Learn which building costs and assets may qualify for depreciation, how the second-hand rules work, and what to expect from an AussieQS schedule.
Investment property depreciation lets eligible Australian rental owners claim deductions for building construction costs and the decline in value of assets such as appliances and carpets. The building falls under Division 43 capital works, while removable or mechanical items generally fall under Division 40 plant and equipment. Both categories recognise costs over time, but their eligibility rules differ.
New and established properties can qualify, although the second-hand asset rules restrict what many owners of established homes can claim. We prepare a schedule that separates the eligible categories and sets out deductions over time. Your accountant then applies it to your ownership, rental use and tax position.
How does investment property depreciation work for the building?
Buildings wear out even when a property’s market value rises. Capital works deductions recognise eligible construction expenditure over time, rather than changes in the property’s sale price. The purchase price includes things such as land, which cannot be depreciated.
For residential construction that started after 15 September 1987, the general capital works rate is 2.5 per cent a year over 40 years, counted from completion. Buying an established building does not restart that period. Claims are limited to eligible periods when the property is used or genuinely available to produce income.
Capital works can include the structure, extensions and qualifying renovations. Structural improvements such as driveways, fences, retaining walls and pools have their own timing rules, generally covering work started after 26 February 1992. We check the type of work and its history because the same date does not apply to everything on the block.
An older original house may therefore still contain eligible later additions. We look at the separate stages of construction rather than treating the property’s age as the only eligibility test.
Which items count as plant and equipment?
Division 40 covers eligible assets with their own effective lives, such as carpets, blinds, appliances and air-conditioning equipment. These items wear out at different rates from the structure. Being attached to the building does not automatically make something capital works, so classification matters.
The ATO publishes effective life determinations used to calculate decline in value. Prime cost generally spreads that decline evenly over an asset’s effective life, while diminishing value generally produces larger deductions earlier and smaller deductions later. Ask your accountant which method suits your circumstances.
Some eligible lower-cost assets can receive different treatment through immediate deductions or low-value pooling, subject to conditions. These rules do not make an otherwise excluded second-hand asset deductible. We identify the relevant assets and treatment in the report so your accountant can review the claim.
Can you claim on new and established properties?
With a newly built rental property, eligible construction costs and new plant and equipment may both qualify. The property’s use and the history of its assets still matter. A recently completed home that someone has already occupied needs closer checking than one that has never been used.
For individual investors, the second-hand restriction generally applies to residential assets contracted for or otherwise acquired at or after 7:30 pm on 9 May 2017. Previously used carpets, appliances and similar items acquired with an established home generally cannot be claimed under Division 40. The restriction does not remove eligible Division 43 capital works deductions.
New replacement assets bought and installed for the rental may still qualify. Assets previously used in your own home can also be restricted when that home becomes a rental, including where it was first rented on or after 1 July 2017. Moving a household appliance into a rental does not make it new.
Different treatment can apply to a business of letting, companies and other excluded entities, and non-residential property. There are also specific exceptions for qualifying new residential premises, including some substantially renovated properties. Ask your accountant whether an exception applies rather than assuming a renovation or ownership structure qualifies.
For a closer look at older homes and the acquisition rules, read our guide to depreciation on second-hand property. It explains why an established property can still be worth assessing.
What does a tax depreciation schedule contain?
A schedule is a report that documents eligible construction costs and assets, with deductions arranged by financial year. It gives your accountant a consistent basis for preparing claims and helps keep the building allowance separate from individual asset calculations.
A useful report includes:
- Property details, relevant dates and ownership information.
- Eligible capital works costs, including identified renovations.
- A plant and equipment inventory with values and effective lives.
- Annual deduction calculations and applicable depreciation methods.
- Assumptions, exclusions and the basis of construction cost estimates.
Where actual construction costs cannot be established, the ATO accepts estimates from appropriately qualified people, including quantity surveyors. Our construction costing expertise helps us assess the work, materials and building history. An estimate must relate to construction expenditure, rather than simply allocating part of the current market value to the building.
