What Is a Depreciation Schedule? An Australian Property Investor's Guide

8 hours ago
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A depreciation schedule is a report that sets out the tax deductions an investor can claim for the decline in value of an investment property's building and its assets. It covers capital works under Division 43 and depreciating assets under Division 40, and an accountant uses it to complete the property owner's tax return each year.

Key takeaways

One schedule contains two separate deduction types: capital works, which is the building itself, and depreciating assets, which are items such as ovens, carpet and air conditioning.
Where the actual construction cost cannot be determined, the ATO accepts an estimate from an appropriately qualified person. A quantity surveyor is one option, and the ATO also lists a clerk of works, a supervising architect and a builder experienced in estimating similar projects.
If you hold genuine records of the construction cost, such as receipts, an estimate may not be needed.
Most investors who acquired an established residential property at or after 7:30 pm AEST on 9 May 2017 cannot claim the decline in value of the second-hand assets that came with it.
Capital works deductions reduce your capital gains tax cost base, so a deduction claimed now has a consequence when you sell.
Whether a schedule is worthwhile depends on the property, and your eligibility depends on your circumstances. Your accountant should confirm your position before you claim.

What a depreciation schedule actually contains

Two distinct parts of Australian tax law sit inside a single document. Confusing them is the most common reason investors misjudge whether a schedule is worth obtaining.

Capital works, under Division 43

Capital works covers the structure and permanent improvements: walls, floors, roofs, concrete slabs, fixed joinery, bathrooms, sealed driveways, fences and retaining walls. The rate and the eligible period depend on the type of construction and the date construction commenced, not on when you bought the property.

Capital works rates by construction type and commencement date, per ATO guidance

Type of capital works	Construction commenced after	Rate and period
Residential, or any building used to produce income	17 July 1985	4% for construction commenced 18 July 1985 to 15 September 1987, then 2.5% from 16 September 1987
Non-residential, such as a shop or office	19 July 1982	2.5% to 21 August 1984, 4% from 22 August 1984 to 15 September 1987, then 2.5% from 16 September 1987
Structural improvements used for residential or income purposes	26 February 1992	2.5%
Environment protection earthworks	18 August 1992	2.5%

A 2.5% rate runs for 40 years and a 4% rate runs for 25 years. Deductions start only once construction of the relevant capital works is complete, and can be claimed only for the part of the year the property was used to produce income. Land itself is never deductible.

Depreciating assets, under Division 40

Depreciating assets are the removable and mechanical items: ovens, cooktops, hot water systems, air conditioning, carpet, blinds and smoke alarms. Each has its own effective life. For many residential investors this part of the schedule is now far smaller than it once was, for the reason set out below.

The asset register and the year by year table

A schedule also sets out an asset register listing each item, its value, its effective life and the method applied, alongside a year by year table your accountant can read straight into the return. A schedule prepared on a property specific basis will state its assumptions, which matters if the claim is ever reviewed.

Who the ATO accepts as an appropriately qualified person

This is where a lot of published material overstates the position. The ATO does not require every depreciation claim to be supported by a quantity surveyor. Its guidance is that you must evidence construction costs with either precise documents such as receipts, or a report written by an appropriately qualified person. An estimate is needed only where the actual construction cost cannot be determined.

Where an estimate is required, the ATO lists the following as appropriately qualified:

A quantity surveyor.
A clerk of works, such as a project organiser for major building projects.
A supervising architect who approves payments at project stages.
A builder experienced in estimating construction costs of similar building projects.

Three further points are worth knowing, because they are frequently left out. Published building cost guides are not accepted on their own, and may be used only as a guide by an appropriately qualified person. The purchase price, the insured cost and the replacement cost cannot be used as the construction cost. And if you built the property yourself as an owner builder, the value of your own labour and any notional profit margin do not form part of the construction cost.

The fee you pay an appropriately qualified person for the estimate is itself deductible in the year you incur it.

The 9 May 2017 rule that catches buyers of established homes

If you acquired a residential rental property, or an asset for one, at or after 7:30 pm AEST on 9 May 2017, you generally cannot claim the decline in value of second-hand depreciating assets. Second-hand means assets already used or installed ready for use by someone else, in a private residence, or for a non-taxable purpose.

In practice this means an investor buying an established house or unit usually cannot claim the existing oven, carpet or air conditioner, even though those items clearly have remaining life. The same applies if you turn your own home into a rental on or after 1 July 2017. New assets you buy for the property afterwards are not affected.

The ATO sets out exceptions. They include carrying on a business of letting rental properties, a property not used to provide residential accommodation such as commercial premises, and ownership by an excluded entity such as a corporate tax entity, a public unit trust or a managed investment trust. Whether an exception applies to you is a question for your accountant.

Importantly, this restriction applies to Division 40 assets. It does not remove capital works deductions, which is why a schedule can still be worthwhile on an established property that qualifies for Division 43.

The capital gains tax consequence most explanations omit

Capital works expenses form part of the cost base of your property for capital gains tax purposes, and claiming a capital works deduction requires you to adjust that cost base. The deduction is therefore not free money in the long run. It improves cash flow while you hold the property and reduces the cost base you use to work out a gain or loss when you sell.

Whether that trade is favourable depends on your marginal rate, your holding period, any main residence exemption and the CGT discount. It is a question for your accountant rather than a reason to claim or not claim.

Is a depreciation schedule likely to be worthwhile?

Indicative guide only. Eligibility depends on your circumstances.

