Common Depreciation Mistakes (and a Better Way)

Updated 27 August 2026 · Business and gst

A Depreciation Calculator gives a fast answer, but the answer is only as good as what goes in. These are the mistakes we see most often with depreciation calculations in Australia, and how to avoid them.

1. Undercharging as a contractor

Your rate must cover super, leave, unbilled time and business costs, not just the salary you want.

2. Forgetting on-costs

An employee costs well above their salary once super, workers comp and payroll tax are included.

3. Mixing up margin and markup

A 50% markup is a 33% margin. Pricing with the wrong one can erase profit.

4. Spending GST collected

GST belongs to the ATO. Keep it aside until your BAS is due.

5. Overlooking the detail that matters most here

Check whether the instant asset write-off applies to your business before depreciating an asset over several years.

How the diminishing value: year one deduction changes with effective life

A common mistake is getting one input slightly wrong. Here is what happens to the diminishing value: year one deduction when “Effective life (years)” is off by up to 20% in either direction, with everything else held steady.

Effective life (years)	Diminishing value: year one deduction
4	$5,000.00
5	$4,000.00
6	$3,333.33

At 4 the result is $5,000.00; at 6 it is $3,333.33. If a small change in this input moves the answer a lot, it is worth double-checking that figure before you rely on the result.

A quick sense check

Prime cost = cost ÷ effective life. Diminishing value = base value × 200% ÷ effective life. With typical inputs the calculator returns diminishing value: year one deduction of $4,000.00. If your own result looks wildly different, check that each figure is in the right unit and period (weekly, monthly or yearly) before drawing conclusions.