# Decline in Value — First-Year Deduction

## (a) Prime Cost Method

**Formula:** Cost × (1 ÷ Effective Life)

$$30{,}000 \times \frac{1}{5} = \$6{,}000$$

**First-year deduction: $6,000**

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## (b) Diminishing Value Method

**Formula:** Cost × (2 ÷ Effective Life)

$$30{,}000 \times \frac{2}{5} = \$12{,}000$$

**First-year deduction: $12,000**

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## Controlling Authority

The decline in value (capital allowance) rules are governed by **Division 40 of the *Income Tax Assessment Act 1997* (Cth)** (ITAA 1997). Division 40 sets out the uniform capital allowance system, including the prime cost and diminishing value methods (ss 40-65 and 40-70 respectively), effective life rules (s 40-95 and s 40-100), and the Commissioner's published effective life determinations (Tax Ruling TR 2024/1 or the relevant year's determination).