Book depreciation and tax depreciation are different systems that happen to share a name. Your financial statements may depreciate each asset over its useful life on a straight line. The Income-tax Act pools assets of the same class and rate into a *block*, applies the written-down value method to the pool, and largely stops caring about the individual asset from that point on.
How a block moves
Each block has an opening written-down value. During the year:
- Add the actual cost of assets acquired in that block.
- Subtract the sale proceeds of anything sold from that block.
- Apply the prescribed rate to the resulting figure to get the year’s depreciation.
- The remainder becomes the opening value of the next year.
The consequence people find counter-intuitive: selling an asset at a loss usually produces no deductible loss. The proceeds simply reduce the block, and the shortfall is recovered gradually through lower depreciation in future years. A loss crystallises only when the block empties or its value goes to nil.
The half-year rule
An asset acquired *and put to use* for fewer than 180 days in the year of acquisition gets half the normal rate for that year. That is why a March purchase is worth roughly half of what an August purchase is worth in the same financial year.
Two words in that sentence carry weight: put to use. An asset delivered in March but commissioned in April is not put to use in the earlier year at all, and gets nothing. Invoice date is not the test; readiness for use is.
If you are buying equipment near year end for tax reasons, check the commissioning date, not the purchase order date. The deduction follows use.
The rates you will meet most often
| Block | Typical rate |
|---|---|
| Buildings — non-residential | 10% |
| Buildings — residential | 5% |
| Furniture and fittings | 10% |
| Plant and machinery — general | 15% |
| Computers, and software | 40% |
| Intangibles — know-how, patents, licences | 25% |
Rates are capped at 40%, which matters for anyone relying on older guidance quoting 60% for computers. Manufacturing businesses may additionally claim a one-off additional depreciation on new plant and machinery in the year of installation, subject to conditions — worth checking if you have made a capital investment.
Where this connects to everything else
- Cash purchases of assets above the limit are excluded from the block entirely — so the depreciation is lost as well as the deduction. See cash transaction limits.
- A fixed asset register is what lets you defend the block years later; retention rules are in books of account.
- GST on capital goods follows its own credit rules and does not form part of cost where credit is claimed — see input tax credit.
- Presumptive filers do not claim depreciation separately; it is deemed allowed within the presumptive rate. See presumptive taxation.
Where we come in
We maintain fixed asset registers that reconcile to the tax blocks, so depreciation is defensible and capital purchases are timed with the 180-day rule in view. It is part of our bookkeeping and MIS service, and it feeds directly into the tax audit where one applies.
This article is general information, not professional advice. Limits, rates and dates change by notification — confirm the position for your own year before acting on it.