Your situation	Likely to help?	Why
Newly built residential investment property	Usually	Capital works and new depreciating assets are both generally claimable
Established residential property acquired after 9 May 2017	Often, on capital works only	Capital works may still be claimable, second-hand assets generally are not
Residential property where construction commenced before 18 July 1985, never renovated	Often not	Capital works generally require construction commenced after 17 July 1985
Older property substantially renovated by a previous owner	Often	Qualifying renovation work may attract capital works deductions in its own right
Commercial or other non-residential property	Usually	The second-hand asset restriction is directed at residential accommodation
You hold complete construction cost records	Possibly, for the asset schedule	Actual cost records can be used, so an estimate of construction cost may not be needed

What the process involves

You provide the property address, the purchase date, the date it was first available for rent, and any information you hold about construction and renovation dates.
The property is assessed. Depending on the property and the report type, this may involve a site inspection to identify assets and confirm the scope of works.
Construction costs are established from your records where you have them, or estimated by an appropriately qualified person where you do not.
The schedule is prepared, setting out capital works, depreciating assets, the asset register and the year by year figures.
You give the schedule to your accountant, who applies the figures and decides how they interact with the rest of your return.

Obtain the report as early as you reasonably can. The ATO notes these reports can take time to prepare, and if you obtain one after lodging you may need to amend your return, which is subject to time limits on amendments.

Information worth gathering before you order

The full property address and title details.
The contract date and settlement date.
The date the property was first genuinely available for rent.
Any building contract, tender documents, invoices or receipts for construction.
Dates and scope of renovations, including work done by previous owners if known.
A capital works notice from the vendor if one was provided. A vendor who disposes of capital works begun after 26 February 1992, and who could claim a deduction for them, should provide the buyer with a notice containing the information needed to work out their own capital works deduction.
Details of any assets you purchased new for the property yourself.

A worked example

Figures are calculated using published ATO rates and are not a Propti client outcome or a prediction of your result.

Construction of a residential townhouse commenced in 2005 and the estimated construction cost is $400,000. Because construction commenced after 16 September 1987, the capital works rate is 2.5%, giving $10,000 a year over 40 years.

If the owner first rents the property on 1 October, it produces income for 273 days of that financial year. The claim for that year is $10,000 multiplied by 273 divided by 365, which is $7,479. In each following full year the claim is $10,000. Each dollar claimed also reduces the CGT cost base by the same amount.

Common mistakes

Treating the purchase price as the construction cost. The ATO specifically excludes the purchase price, the insured cost and the replacement cost.
Assuming an established property bought after May 2017 still carries claimable second-hand assets.
Assuming an older property is automatically not worth assessing, when renovations by a previous owner may qualify for capital works.
Claiming capital works and then overlooking the cost base adjustment at sale.
Relying on a generic cost per square metre guide rather than a property specific assessment.
Leaving the report until after lodgement and then discovering the amendment period is a constraint.

When to get professional advice

A depreciation schedule is a costing and measurement document. It does not decide your tax position. Speak to your accountant or registered tax agent about whether you are entitled to claim, how the deductions interact with your income and any other properties, and the capital gains tax consequences. Speak to your solicitor about ownership and structuring questions.

Frequently asked questions

What is a depreciation schedule in Australia?

It is a report that quantifies the capital works and depreciating asset deductions available on an investment property, and sets them out year by year so an accountant can apply them in a tax return.

Can I prepare my own depreciation schedule?

If you hold precise records of the construction cost, such as receipts, those records can be used as evidence. Where the actual construction cost cannot be determined, the ATO requires an estimate from an appropriately qualified person, and you would not be estimating your own costs in that situation. Your accountant can advise which applies to you.

Is a depreciation schedule worth it?

It depends on the property's construction date, its renovation history, whether it is residential or commercial, and when you acquired it. The table above sets out the usual pattern. A provider should be willing to give you an indication of expected deductions before you commit.

How long does a depreciation schedule last?

Capital works deductions run for 40 years from completion of construction at the 2.5% rate, so a schedule is generally prepared once and used each year. A material renovation, a change in how the property is used, or a change in ownership may mean it needs revisiting.

Can I claim depreciation on an older property?

Possibly. Capital works generally require construction to have commenced after 17 July 1985 for residential property, but qualifying renovations carried out later, including by a previous owner, may attract deductions in their own right.

Does claiming depreciation increase my capital gains tax?

Capital works deductions require an adjustment to the cost base of the property, which can increase an assessable gain on sale. Whether that leaves you better off overall depends on your circumstances, and is a question for your accountant.

Talk to Propti about the right report

Propti connects property owners and their advisers with qualified valuers and quantity surveyors across Australia. If you are unsure whether a depreciation schedule suits your property, tell us the address, the approximate construction date, when you bought it and when it was first rented, and we can tell you which report is appropriate and what it involves before you commit. We do not provide tax, financial or legal advice.

Sources

Australian Taxation Office, Work out your capital works deductions, last updated 22 June 2026. Capital works rates and dates, evidence of construction cost, appropriately qualified persons, owner builder exclusion, vendor capital works notice, deductibility of the estimate fee, CGT cost base interaction.

Australian Taxation Office, Capital works deductions, last updated 7 February 2023. Scope of capital works, 2.5% and 4% rates, estimate by a quantity surveyor or other independent qualified person.

Australian Taxation Office, Second-hand depreciating assets, last updated 22 June 2026. The 9 May 2017 and 1 July 2017 rules, definition of second-hand depreciating assets, exceptions and excluded entities.

Income Tax Assessment Act 1997, Division 43, Deductions for capital works. Legislative basis for capital works deductions.

All sources accessed 3 September 2026.

Review status

Draft subject to review by a qualified valuer, quantity surveyor, accountant, solicitor or other relevant professional before publication.

Important information

This article is general information only. It is not tax, financial or legal advice and does not take account of your objectives, financial situation or needs. Propti is a property reporting platform and does not provide tax, financial or legal advice. Eligibility for any deduction depends on your circumstances. Obtain advice from your accountant, registered tax agent, solicitor or financial adviser before acting.