 — not 2026.

Prime Cost vs Diminishing Value: Which Depreciation Method to Use

If you are not using the Simplified Depreciation Rules — because you are over the $10 million turnover threshold, or because you have opted out — you use the general Division 40 rules and choose a depreciation method for each asset: prime cost or diminishing value.

Prime cost (also called straight-line depreciation) spreads the deduction evenly over the asset's effective life. The formula is: (Asset cost × days held ÷ 365) × (100% ÷ effective life in years). A $10,000 asset with a 5-year effective life gives you a $2,000 deduction every full year. Diminishing value applies a fixed percentage to the asset's remaining value each year. The formula is: Opening adjustable value × (days held ÷ 365) × (200% ÷ effective life in years). The same $10,000 asset at 5 years gives a 40% diminishing value rate — $4,000 in year one, $2,400 in year two, $1,440 in year three, and so on.

Diminishing value front-loads your deductions, which is usually better for cash flow and tax timing. Prime cost gives you a predictable, even deduction. Once you choose a method for an asset, you cannot change it. The ATO publishes effective lives in Tax Ruling TR 2024/1 — this is the document you use to find the correct life for your specific asset type. You can self-assess a shorter life if you have evidence that the asset will be used up faster in your specific industry, but document your reasoning.

If an asset is used partly for private purposes, you can only claim the business-use percentage. A car used 60% for business gives you 60% of the depreciation deduction. Document your logbook or usage records — the ATO will ask.

Common effective lives from ATO Tax Ruling TR 2024/1:

Computers and laptops: 4 years effective life (25% prime cost / 50% diminishing value)
Motor vehicles: 8 years effective life (12.5% prime cost / 25% diminishing value)
Office furniture: 10 years (10% prime cost / 20% diminishing value)
Smartphones and tablets: 3 years (33.33% prime cost / 66.67% diminishing value)
Café and restaurant equipment: varies by item — check TR 2024/1 specifically

How to Build and Maintain a Compliant Depreciation Schedule

A compliant depreciation schedule is not a spreadsheet you update once at tax time. It is a live register updated every time you buy, sell, write off, or change the use of a business asset. The ATO's record-keeping requirements under section 262A of the ITAA 1936 require you to keep records that explain and verify every amount in your tax return — and your depreciation deduction is no exception.

Start by listing every depreciating asset your business currently owns. For each one, locate the original invoice (to confirm cost and purchase date), determine whether it is under the Simplified Depreciation Rules or Division 40, apply the correct method and rate, and record the opening adjustable value at 1 July each year. If you are using accounting software, this process can be automated — most platforms have an asset register function that calculates the depreciation deduction and carries forward balances automatically. If you are using SAB Account AI, the asset register module does this and exports a schedule formatted for your accountant or BAS agent.

When you dispose of an asset — sell it, scrap it, or stop using it for business — you must adjust your depreciation schedule in that year. Under Division 40, a balancing adjustment applies: if you sell an asset for more than its adjustable value, you have a taxable balancing adjustment event. If you sell it for less, you get a deduction for the difference. Under the Simplified Depreciation pool system, disposal proceeds simply reduce the pool balance — they do not trigger a separate balancing adjustment for individual assets.

The ATO's data-matching program cross-checks motor vehicle purchases against your depreciation claims. If you bought a ute this year and it does not appear in your depreciation schedule or as an instant asset write-off, that is an audit trigger.

Depreciation record-keeping checklist:

Keep all purchase invoices and receipts — cost must be verifiable
Record the date the asset was first used or installed ready for use, not just the purchase date
Document business-use percentage with a logbook or usage diary for mixed-use assets
Record disposal date and proceeds for every asset you sell or scrap
Reconcile your depreciation schedule to your accounting software asset register annually before lodging your tax return

Depreciation and Your 2026 Compliance Picture: Super, Payroll, and Cash Flow

Depreciation planning does not happen in isolation. For small business owners in June 2026, the tax picture includes two concurrent payroll compliance changes that directly affect cash flow and therefore your capacity to make asset purchases strategically. The super guarantee rate has been 12% since 1 July 2025, adding to the cost of every employee hour worked. And from 1 July 2026 — 16 days away — Payday Super requires super to be paid on every pay cycle rather than quarterly. If you are planning to purchase equipment and use the depreciation deduction to reduce this year's taxable income, you need to model that decision against the cash flow impact of paying super in real time from next month.

The interaction between depreciation and super is also relevant to sole traders considering the transition to a company or trust structure. If you incorporate, assets currently held as a sole trader need to be transferred into the new entity — triggering a disposal event and potentially a balancing adjustment under Division 40. Do this before 30 June if the asset has a low adjustable value (you may get a deduction) rather than after (when proceeds may exceed pool balance). Talk to a registered tax agent before restructuring.

For businesses in Victoria, NSW, Queensland, and other states with payroll tax obligations, note that payroll tax is not deductible in the same way as depreciation — it is a state tax calculated on wages, not a capital allowance. Do not confuse the two in your accounts. Depreciation reduces federal income tax. Payroll tax is a separate state obligation calculated under each state's Payroll Tax Act — Victoria's threshold sits at $900,000 annual wages as of 2026, NSW at $1.2 million.

June is the right month to review your asset register. Buy and install qualifying assets before 30 June to include them in this financial year's depreciation claim. An asset delivered on 1 July falls into next year's return, even if you ordered and paid for it in June.

SAB Account AI's built-in asset register calculates your depreciation automatically, keeps your schedule ATO-compliant, and exports it ready for your tax agent — try it free at sabaccountai.com.

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Frequently asked questions

Do I need a quantity surveyor to prepare my depreciation schedule?

Only for rental properties, where a quantity surveyor is needed to estimate construction costs for Division 43 capital works deductions. For business assets under Division 40, you do not need a quantity surveyor — you use your purchase invoices and the ATO's effective life ruling TR 2024/1. A registered tax agent or BAS agent can prepare a business asset depreciation schedule from your records.

What happens if I sell an asset I have already depreciated?

Under the general Division 40 rules, a balancing adjustment applies — you include any excess of sale proceeds over adjustable value in your assessable income, or claim a deduction if proceeds are less than adjustable value. Under the Simplified Depreciation pool system, disposal proceeds simply reduce the pool balance rather than triggering a separate balancing adjustment event for that asset.

Can I claim depreciation on a car I use partly for personal trips?

Yes, but only for the business-use percentage. The ATO requires a valid logbook kept for a continuous 12-week period to establish your business-use percentage — this percentage then applies for five years before you need to re-test it. Without a logbook, the ATO's default for most vehicles is cents-per-kilometre, which only covers the first 5,000 kilometres and does not include a depreciation component.

Is the instant asset write-off available for second-hand assets?

Yes — the instant asset write-off applies to both new and second-hand assets under the Simplified Depreciation Rules, provided the asset is used or installed ready for use in the relevant income year and the cost is below the applicable threshold. The asset must be used for a taxable purpose, and you must hold a valid invoice confirming the cost.

What is the difference between depreciation and an expense deduction?

An expense deduction applies to items consumed or used up in the same income year — consumables, subscriptions, repairs, and similar costs. Depreciation applies to capital assets — items with a useful life of more than one year that retain value. Repairs to an existing asset are generally deductible as expenses; improvements that extend the asset's life or add new capacity are capital and must be depreciated.