A depreciation schedule is one of the most underutilised tax tools available to Australian property investors. Research by the Australian Taxation Office (ATO) shows that the majority of investment property owners do not claim all the depreciation they are entitled to, leaving thousands of dollars in unclaimed deductions every year.

What Is Property Depreciation?

The ATO allows investment property owners to claim a tax deduction for the natural wear and tear of a building and its fixtures over time. This deduction — called depreciation — reduces your taxable rental income, which reduces the tax you pay each year. Unlike most deductions, depreciation is a non-cash deduction: you do not need to spend money to claim it.

The Two Types of Property Depreciation

Division 43 — Capital Works Deduction

Division 43 covers the structural elements of a building — walls, floors, roofs, windows and built-in fixtures. Residential properties built after 15 September 1987 can claim 2.5% of the original construction cost as a capital works deduction each year for up to 40 years. Properties built between 1982 and 1987 may qualify for a 4% deduction.

Division 40 — Plant and Equipment Depreciation

Division 40 covers the removable assets within the property — hot water systems, air conditioners, carpet, blinds, dishwashers and similar items. Each asset depreciates at a different rate according to the ATO’s effective life schedule. For properties purchased after 9 May 2017, plant and equipment deductions are only available for brand new assets installed by the owner (not pre-existing assets in a second-hand property).

What Is a Depreciation Schedule?

A depreciation schedule is a report prepared by a quantity surveyor that identifies and values all the depreciable assets in your investment property and calculates the annual deduction you can claim for each one. The schedule is used by your accountant when preparing your tax return. A depreciation schedule typically costs between $300 and $700 to prepare and is itself a tax-deductible expense.

How Much Tax Can a Depreciation Schedule Save?

For a new investment property purchased at $700,000, a depreciation schedule can identify $10,000 to $20,000 in annual deductions in the first few years. For an investor on a 37% marginal tax rate, this translates to $3,700 to $7,400 in annual tax savings. Over 10 years, the cumulative tax saving can easily exceed $50,000 to $100,000.

Do I Need a Depreciation Schedule for My Investment Property?

If your investment property was built after 1987 and you have not yet obtained a depreciation schedule, you are almost certainly leaving money on the table. A quantity surveyor can inspect your property and prepare a schedule that covers both Division 43 and Division 40 deductions where eligible.

Who Prepares a Depreciation Schedule?

A quantity surveyor (QS) who specialises in tax depreciation. Look for a firm that is a member of the Australian Institute of Quantity Surveyors (AIQS). Do not rely on your accountant to estimate depreciation without a formal schedule — they are not qualified to assess construction costs and depreciable assets, and an incorrect schedule can trigger an ATO audit.

Frequently Asked Questions

Can I get a depreciation schedule on an older property?

Yes, as long as the property was built after 15 September 1987 for Division 43 deductions. Plant and equipment deductions for second-hand properties are now restricted to new assets you install yourself. A quantity surveyor can advise on what is claimable for your specific property.

Is a depreciation schedule a one-time cost?

The initial schedule is a one-time cost. However, if you make capital improvements to the property — a new kitchen, bathroom renovation, new air conditioning — you should update the schedule to include the new assets. The cost of the update is also tax-deductible.

Can a Collings Property Advisor help with depreciation?

Collings Property Advisory focuses on transaction advice — buying, selling and negotiating. For depreciation schedules, we recommend engaging a specialist quantity surveyor. However, if you are an investor buying a property through our advisory service, we can guide you on the likely depreciation potential of different property types as part of our investment analysis.

Maximise Your Investment Property Returns

A depreciation schedule is one of several tools Collings uses to assess the true cashflow potential of an investment property. If you are buying an investment property and want an independent analysis of its net cashflow including depreciation, rental yield and capital growth potential, a Collings Property Advisor can help. Fixed fee: $4,500 + GST.

Book a free 15-minute discovery call at collings.com.au/property-advisory