Book depreciation vs tax depreciation: reconcile the difference
Accounting depreciation and tax depreciation can use different timing and rules, so their annual charges and closing values may differ. Reconcile the two schedules using the same asset and period, with each method documented. A difference is not missing cash, and it isn't permission to choose whichever deduction gives the preferred result.
What you’ll get from this guide: A parallel asset reconciliation showing the timing difference for the accountant to check.
- Keep book and tax schedules for the same asset and period.
- Check the methods rather than forcing closing values to match.
- Treat the tax reconciliation as separate from the cash purchase.
This guide is for an owner comparing financial accounts with a tax return and wondering why the asset numbers differ. Check the underlying schedules first. Their difference doesn't belong in a bank reconciliation.
Match the asset and the reporting period
Use the purchase invoice, asset ID and dates to confirm both schedules refer to the same item. Check additions, disposals and private-use assumptions before comparing annual charges. An opening value may already differ because of earlier-year treatment.
The ATO's depreciating-asset guidance distinguishes general rules, simplified depreciation and other treatments. The applicable tax calculation needs to be established separately from the accounting estimate. The instant asset write-off guide addresses a different question: whether an immediate deduction applies.
Fictional assumed charges supplied solely to demonstrate reconciliation. No additions or disposals occur.
| Schedule item | Accounting books | Tax schedule |
|---|---|---|
| Opening value | $12,000 | $12,000 |
| Annual charge/deduction | −$2,400 | −$3,000 |
| Closing value | $9,600 | $9,000 |
| Closing difference | $600 higher | Reference value |
If the accounting charge is included in profit, the illustrative adjustment is +$2,400 − $3,000 = −$600. The allowable tax deduction must be independently established.
Follow the two calculations
The fictional book schedule subtracts a $2,400 charge from $12,000 to reach $9,600. The tax schedule subtracts an assumed $3,000 deduction to reach $9,000. The $600 difference comes from the different assumed annual amounts.
These figures aren't instructions to apply a particular percentage. In practice, the accountant needs the method, effective life or other rule used, business-use information and any regime-specific records. A pooled tax calculation may not take the simple asset-by-asset form shown here.
Understand the profit reconciliation
If accounting profit already includes the $2,400 expense, the illustrative bridge adds it back and subtracts the separately established $3,000 tax deduction. That changes the profit figure by negative $600 for this item alone.
It doesn't mean another $600 was paid or received. The cash purchase belongs to its actual payment date. Keep the profit and loss review and cash records distinct while the accountant confirms the tax bridge.
Carry the explanation forward
Copy the parallel depreciation schedule
Copy the template, save a text file for offline use, or print this page with its examples and sources. Fill in your own copy and check it before relying on it.
Asset ID Income year Acquisition/use evidence Opening book value Book method/charge Closing book value Opening tax value Tax method/source Allowed deduction Closing tax value Reconciliation Adviser confirmation
Save both schedules and the reviewed reconciliation with the asset records. Next year's opening values should follow the appropriate prior closing values, subject to documented changes. Don't reset them to the same number just to remove the difference.
If you change accountants, transfer the methods and prior-year schedules as well as the latest totals. A closing value without its calculation is a weak starting point for the next return.
Key takeaways
- Keep book and tax schedules for the same asset and period.
- Check the methods rather than forcing closing values to match.
- Treat the tax reconciliation as separate from the cash purchase.
Where to get help
Ask the accountant to confirm the tax regime and reconciliation using the ATO depreciation guidance.
Related tasks
Continue through the tax records and business money guides.
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Where to go from here
Instant Asset Write-Off Explained: The $20,000 Rule
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10 min readChanging accountants: hand over tax records and open questions
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General information only. This guide doesn't take your personal or business circumstances into account and isn't financial, legal or tax advice. Rates and thresholds change — check the official sources linked in this guide and get qualified advice where your circumstances require it.