Declining Balance Method in 2025: Smarter Depreciation for Aussie Businesses

With economic conditions shifting and tax laws evolving in 2025, Australian businesses are looking for every edge they can get. Enter the declining balance method—a time-tested depreciation strategy that’s more relevant than ever. Whether you’re running a fleet of vehicles, managing a tech startup, or handling heavy equipment, understanding this method can unlock real financial advantages.

What Is the Declining Balance Method?

The declining balance method is a type of accelerated depreciation. Unlike the straight-line method, which spreads the cost of an asset evenly across its useful life, the declining balance approach writes off a larger portion of the asset’s value in the early years, tapering off as time goes on. In Australia, the most common variant is the 200% diminishing value method, but rates can vary based on asset type and ATO guidance.

This method is especially useful for assets that lose value quickly or become obsolete due to rapid technological change—think computers, vehicles, or certain machinery.

2025 Policy Updates: What’s New?

With the Australian government’s focus on productivity and tech adoption, 2025 has brought a few key updates:

• ATO Depreciation Schedules: The ATO has updated its asset effective life tables, impacting how you calculate your declining balance rate. Be sure to check the latest guidance before filing your 2024–25 tax return.
• Temporary Full Expensing Phase-Out: The COVID-era instant asset write-off and temporary full expensing measures ended on 30 June 2024. For assets purchased after this date, businesses must revert to standard depreciation methods—making the declining balance method once again a go-to option for maximising early-year tax deductions.
• Green Asset Incentives: The 2025 Federal Budget introduced new incentives for environmentally friendly assets (like EVs and solar equipment). Some of these incentives tie directly into accelerated depreciation schedules—potentially making the declining balance method even more attractive for eligible purchases.

Real-World Example: A Tech Company’s Asset Strategy

Imagine a Melbourne-based tech startup that invests $100,000 in high-performance servers in July 2024. With the declining balance method, and an effective life of 4 years (per ATO guidance), the company applies a 50% depreciation rate in the first year:

• Year 1: $100,000 × 50% = $50,000 depreciation
• Year 2: ($100,000 – $50,000) × 50% = $25,000 depreciation
• Year 3: ($50,000 – $25,000) × 50% = $12,500 depreciation
• Year 4: ($25,000 – $12,500) × 50% = $6,250 depreciation

This approach front-loads deductions, improving cash flow in the crucial early years when the equipment is most productive and the business needs capital the most. If the same asset was depreciated using the straight-line method, the annual deduction would be only $25,000 per year—less impactful up front.

When Is the Declining Balance Method Best?

This method isn’t for everyone. Here’s when it shines:

• Rapidly Obsolescent Assets: Tech, vehicles, and high-use machinery benefit most.
• Growing Businesses: Early tax savings can be reinvested for faster expansion.
• Cash Flow Management: If you need to reduce your tax bill in the near term, this method gives you more up-front deductions.

However, if you’re managing assets that hold their value well (like certain real estate or classic vehicles), the straight-line method could make more sense. Always weigh your business goals, asset type, and upcoming policy changes.

Best Practices for 2025

• Stay Informed: Check the ATO’s latest effective life schedules and depreciation rates for your asset types.
• Keep Records: Maintain detailed purchase and usage documentation—especially as ATO audits around capital allowances have increased in 2025.
• Consider Asset Pooling: For small businesses, the ATO’s simplified depreciation rules (including small business pools) may offer an alternative path. Review your eligibility, as thresholds have shifted post-pandemic.

Conclusion: Make Depreciation Work for You

The declining balance method is no longer just an accounting footnote—it’s a strategic lever for Australian businesses navigating the 2025 landscape. With instant asset write-offs winding down and new green asset incentives on the rise, now is the perfect time to review your depreciation approach. The right method can unlock cash flow, boost productivity, and help your business thrive in a competitive market.