Pick the method to suit your investment strategy
The Australian Taxation Office (ATO) allows investors to choose between two methods of claiming depreciation on plant and equipment assets*. These are the diminishing value and the prime cost methods of depreciation.
When an investor makes their depreciation claim, they can choose only one of these methods, so it is important for them to understand how this choice will affect their investment returns.
Both the diminishing value and the prime cost methods claim the total depreciation value available over the life of a property. However, the two methods use different formulas to calculate depreciation deductions, achieving different short and long-term cash flow positions for the property investor.
Under the diminishing value method, the deduction is calculated as a percentage of the balance you have left to deduct. The formula a Quantity Surveyor will use to calculate depreciation using the diminishing value method is shown below.