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How Car Depreciation Works in Australia
How Car Depreciation Works in Australia
Written by
Kervin Mathew
Edited by
Ellie Garran
Reviewed by
Adrian BennettCompare car insurance policies the easy way
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What is car depreciation?
Long story short
Car depreciation is how much value your car loses over time
Wear and tear, age, mileage, and market demand all affect how much your car is worth as the years go by.
New cars tend to lose value fastest, especially in the first year
A new car can drop 20–25% in value within the first 12 months.
There are two ways to calculate depreciation for tax purposes
You can also use the ATO’s depreciation calculator to get an estimate of your car’s value.
What is car depreciation?
Car depreciation is the value that your car loses over time because of factors such as wear and tear and market pricing, as well as the car’s model, condition, age, and mileage.
A brand-new car could lose 10–15% of its value the moment you drive it out of the dealership, and an added 10–15% over the first year – that’s a combined 20–25% decline in value in the first twelve months.
Being aware of motor vehicle depreciation rates could help you make better-informed decisions if you’re planning to buy a used car or sell your car, as well as help with tax deductions (if you use your car for business purposes), and in some cases, with choosing car insurance policies.
Which cars have the lowest rates of depreciation in Australia?
The least depreciated cars in Australia over the 2–7 years up to January 2026 included SUVs such as the Suzuki Jimny and the Toyota LandCruiser, Yaris Cross and RAV4, and passenger cars such as the Kia Picanto, the Toyota Corolla and Yaris and the Ford Mustang, according to the Australian Automotive Dealer Association (AADA). A number of these vehicles have actually grown in value – the Suzuki Jimny, for example, was worth 9.2% more than its original price after 2–4 years and 12.4% more after 5–7 years.
Other honourable mentions in the ‘least depreciated car’ category include the Mercedes-Benz G-class, the Porsche Macan, the Honda Jazz and the Audi RS3.
Cars with the lowest depreciation rates in Australia
| Make and model | Change in value after 2–4 years | Change in value after 5–7 years |
| Suzuki Jimny | + 9.2% | + 12.4% |
| Toyota LandCruiser | − 1.9% | − 0.3% |
| Toyota RAV4 | + 5.5% | − 8.8% |
| Toyota Yaris Cross | + 3.3% | − 9.2% |
| Kia Picanto | − 2.4% | − 7.3% |
| Toyota Corolla | − 2.6% | − 7.2% |
| Nissan Patrol | − 3.4% | − 7.5% |
| Toyota LandCruiser Prado | − 4.5% | − 17.2% |
| Ford Mustang | − 2.5% | − 9.3% |
| Toyota Yaris | − 3.7% | − 10% |
Note: These figures reflect indicative depreciation outcomes based on retained value data from the Australian Automotive Dealer Association’s Automotive Insights Report, January 2026. Estimates include internal iSelect calculations applied to this data. Actual depreciation will vary depending on factors such as vehicle condition, mileage, market demand, and location.
How do I calculate car depreciation?
In Australia, you can calculate a car’s annual depreciation using either of the two methods specified by the Australian Taxation Office (ATO) – the prime cost method and the diminishing value method. You can also use the ATO’s depreciation calculator to get an estimate of how much your car has depreciated. Typically, businesses use these methods for tax purposes to claim depreciation, but you can also use them as a rough estimator of your car’s depreciated value, even if it’s for private use. When it comes to buying or selling your car, it’s important to remember that depreciation rules are not set in stone and can be influenced by other factors.
Calculating car depreciation using the prime cost method
The prime cost (or straight line) method assumes that the depreciating asset’s value decreases uniformly over its effective life (the amount of time it could be used to produce income). It uses the following formula to calculate depreciation: Asset’s cost × (days held ÷ 365) × (100% ÷ asset’s effective life).
Let’s say you bought a car for $35,000 (excluding GST) exactly two years ago, and now you’re thinking about its current value. Keeping in mind that a typical car’s effective life is 8 years, here’s how you calculate the car’s depreciation using the prime cost method:
$35,000 × (730 ÷ 365) × (100% ÷ 8) = $8,750.
So, going by the prime cost method, a car with a purchase price of $35,000 lost $8,750 in two years, or $4,375 each year since you bought it.
Calculating car depreciation using the diminishing value method
The diminishing value method treats cars as assets that lose more value in their early years. It uses the following formula to calculate depreciation: Base value × (days held ÷ 365) × (200% ÷ asset’s effective life – usually 8 years). The car’s base value starts off as the asset’s total cost. Then, it gradually decreases each year.
