Property depreciation is one of the most underused tax deductions available to Australian investors. Many landlords leave thousands of dollars on the table each year by not claiming depreciation correctly. This guide explains how it works, what you can claim, and how much it is typically worth.
What Is Property Depreciation?
Depreciation is a non-cash tax deduction that reflects the wear and tear of a building and its fixtures and fittings over time. You do not need to spend money to claim it — it is a paper deduction based on the ATO’s approved useful life schedules for different assets.
The Two Types of Property Depreciation
- Division 43 — Building Write-Off (Capital Works): Claims the decline in value of the building structure itself. New residential buildings built after 16 September 1987 can be claimed at 2.5% per year for 40 years. Commercial buildings built after 20 July 1982 are claimed at 2.5%.
- Division 40 — Plant and Equipment: Claims the decline in value of removable fixtures and fittings — appliances, carpets, blinds, air conditioning, hot water systems, ovens. Each item has its own effective life determined by the ATO.
How Much Is Depreciation Worth?
| Property Type | Typical Year 1 Depreciation | Tax Saving at 37% Rate |
|---|---|---|
| New apartment (2026 build, $650,000) | $14,000 to $18,000 | $5,180 to $6,660 |
| 5-year-old house ($850,000) | $8,000 to $12,000 | $2,960 to $4,440 |
| 20-year-old house (post-1987 build) | $3,000 to $6,000 | $1,110 to $2,220 |
| Pre-1987 property | $0 (building only, no Div 43) | $0 |
Do I Need a Quantity Surveyor?
Yes. The ATO requires a tax depreciation schedule prepared by a qualified quantity surveyor. This is a one-off cost typically ranging from $550 to $800. It is fully tax deductible and typically pays for itself many times over in the first year of claims.
What Changed in 2017?
From 1 July 2017, second-hand residential investment properties purchased after that date can no longer claim Division 40 (plant and equipment) depreciation unless they install new assets themselves. Division 43 (building write-off) is still available for all post-1987 buildings regardless of when you purchased the property.
GeeVee Verdict
If you own any investment property built after 1987, commission a depreciation schedule immediately. The cost is minimal and the annual tax saving is typically $2,000 to $6,000. For new builds, the depreciation deduction is even more powerful and should be factored into your cash-flow modelling from day one.
Frequently Asked Questions
Can I claim depreciation on a property I renovated?
Yes. Any new capital works or plant and equipment you install — new kitchen, new bathroom, new flooring — are depreciable regardless of when the property was built. Keep all receipts and invoices for the quantity surveyor.
Does claiming depreciation affect my capital gains tax?
Division 40 (plant and equipment) depreciation claimed does reduce the cost base of those assets for CGT purposes. Division 43 (building write-off) does not affect the cost base for residential properties. Your accountant will reconcile this at the time of sale.
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