General Depreciation System (GDS) Australia 2025: What Businesses Need to Know

The General Depreciation System (GDS) isn’t just an accounting term—it’s a critical tool that shapes how Australian businesses claim tax deductions on depreciating assets. With 2025 policy updates and economic shifts, understanding GDS is more important than ever for strategic tax planning, whether you’re a sole trader buying new equipment or a CFO overseeing a fleet upgrade.

What is the General Depreciation System (GDS)?

GDS refers to the primary set of rules in Australia’s tax law that determine how businesses can depreciate, or write down, the value of capital assets over time. Unlike immediate asset write-off schemes, GDS spreads deductions across the effective life of an asset. This system applies to most business assets unless they’re eligible for simplified rules or special incentives.

Under the GDS, assets are depreciated using either the diminishing value method or the prime cost method. The diminishing value method accelerates deductions in the early years, while the prime cost method distributes them evenly. The choice can significantly affect your cash flow and tax position.

• Diminishing Value: Higher deductions upfront, tapering off over time.
• Prime Cost: Even deductions throughout the asset’s effective life.

2025 Policy Updates: What’s Changed?

The 2025 federal budget saw the government dial back the temporary full expensing (introduced during the pandemic), returning more assets to the standard GDS rules. Here’s what’s new this year:

• Asset Thresholds: The instant asset write-off threshold reverted to $20,000 per asset for small businesses (with turnover under $10 million). Above that, assets must be depreciated under GDS.
• Effective Life Schedules: The ATO updated effective life schedules for several asset classes, including electric vehicles, solar panels, and IT hardware, reflecting technological advances and longer average use.
• Green Investment Incentives: Certain energy-efficient assets are now eligible for accelerated depreciation, but most must still use GDS unless they meet strict criteria.

For example, if you purchase a commercial oven for your bakery in 2025 for $25,000, you’ll need to depreciate it over its effective life using GDS, unless you qualify for a specific industry incentive.

Real-World Scenarios: GDS in Action

Let’s break down how GDS works in practice for different types of Australian businesses:

• Tradie Upgrades: Jane, a plumber, buys a $28,000 ute in July 2025. The ute doesn’t qualify for instant write-off. Using GDS, she can choose between diminishing value (higher early deductions) or prime cost (steady deductions), based on its ATO-listed effective life (typically 8 years for vehicles).
• Tech Startups: A SaaS company invests $60,000 in servers. As the instant asset write-off cap is exceeded, the hardware is depreciated under GDS, with the option to use updated effective life schedules for IT equipment (often 3–4 years).
• Hospitality Expansion: A regional café installs $35,000 in solar panels. While some green assets have fast-tracked deductions, most solar panels must still use GDS, usually with an effective life of 20 years. However, the 2025 updates allow for a 20% bonus deduction for eligible businesses investing in renewables, applied in the first year.

Strategic Planning: Maximising Value from GDS

With the return to GDS for many asset purchases, tax planning becomes more nuanced. Here’s how savvy businesses are adapting in 2025:

• Asset Bundling: Splitting purchases to stay under the $20,000 instant write-off threshold where possible, with larger items allocated to GDS.
• Method Selection: Running cash flow forecasts to compare the impact of diminishing value vs. prime cost for major purchases.
• Keeping Up with ATO Updates: Reviewing the latest effective life determinations, as the ATO continues to adjust for tech, vehicles, and renewable assets.
• Leveraging Bonus Deductions: For industries like manufacturing and energy, combining GDS with new bonus deduction schemes for qualifying green or digital investments.

For growing businesses, these strategies can mean the difference between a tight year and a tax-efficient expansion.

Conclusion

The General Depreciation System is back in the spotlight for 2025, shaping how Australian businesses invest and claim deductions on big-ticket assets. With the right approach—choosing optimal depreciation methods, staying on top of ATO updates, and making smart purchase decisions—businesses can navigate GDS to maximise tax benefits and support sustainable growth.