What are fixed assets? Definition, examples and depreciation

Published Wednesday 17 June 2026

Table of contents

• What are fixed assets?
• Key characteristics of fixed assets
• Examples of fixed assets for Australian businesses
• Fixed assets vs current assets
• Why fixed assets matter for your small business
• How fixed assets appear on the balance sheet
• Depreciation of fixed assets in Australia
• Net fixed assets: formula and calculation
• Managing fixed assets in your business
• Track your fixed assets with confidence
• FAQs on fixed assets

Key takeaways

• Fixed assets are long-term physical or intangible items your business owns and uses for more than 1 financial year, such as vehicles, equipment and property.
• You can claim tax deductions on most fixed assets through depreciation, reducing your taxable income each year.
• Fixed assets sit under non-current assets on your balance sheet and directly affect your business's reported value.
• Keeping an accurate fixed asset register helps you stay compliant with ATO record-keeping requirements and plan for future purchases.

What are fixed assets?

Understanding fixed assets is essential if you own or manage a small business in Australia. These are the long-term items that keep your operations running day to day.

A fixed asset is a tangible or intangible item your business owns and expects to use for longer than 1 financial year. Common examples include machinery, vehicles, office furniture and computer equipment. You don't buy these items to resell. Instead, you use them to generate income over time.

In accounting standards, fixed assets are also called non-current assets or property, plant and equipment (PP&E). The Australian Accounting Standards Board (AASB) 116 sets out how businesses should recognise and measure these items. For most small businesses, the key point is straightforward: if you bought something to use in your business over the long term, it's likely a fixed asset.

Fixed assets are different from current assets like cash or stock, which you expect to convert into cash within 12 months. That distinction matters for your financial reporting, tax returns and overall picture of business health.

Key characteristics of fixed assets

Not every business purchase counts as a fixed asset. There are 4 key characteristics that set fixed assets apart from other items on your books.

Long-term use

Fixed assets have a useful life of more than 1 year. A delivery van you plan to use for 5 years qualifies, while office supplies you use up within weeks do not. The expectation of long-term use is what makes these assets "fixed" rather than current.

Used in business operations

You hold fixed assets to use in your day-to-day business, not to sell to customers. A bakery's oven is a fixed asset because it produces goods for sale. The cakes and bread it bakes are stock, not fixed assets.

Not easily converted to cash

Fixed assets are relatively illiquid compared to cash, bank balances or trade debtors. Selling a piece of machinery or a commercial property takes time and effort. This lower liquidity is one reason they sit separately on your balance sheet.

Subject to depreciation

Most fixed assets lose value over time through wear and tear. This decline is recorded as depreciation, which spreads the cost of the asset across its useful life. Land is the notable exception: it generally doesn't depreciate.

Examples of fixed assets for Australian businesses

Fixed assets vary depending on your industry and the size of your business. Here are the most common categories Australian small businesses deal with.

• Land and buildings: commercial property, warehouses and retail premises you own. Land doesn't depreciate, but the building structure does.
• Vehicles: cars, utes, vans and trucks used for business purposes. The ATO sets a cost limit on the amount that can be depreciated for passenger vehicles.
• Machinery and equipment: manufacturing equipment, power tools, kitchen appliances for hospitality businesses and agricultural machinery.
• Computer equipment and software: laptops, desktops, servers, tablets and purchased software licences with a useful life beyond 1 year.
• Furniture and fixtures: desks, chairs, shelving, display units and fit-out items in your office or shop.
• Leasehold improvements: renovations or alterations you make to a leased property, such as installing new lighting, flooring or partitions.

Some smaller items might fall below the ATO's instant asset write-off threshold, meaning you can deduct the full cost immediately rather than depreciating them over several years.

Fixed assets vs current assets

Your balance sheet splits assets into 2 main groups: fixed (non-current) and current. Knowing the difference helps you understand your business's financial position and plan your cash flow. You can read a detailed breakdown in the guide to current vs fixed assets.

Here are the main differences between the 2 categories:

• Useful life: fixed assets are held for longer than 12 months, while current assets are expected to be used or converted to cash within 12 months.
• Liquidity: current assets like cash, stock and trade debtors are relatively easy to convert to cash. Fixed assets like property and equipment are harder to sell quickly.
• Balance sheet placement: current assets appear at the top of the assets section. Fixed assets appear below, under non-current assets.
• Depreciation: fixed assets (except land) are depreciated over their useful life. Current assets are not depreciated.
• Examples: current assets include cash, accounts receivable and inventory. Fixed assets include vehicles, machinery and buildings.

Why fixed assets matter for your small business

Fixed assets often represent a significant portion of a small business's total value. Getting them right on your books has real consequences for your finances and tax position.

Accurate fixed asset records give you a true picture of what your business is worth. Lenders and investors look at your balance sheet when assessing finance applications, and understated or missing assets can reduce your borrowing power.

Depreciation on fixed assets creates tax deductions that lower your taxable income each year. If you're not tracking your assets properly, you could be paying more tax than you need to. The ATO also requires you to keep records of your depreciating assets, including purchase dates, costs and how you calculated depreciation.

Tracking fixed assets also helps you plan ahead. When you know the age and condition of your equipment, you can budget for replacements before something breaks down unexpectedly.