Our reports are prepared by a Certified Quantity Surveyor. We use available records alongside the property inspection evidence, and distinguish documented costs from estimates. Our guide to why choose an AussieQS depreciation report explains the role of the quantity surveyor and our approach in more detail.
How long does a schedule last?
A schedule sets out investment property depreciation deductions across future financial years, so you generally do not need a replacement report each tax season. Its usefulness depends on the remaining capital works period, the lives of eligible assets and whether the property changes. A report prepared for an older building does not create another full construction write-off period.
Keep the schedule with invoices and records of rental availability. Let your accountant know about private use, changes in ownership and periods when the property was not genuinely available for rent. Annual totals in the report may need adjustment to reflect those facts.
Renovations, replacement appliances and the removal of existing assets can require additions or updates. We recommend keeping a record as changes happen, including purchase and installation dates. That makes the next review easier than trying to reconstruct the history at tax time.
What does a worked example look like?
Consider an individual investor who buys an established house after the second-hand rule began. Assume its original construction qualifies for the general 2.5 per cent capital works rate and remains within its 40-year period. The house contains the previous owner’s carpets and oven, and the investor installs a new dishwasher solely for rental use.
We assess the eligible original construction expenditure for Division 43. The previous owner’s carpets and oven are generally excluded from Division 40 deductions, while the new dishwasher is assessed separately as a new asset. This illustrates why an established property can contain both eligible and excluded components.
For a full eligible income-producing year, the building calculation is qualifying construction expenditure multiplied by 2.5 per cent. If eligible use covers exactly half that year, the proportional calculation is 2.5 per cent multiplied by one-half, or 1.25 per cent of that expenditure. The actual claim uses the relevant dates and any other required adjustments.
The dishwasher follows its own asset calculation, rather than the building rate. This example explains the method only; it does not predict a deduction or refund for a particular property. Your accountant checks the final claim against your records.
How do repairs, renovations and selling affect claims?
Property depreciation needs to be considered alongside repairs and other rental expenses. Repairs that restore damage caused during rental use are generally immediately deductible, while improvements usually involve capital expenditure. Work that fixes defects present when you bought the property is generally an initial repair and is capital, even if you discover the problem later.
A renovation can involve both capital works and new plant and equipment. Keep itemised invoices and records of what was removed, replaced or added. Ask your accountant how each cost should be treated, including whether initial repair costs qualify for deductions over time.
Capital works deductions claimed or claimable generally reduce the property’s cost base for capital gains tax purposes. Disposing of depreciating assets can also trigger balancing adjustment rules, including when assets are sold with the property. Leave those calculations to your accountant and retain the schedule as part of the property’s records.
How do you get an AussieQS schedule?
We start with a free eligibility check. Share the property’s address, approximate age, purchase details, rental history and any known renovations. This helps us assess whether a report is likely to be useful and identify missing information early.
We work Australia-wide. A standard residential schedule is $600 including GST, with a turnaround of 3 to 5 business days. The property is inspected by photos and video, with a site visit where needed. We explain the information required and confirm timing as part of the booking process.
Useful records include floor plans, construction invoices, renovation details and receipts for new assets. Having incomplete records does not automatically rule out a schedule; we can assess whether construction costs can be appropriately estimated. Tell us what you have so we can work through any gaps.
You can arrange the free check through our depreciation schedules service. For the steps from gathering records to handing the completed report to your accountant, see our guide to getting a rental property schedule.
Frequently asked questions
Is a depreciation schedule worth getting for an older property?
It can be, particularly where eligible building expenditure or later renovations remain within their claim periods. We offer a free eligibility check before you order, rather than assuming every older home has the same potential.
Is the cost of a depreciation schedule tax deductible?
The fee is generally deductible. Ask your accountant how to claim it in your circumstances, and keep the invoice with the report.
Can I claim depreciation if I lived in the property first?
Eligible capital works may be claimable once the property is used or genuinely available to produce income. Previously used household assets can be restricted under the second-hand rules, so ask your accountant to check the property’s history and any new assets separately.
