How to claim big purchases like laptops

Buy a $280 keyboard for work and the deduction is simple. Buy a $2,400 laptop and it becomes a multi-year exercise. The rules are not complicated, but they are easy to get subtly wrong.

flowchart TD
  asset[Work asset] --> cheap{Cost $300 or less?}
  cheap -->|Yes| tests{Mainly work, and not part of a set?}
  cheap -->|No| dep[Decline in value over effective life]
  tests -->|Yes| now[Immediate deduction of the work share]
  tests -->|No| dep
  dep --> method[Prime cost or diminishing value]

The $300 fork in the road

An asset costing $300 or less can be deducted immediately, if all of the following hold:

• the cost is $300 or less
• you use it mainly — more than 50% — to produce assessable income that isn't from carrying on a business
• it isn't part of a set you started to hold in the year where the set costs more than $300
• it isn't one of a number of identical or substantially identical items that together cost more than $300

Even then, you claim only the work-related portion. A $200 monitor used 60% for work is a $120 deduction.

Above $300, you claim the decline in value over the asset's effective life.

Effective life

The ATO publishes effective lives in a determination, and you may either use the published figure or make your own reasonable estimate based on how you'll actually use the asset. Some familiar ones:

Asset	Effective life
Laptop	2 years
Desktop computer	4 years
Mobile phone	3 years

A two-year life on a laptop is why the maths matters: you can't claim $2,400 in one hit, but you also aren't stuck spreading it over a decade.

Two methods

Prime cost — the same amount each year:

cost × (days held ÷ 365) × (100% ÷ effective life)

Diminishing value — more early, less later:

opening value × (days held ÷ 365) × (200% ÷ effective life)

Diminishing value front-loads the deduction, which is usually preferable if your income is steady or falling. Prime cost is smoother. You choose per asset, and you can't switch later for that asset.

The two things people forget

Pro-rata in the first year. You hold the asset from the day it's installed ready for use, not from 1 July. A laptop bought on 1 April is held for about a quarter of the year, so the first-year claim is roughly a quarter of the annual figure.

Work-use percentage every year. Decline in value is calculated on the whole asset, then reduced to your work use. If the laptop is 70% work, you claim 70% of each year's decline. That percentage can legitimately change year to year — and needs a basis, such as a representative usage diary.

A worked example

A $2,400 laptop, bought 1 October, used 70% for work, diminishing value, 2-year effective life:

• Annual rate: 200% ÷ 2 = 100%
• Year one: $2,400 × (273 ÷ 365) × 100% = $1,795 decline, of which 70% = $1,257
• Year two: the remaining value declines, again reduced to your work percentage

Records to keep

Keep the invoice, the date it was first used for work, the method you chose, the effective life you used, and your work-use percentage with its basis. Keep them until five years after the last claim you make for the asset — which is longer than the asset's life.

The gear is the easy part. What gets lost is the purchase date and the reasoning behind the percentage, and both are needed every year until the asset is written off.