How fixed assets appear on the balance sheet

Your balance sheet is the main financial statement where fixed assets show up. Understanding how they're recorded helps you read your reports with confidence.

When you buy a fixed asset, you record it at its original cost. This includes the purchase price plus any costs to get it ready for use, such as delivery, installation or setup fees. That total is the asset's "gross" value on your balance sheet.

Over time, you record depreciation to reflect the asset's declining value. The total depreciation recorded against an asset is called accumulated depreciation. On your balance sheet, you subtract accumulated depreciation from the gross value to find the asset's current book value.

Depreciation also appears on your profit and loss statement as an expense, reducing your reported profit for the period. This is a non-cash expense, meaning no money leaves your bank account, but it still affects your taxable income.

Depreciation of fixed assets in Australia

Depreciation lets you spread the cost of a fixed asset over its useful life instead of claiming the whole amount in the year you buy it. In Australia, the ATO sets rules for how you can depreciate business assets for tax purposes.

Straight-line method

The straight-line method spreads the cost evenly across the asset's useful life. You deduct the same amount each year, making it simple to calculate and predict.

The formula is: (Cost - Residual Value) / Useful Life = Annual Depreciation. For example, if you buy office furniture for $5,000 with no residual value and a useful life of 10 years, your annual depreciation is $500.

Diminishing value method

The diminishing value method front-loads larger deductions in the early years and smaller ones later. This approach reflects the reality that many assets lose more value when they're new.

For assets first held on or after 10 May 2006, the ATO formula is: Base Value x (Days Held / 365) x (200% / Effective Life). Using this method, you claim a bigger tax deduction in the first few years of owning the asset, which can improve your cash flow early on.

ATO instant asset write-off

The instant asset write-off allows eligible small businesses to deduct the full cost of an asset immediately, rather than depreciating it over several years. This can provide a significant cash flow benefit in the year you make the purchase.

Eligibility thresholds and conditions change regularly, so always check the ATO website for the current rules before making a claim. Your accountant or bookkeeper can also help you work out whether an asset qualifies and which depreciation method gives you the best outcome.

Net fixed assets: formula and calculation

Net fixed assets tell you the current book value of all your fixed assets after accounting for depreciation. It's a useful number for understanding how much value your long-term assets still hold.

The formula is: Net Fixed Assets = Total Fixed Assets - Accumulated Depreciation.

For example, say your business owns equipment with a total original cost of $80,000. Over the years, you've recorded $30,000 in accumulated depreciation. Your net fixed assets are $50,000. This figure appears on your balance sheet and gives lenders, investors and you a clearer picture of your business's asset base.

Managing fixed assets in your business

Good fixed asset management saves you time at tax season and helps you make better decisions about your business. Here are some practical steps to stay on top of your assets.

• Maintain a fixed asset register: record every fixed asset with its purchase date, cost, location, depreciation method and expected useful life. This is your single source of truth.
• Review assets annually: check that your register matches reality. Dispose of or write off assets you no longer use, and update values if anything has been impaired.
• Use accounting software:cloud-based tools can automate depreciation calculations, generate reports and keep your records audit-ready without manual spreadsheets.
• Keep records for at least 5 years: the ATO requires you to retain records of asset purchases, disposals and depreciation for a minimum of 5 years. Store them digitally so they're easy to find.

Staying organised with your fixed assets means fewer surprises during tax time and more confidence in your financial reports.

Track your fixed assets with confidence

Managing fixed assets doesn't have to mean manual spreadsheets and guesswork. With the right accounting software, you can automate depreciation calculations, keep your asset register up to date and generate the reports you need at tax time.

Xero's cloud-based platform helps you track your fixed assets alongside the rest of your finances in 1 place. You can record asset purchases, run depreciation automatically and pull reports whenever you need them. Get one month free.

FAQs on fixed assets

Here are some frequently asked questions about fixed assets.

What is the difference between fixed assets and current assets?

The key distinction is time horizon and purpose: fixed assets support your operations for years, while current assets cycle through your business within 12 months. See the fixed assets vs current assets section above for a full comparison.

Is a car a fixed asset?

Yes, a car used for business purposes is a fixed asset. You can depreciate it over its effective life, though the ATO sets a cost limit on the depreciable amount for passenger vehicles.

What are 10 examples of fixed assets?

Common fixed assets include land, buildings, vehicles, machinery, computer equipment, office furniture, fixtures, leasehold improvements, software licences and specialised tools. The specific assets on your books depend on your industry and operations.

Which fixed assets don't depreciate?

Land doesn't depreciate because it has no finite useful life. Some businesses also hold heritage or collectible assets that may appreciate rather than decline in value, though these are uncommon for most small businesses.

How do you calculate depreciation on a fixed asset?

Look up your asset's effective life in the ATO's published tables, then use that figure in your chosen formula. Most accounting software, including Xero, can run these calculations automatically once you enter the asset details.

What is the instant asset write-off for small businesses?

It's a tax concession that can simplify your bookkeeping by removing the need to track depreciation on qualifying purchases. Eligibility depends on your aggregated turnover and the asset's cost, so confirm the current rules with the ATO or your accountant before claiming.