For example, if you bought a car for $35,000 (excluding GST) exactly three years ago and now you’re thinking it’s time to sell, here’s how you calculate the car’s depreciation using the diminishing value method:
- Depreciation for the first year: $35,000 × (365 ÷ 365) × (200% ÷ 8) = $8,750. The car is now worth $26,250.
- Depreciation for the second year: $26,250 × (365 ÷ 365) × (200% ÷ 8) = $6,562. The car is now worth $19,688.
- Depreciation for the third year: $19,688 × (365 ÷ 365) × (200% ÷ 8) = $4,922. The car is now worth $14,766.
If you became the owner of your car before 10 May 2006, the diminishing value method uses the following formula: Base value × (days held ÷ 365) × (150% ÷ asset’s effective life).
Calculating car depreciation using a depreciation calculator
You can use the ATO’s depreciation and capital allowance tool as a depreciation calculator to help give you an approximate value for your car. You can use the tool to compare car depreciation amounts calculated using both the prime cost and the diminishing value depreciation methods.
How does depreciation affect car insurance?
Depreciation reduces a car’s market value over time, and your car’s market value is a major factor that insurers consider when deciding your premium or your payout for a total loss claim, or even when determining an agreed value for your vehicle. For instance, a higher market value means the costs of repairing or replacing the vehicle are also likely to be high, and this usually attracts a higher premium. Your payout for a total loss claim, if your car is written off or stolen, is also decided based on your car’s market value at the time.
If you go with an agreed value car insurance policy, depreciation won’t affect your payout for a total loss claim during the policy period, as long as the agreed value remains unchanged.
What factors cause my car to depreciate?
In Australia, a car’s depreciation is influenced by several factors such as market demand, age, kilometres driven, fuel efficiency, wear and tear and accident and maintenance history. Ultimately, depreciation is about wear and tear and how it impacts the car’s condition, performance and overall resale value.
Market demand
A car tends to depreciate more slowly when its market demand is high. In Australia, vehicle types like SUVs and brands like Toyota tend to be popular with consumers, and this can translate to lower depreciation rates.
Age and kilometres driven
Cars tend to decline in value the more they’re used and the older they get because of wear and tear and the need for more maintenance. A car’s odometer reading tells how much a car’s been used, which could indicate the condition of components such as the engine, transmission, and suspension if they haven’t been replaced.
Condition and maintenance history
A car’s condition and maintenance history could indicate how well it’s been cared for and how it can perform – and both factors can impact the car’s value. Typically, better-maintained cars that are in top shape fetch a better resale price on the market.
Accident history
If your car’s been in an accident, its value can decrease. Even with the right repairs, an accident can put a permanent dent in the car’s value. That’s because buyers might question the quality of the repairs and the replacement parts used. In fact, buyers have the option of accessing vehicle history reports to find out if a car’s been in an accident.
How do I slow down my car’s depreciation?
To help reduce car depreciation, it helps to keep your vehicle in good condition and regularly maintained, by driving it sensibly and using it only when necessary to keep the mileage as low as possible. You can also help minimise depreciation by choosing a model with strong resale value or buying a used car instead of a brand new one, as new cars tend to depreciate the fastest in their early years.
Maintain your car regularly
Keeping your car in an overall good condition with regular logbook servicing and maintenance helps reduce the wear and tear on the engine, frame, wheels and other parts that keep the vehicle running smoothly. This could add up and help reduce your car’s depreciation.
Keep your mileage low
A used car’s value is informed by how much it’s been driven. A low odometer reading on a car could indicate that it’s been used less, has less wear and tear, and has more life left in it. Typically, an odometer reading of less than 15,000km per year could help keep its resale price high.
Consider used cars over brand new
New vehicles tend to depreciate faster. So, for potentially slower depreciation, consider buying a used car in good condition. It could help you dodge the early 20–25% depreciation rate spike that could come with buying a brand-new car.
Helpful tip
While car modifications can add to a car’s depreciation, some mods can actually improve a car’s safety and security and not only help preserve your car’s value, but also help you get cheaper car insurance. An even better way to lower your car insurance premium is to compare car insurance regularly so you can be sure that you’re getting a great priced policy.
Adrian Bennett
General Manager for General Insurance
Does comparing car insurance lower my car expenses?
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