ATO Depreciation Rates 2026-27: Car Limit, Effective Lives & Formulas
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Primary tax-year context: 2026-27
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There is no single “ATO depreciation rate” you can read off a table. Under Division 40 of the Income Tax Assessment Act 1997, the decline-in-value rate for a depreciating asset is derived from two inputs: the asset’s effective life (published by the Commissioner) and the method you choose (prime cost or diminishing value). This guide sets out the figures and instruments that apply for the 2026-27 income year, all verified against current ATO publications.
The 2026-27 car depreciation limit
The most-searched “depreciation rate” change each year is the car limit, because it caps how much of a vehicle’s cost you can depreciate.
- From 1 July 2026, the car limit for the 2026-27 income year is $69,883. This is the maximum value you can use to calculate depreciation on a vehicle where you use it for business purposes and you first use or lease it in the 2026-27 income year.
- The 2025-26 car limit is $69,674 — so the threshold rises by $209 under CPI indexation (section 40-230 of the ITAA 1997).
- If you buy a vehicle costing more than the car limit, the most depreciation you can ever claim on it is the limit, regardless of the actual purchase price.
Maximum GST credit follows the car limit
If you are registered for GST and buy a car above the limit, the most GST credit you can generally claim is one-eleventh of the car limit (subject to certain exceptions).
- For 2026-27: maximum GST credit = 1/11 × $69,883 = $6,353.
- For 2025-26: maximum GST credit = 1/11 × $69,674 = $6,334.
You cannot claim a GST credit for any luxury car tax (LCT) you pay when you buy a luxury vehicle, even if it is used for business.
Related luxury car tax thresholds for 2026-27
The LCT thresholds also index for 2026-27:
- $91,661 for fuel-efficient vehicles
- $80,809 for all other luxury vehicles
These are separate from the car depreciation limit — the car limit caps your depreciation deduction; the LCT threshold determines when luxury car tax applies.
Effective lives: the instrument changed in 2025
The “rate” for any non-car asset starts with its effective life — the period the Commissioner expects the asset to be used to produce income. If you don’t want to self-assess, you adopt the Commissioner’s determined effective life.
Cite the current instrument, not the old ruling. As part of its regular legislative-instrument review, the ATO finalised the Income Tax Assessment (Effective Life of Depreciating Assets) Determination 2025 (LI 2025/20). It commenced in September 2025 and replaced the previous 2015 determination (which sunset on 1 October 2025). The accompanying Taxation Ruling TR 2022/1 — which explained the methodology behind effective-life decisions — was withdrawn at the end of October 2025.
The published effective lives themselves did not change in the transition, so most calculations are unaffected in practice. But if you are documenting a claim or building a depreciation schedule for 2025-26 or 2026-27, reference LI 2025/20, not TR 2022/1 (or the old 2015 instrument).
The two depreciation methods and their formulas
For most assets you choose one of two methods. Once you choose a method for an asset, you generally cannot change it for that asset.
Prime cost (straight-line) method
The prime cost method assumes the asset’s value decreases uniformly over its effective life. You claim a fixed amount each year:
Asset’s cost × (days held ÷ 365) × (100% ÷ asset’s effective life)
Example: an asset costing $80,000 with a five-year effective life, held for the full year:
$80,000 × (365 ÷ 365) × (100% ÷ 5) = $80,000 × 20% = $16,000 per year, for each of the five years.
Diminishing value method
The diminishing value method assumes the value falls more in the early years, producing larger deductions up front. For assets first held on or after 10 May 2006:
Base value × (days held ÷ 365) × (200% ÷ asset’s effective life)
The base value in the first year is the asset’s cost; in later years it is the cost reduced by the decline in value already claimed. “Days held” can be 366 in a leap year.
Example: the same $80,000 asset with a five-year effective life:
- Year 1: $80,000 × (200% ÷ 5) = $80,000 × 40% = $32,000
- Year 2: base value is now $48,000 → $48,000 × 40% = $19,200
- and so on, on the reducing balance.
Which method gives a “rate”?
The headline percentage people quote (for example “a 10-year effective life equals a 20% diminishing value rate”) is simply 200% ÷ effective life for diminishing value, or 100% ÷ effective life for prime cost. There is no fixed rate table — the rate falls out of the effective life you adopt.
Quick reference: 2026-27
| Item | 2025-26 | 2026-27 |
|---|---|---|
| Car depreciation limit | $69,674 | $69,883 |
| Max GST credit on a car (1/11) | $6,334 | $6,353 |
| LCT threshold — fuel-efficient | $91,387 | $91,661 |
| LCT threshold — other | $80,567 | $80,809 |
| Effective-life instrument | LI 2025/20 | LI 2025/20 |
| Diminishing value factor | 200% ÷ effective life | 200% ÷ effective life |
| Prime cost factor | 100% ÷ effective life | 100% ÷ effective life |
Key takeaways
- The 2026-27 car depreciation limit is $69,883 (up from $69,674), effective for vehicles first used or leased from 1 July 2026.
- The most GST credit on a car above the limit is $6,353 (1/11 of the limit).
- Effective lives now come from LI 2025/20, which replaced TR 2022/1 in late 2025 — the published lives are unchanged.
- There is no fixed depreciation rate: diminishing value uses 200% ÷ effective life, prime cost uses 100% ÷ effective life.
ATO sources
- Car thresholds from 1 July (2026-27)
- Final guidance: Effective life of assets (LI 2025/20)
- Income Tax Assessment (Effective Life of Depreciating Assets) Determination 2025 — F2025L01097
- Prime cost and diminishing value methods
Next step
- Build a Division 40 / Division 43 schedule with the Depreciation Calculator
- Forecast rental property deductions with the Property Depreciation Calculator