Property Depreciation for Australian Investors: How to Maximise Your Tax Deductions

What is Property Depreciation?

The Australian Taxation Office (ATO) allows property investors to claim a deduction for the decline in value of: the building structure itself (Division 43 — capital works deduction) and the assets within the property (Division 40 — plant and equipment depreciation: appliances, carpet, blinds, hot water system, etc.).

Who is Eligible?

• 1 Any investor who owns a rental property and generates rental income
• 2 Depreciation on structure (Div 43) is only available for buildings constructed after September 16, 1987
• 3 Depreciation on assets (Div 40) applies to all properties — even if built before 1987, all the internal assets can be depreciated if they were new when you purchased or if you replaced them
• 4 Changes from 2017: Div 40 cannot be claimed on previously used assets in second-hand properties purchased after 7 May 2017 — only new or replaced items qualify

Quantity Surveyor Depreciation Schedule

A depreciation schedule is prepared by a Quantity Surveyor (QS) — not your accountant. The QS inspects the property, values all depreciable items, and prepares a schedule showing deductions for each financial year over the building's effective life. Cost: $500–$1,200. This fee is itself tax-deductible. The schedule is used year after year.

Division 43 — Building Allowance

The construction cost of a building constructed after 16 September 1987 can be depreciated at 2.5% per year over 40 years. You don't need the original construction cost — a quantity surveyor can estimate it. On a building with an estimated construction cost of $300,000, that's a $7,500 annual deduction — potentially saving $2,500–$3,500 in tax annually depending on your marginal rate.