Property Depreciation Schedules Explained

A depreciation schedule is a report that estimates the non-cash deductions an investment property can generally produce as its building and fit-out age. It is usually prepared by a qualified quantity surveyor, and it sets out two distinct categories — capital works and plant and equipment — with a year-by-year breakdown that your accountant uses when preparing the rental component of your return.

The appeal of depreciation is that it is a deduction you can claim without spending cash in that year, which can improve the after-tax position of holding a property. This guide explains the two categories, the quantity surveyor’s role, and how a schedule flows into your return — in plain English. It is general information only; it does not estimate deductions, promise tax savings, or replace advice for your property.

A depreciation schedule splits a property’s deductions into two parts because the law treats them differently:

• Division 43 — capital works: the building structure and certain fixed items. These are generally written off at a set rate over a long period.
• Division 40 — plant and equipment: removable or mechanical assets such as appliances, carpet, blinds, hot-water systems and air-conditioning. These generally depreciate over their effective lives, using the diminishing-value or prime-cost method.

Keeping the two separate matters because they are claimed at different rates and over different periods, and because the rules for claiming Division 40 on previously-used assets in some residential properties are restricted. The categories above are a general explanation, not a calculation for any particular property.

Accountants generally do not prepare the construction-cost and plant estimates that sit behind a depreciation schedule. Where the original costs are not known, the ATO generally accepts an estimate from an appropriately qualified person, such as a registered quantity surveyor. That is why a depreciation schedule is usually commissioned from a quantity surveyor and then provided to your accountant.

Whether commissioning a schedule is worthwhile typically depends on the age of the building, the value of the fit-out, and whether you are eligible to claim plant and equipment — all things a quantity surveyor can assess. We do not prepare schedules ourselves; we work with whatever schedule you provide, bring it into the return, and can flag where one would change the position materially. Quantity surveyor advice may be required, and the cost of a schedule is itself generally deductible.

Once a schedule exists, your accountant uses its year-by-year figures in the rental schedule of the relevant tax return, alongside the property’s income and other deductible costs. Because depreciation is a non-cash deduction, it can contribute to a property being negatively geared on paper even where the cash position is closer to neutral — we explain that interaction in our guide to how negative gearing works.

There is a flip side worth understanding: capital works deductions claimed (or claimable) over time can reduce the property’s cost base for capital gains tax when you sell, which can increase the assessable gain. So depreciation is best weighed across the whole holding-and-sale picture rather than treated as free money. We do not estimate the figures here — they come from the schedule and depend on the rules for the relevant year and your circumstances.

The practical path is straightforward: where a schedule would add value, commission one from a quantity surveyor; provide it to your accountant; and have the figures brought into the rental schedule each year, with repairs, improvements and capital works correctly distinguished. Our rental property tax service handles that classification and the running cost-base record, and our property investor deductions checklist covers what else investors can typically claim.

For investors weighing depreciation as part of a broader buy, hold or sell decision, the tax and lending sides can be considered together — see our property investor strategy page, or get in touch for a scoping conversation.

This guide is general information only and does not take into account your objectives, financial situation or needs. It is not personal tax advice, does not estimate deductions and does not promise any tax saving. Depreciation entitlements depend on the property, how it has been used, and the law for the relevant income year; a quantity surveyor schedule may be required, and you should seek advice for your situation.