What method do I use to work out the depreciation of a car?

 Author: JodieR_ATO(Community Support)Community Support

20 July 2022

Hi @A007,

Under general depreciation rules you can use Prime cost method or Diminishing value method. Both calculation methods contain the following elements:

• cost or base value
• number of days held
• effective life, or remaining effective life

For a vehicle the following applies. Depreciation of passenger vehicles for tax purposes can be claimed when used to produce taxable income.

Depreciation of most cars based on our estimates of useful life is 25% per annum on a diminishing value basis (or 12.5% of the vehicle cost for 8 years). Work vehicles e.g. taxis and couriers have higher rates, which can also be self-assessed. Temporary full expensing rules may allow up to 100% deduction in the year of purchase (subject to the ‘car limit’).

So if you use the Prime Cost method it allocates the costs evenly over the years of ownership.

The formula:

• Cost x (Days held ÷ 365) x (100% ÷ Effective life in years)

Note also that where motor vehicles are concerned, luxury cars have an upper depreciation limit.