Tax Depreciation Schedules: How Much Can Property Investors Actually Claim?

Depreciation is the deduction most property investors leave on the table. Unlike interest or council rates, it is a non-cash deduction: you do not have to spend a dollar in the year you claim it, yet it can be worth thousands of dollars off your taxable income annually. The catch is that you cannot simply guess the numbers. To claim depreciation properly and stay on the right side of the ATO, you need a tax depreciation schedule prepared by a qualified quantity surveyor.

This guide explains what a tax depreciation schedule is, how much investors typically claim, the two categories of deductions, and how to work out whether ordering a schedule is worth it for your property.

A tax depreciation schedule is a report, prepared by a qualified quantity surveyor, that sets out the deductions you can claim each year for the decline in value of a building and its assets. It splits into two parts: capital works (the structure of the building) and plant and equipment (removable assets like carpet, blinds, air conditioners and appliances). A schedule is a one-off report that typically covers up to 40 years, and its cost is itself tax deductible. For many investment properties the first full year of deductions runs into several thousand dollars.

What is a tax depreciation schedule?

Every building and everything in it wears out over time. The ATO recognises this and lets property investors claim that wear and tear as a deduction against the income the property earns. A tax depreciation schedule is the document that quantifies those deductions, year by year, for the life of the property.

It is prepared by a quantity surveyor, one of the few professionals the ATO recognises as appropriately qualified to estimate construction costs where the actual figures are unknown. Your accountant then uses the schedule at tax time to claim the deductions in your return. You order the schedule once; it keeps working for you every year afterwards.

The two types of depreciation deductions

Understanding the two categories helps explain why claims vary so much between properties.

1. Capital works (Division 43)

Capital works deductions cover the building's structure and permanently fixed items: the concrete, brickwork, roofing, walls, doors and fixed cabinetry. For residential properties, capital works are generally deductible at 2.5% per year over 40 years where the property was built after 15 September 1987. This is usually the larger and more predictable part of a claim.

2. Plant and equipment (Division 40)

Plant and equipment covers removable or mechanical assets: carpet, blinds, hot water systems, air conditioners, ovens, cooktops and dishwashers. These items depreciate faster than the building, each according to its own effective life set by the ATO.

An important rule applies here: since 9 May 2017, investors who buy a second-hand residential property generally cannot claim depreciation on previously used plant and equipment. New plant and equipment you install yourself can still be claimed, and the rule does not apply in the same way to brand-new properties or to commercial property. This is why a new build often produces a much larger plant and equipment claim than an established home.

• Capital works (Div 43): building structure and fixed items, generally 2.5% per year over 40 years for post-1987 builds.

• Plant and equipment (Div 40): removable and mechanical assets, depreciated over each asset's effective life.

How much depreciation can you actually claim?

The honest answer is that it depends on the property: its age, type, construction cost, and what is inside it. That said, some patterns hold true across the Australian market:

• Newer properties claim more. A recently built apartment in Melbourne or a new house-and-land package in Perth generally has both a full capital works entitlement and claimable new plant and equipment.

• Older properties still claim. Even an established brick home in Adelaide or Brisbane usually has some capital works value, and previous renovations may be claimable as capital works.

• The first few years are the biggest. Plant and equipment depreciates fastest early on, and many schedules use a diminishing value method that front-loads the deductions.

For a typical residential investment property, first-year deductions frequently land in the low thousands of dollars, and many properties produce meaningful deductions across their entire 40-year capital works life. The exact figure only comes from a professional inspection and report, which is precisely what the schedule provides.

Is a depreciation schedule worth it?

This is the practical question, and the maths usually answers it quickly. Weigh two things: the cost of the schedule, which is a one-off fee that is itself fully tax deductible; and the deductions it unlocks, which are typically far larger than the fee in the very first year for most rental properties.

If a schedule costs a few hundred dollars and unlocks several thousand dollars of first-year deductions, the return on that spend is substantial, and it repeats at a declining rate for years. A reputable quantity surveyor will tell you upfront if a property is too old or too stripped to justify a schedule, so you are not paying for a report that will not pay for itself.

Scenario: An investor buys a five-year-old townhouse in Brisbane as a rental. A quantity surveyor inspects it and prepares a schedule. In year one, capital works and eligible plant and equipment combine to produce, say, $8,000 in deductions. If the investor's marginal tax rate is 37% plus Medicare levy, that deduction reduces tax payable by roughly $3,100 in that year alone, many times the cost of the report. The schedule then continues delivering deductions in following years. (Figures are illustrative only.)

What is in the schedule, and how long does it take?

A professional tax depreciation schedule generally includes:

• A breakdown of capital works and plant and equipment deductions.

• Both the diminishing value and prime cost methods, so your accountant can choose.

• A year-by-year forecast, usually covering up to 40 years.

• A site inspection, or a compliant assessment where appropriate, documenting the assets.

From engagement to delivery, a schedule is typically turned around in a matter of weeks, depending on inspection access and property complexity. You only need one per property; it does not need to be redone each year unless you make significant improvements.

When should you order one?

• Straight after settlement on a new investment purchase, so year-one deductions are captured.

• After a renovation or improvement, since new capital works and new plant and equipment can be added.

• If you have never had one on an existing rental; you may be able to amend prior returns, subject to ATO time limits, so ask your accountant.

The most expensive schedule is the one you never ordered, because missed deductions in past years are money you have simply handed back.

Frequently asked questions

How much does a tax depreciation schedule cost?

It is a one-off fee that varies with property type and location, and it is fully tax deductible. For most residential investment properties the first-year deductions it unlocks are considerably larger than the fee, which is why quantity surveyors will decline the job if a property is unlikely to produce a worthwhile claim.

Can I claim depreciation on an old property?

Often, yes, but it depends. Buildings constructed after 15 September 1987 generally have capital works deductions available, and previous renovations may add to that. However, since 9 May 2017, depreciation on previously used plant and equipment in second-hand residential properties is generally not claimable. A quantity surveyor can tell you quickly whether a schedule stacks up for your property.

Do I need a quantity surveyor, or can my accountant do it?

Where actual construction costs are unknown, the ATO recognises quantity surveyors as appropriately qualified to estimate them; accountants generally are not. Your quantity surveyor prepares the schedule and your accountant applies it in your tax return each year.

How often do I need a new schedule?

Usually just once per property. The schedule projects deductions for up to 40 years. You would only commission an update after a significant renovation or the installation of new plant and equipment.

What is the difference between a depreciation schedule and a depreciation report?

The terms are used interchangeably. Both refer to the quantity surveyor's report setting out your capital works and plant and equipment deductions.

Unlock your property's depreciation deductions

If you own an investment property and do not have a tax depreciation schedule, you may be missing thousands of dollars in legitimate deductions every year. Propti's quantity surveyor reports are ATO-compliant, inspection-backed and built to maximise what you can legitimately claim. Explore our depreciation report service, learn more about our quantity surveyor reports, or book in a report to get started.