Common Depreciation Mistakes:
Questions for Australian Businesses and Accountants

Using the same depreciation figure for both tax and accounting. When a business applies its tax depreciation directly to its financial statements, particularly when concessions like the instant asset write-off or TFE have been used, the balance sheet stops representing economic reality. Assets disappear from the books, profit is distorted, and every financial metric that depends on the asset base becomes unreliable.

Three stand out: 1. Applying the same depreciation for tax and accounting without maintaining parallel records. 2. Allowing depreciation knowledge to sit with one senior team member rather than being embedded in a system — creating key-person risk and scalability constraints. 3. Not having advisory conversations with clients about what tax concessions mean for their balance sheet, their insurance, and their future borrowing capacity. The compliance work is done; the advisory conversation often is not.

It depends on whether the error is material and how long ago it occurred. For accounting purposes, material errors in prior periods are corrected retrospectively under AASB 108. For tax purposes, errors in prior year returns may need to be corrected through amendment, subject to the relevant amendment periods. For businesses that have been using tax depreciation as a proxy for accounting depreciation for many years, reconstructing the accounting records can be significant work but is worth doing before any major transaction — borrowing, sale, or licensing renewal. For accountants Prior period errors under AASB 108 require retrospective restatement if material, including restating comparatives. Changes in accounting estimates (such as a revision of useful life) are applied prospectively. The distinction between an error (incorrect application of a policy) and a change in estimate (new information) affects the correction method. For tax amendments, the time limit under section 170 of the ITAA 1936 is generally two years for small business entities and four years for larger entities.

Yes, and it happens. The most common scenario is a builder who has been applying tax depreciation to their accounting records, not realising that this understates NTA below the minimum required for their licence category. The breach is not caused by any business deterioration, operations may be healthy. It arises entirely from the way assets are recorded. Discovering this at the time of QBCC annual reporting, rather than well in advance, leaves limited options to remedy it.