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How to claim the cost of your assets

A guide to claiming depreciation on capital (fixed) assets such as computers, vehicles or machinery for your business.

As a small business owner, you should be taking advantage of every business deduction available to you at tax time. But many miss out when it comes to claiming depreciation for the ongoing decline in the value of costly business assets.

How does depreciation work?

Most assets suffer wear and tear, which lowers their value. It’s called depreciation. If you use an asset in your business that has a useful lifespan of more than a year, you can claim for the wear and tear when you file your annual tax return. By claiming depreciation you’re spreading the cost of the asset over the number of years you expect it will be useful to you.

This is a huge advantage to small business owners, who can often be overwhelmed by the high price tags on big purchases such as computer systems, vehicles or office equipment.

To claim depreciation, you’ll need to keep a fixed asset register. This will show the cost of each asset, and the depreciation you’ve claimed.

Can I depreciate all assets?

No. Land is a common example of a fixed asset that you can’t depreciate, as is trading stock and intangible assets such as goodwill. You also don’t depreciate low-value assets (costing less than $500) that are fully claimed at the time of purchase, unless they’re purchased from the same supplier at the same time as similar assets, or form part of another depreciable asset.

How do I work out the depreciation rate?

How do I work out the depreciation rate?

Inland Revenue sets the rates, based on the cost and useful life of the asset. Use Inland Revenue's Depreciation rate finder (external link) to find the correct rate for your depreciable assets.

How do I calculate depreciation?

There are two methods:

  1. Diminishing value depreciation, which factors in depreciation claimed in previous years
  2. Straight line depreciation, which sees you claim the same amount of depreciation every year, but at a lower rate.

You don’t have to use the same method for all your assets. But you must use whatever method you choose for an asset for the full year. You can change methods for any asset from year to year.

Find out more about depreciation methods (external link)   

Talk to your tax agent or accountant to make sure you choose the method best suited to your business.

Talk to your tax agent or accountant to make sure you choose the method best suited to your business.

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