Property depreciation is a non-cash tax deduction that allows investment property owners to claim the decline in value of the building structure and its fixtures and fittings against their taxable income. It is one of the most underutilised tax benefits available to Australian property investors.
Two types of depreciation:
Division 43 — Capital Works. The building structure itself depreciates at 2.5% per annum (for buildings constructed after September 1987). On a building with a construction cost of $400,000, the annual Division 43 deduction is $10,000. This continues for 40 years from construction.
Division 40 — Plant and Equipment. Fixtures and fittings — carpets, ovens, air conditioners, blinds, hot water systems, and more — depreciate individually at rates set by the ATO based on their effective life. These deductions are larger in the early years of ownership.
How to claim it. Investors cannot simply estimate depreciation. A quantity surveyor must prepare a Tax Depreciation Schedule — a document that identifies and values all depreciable items in the property and calculates the annual deductions available to the owner.
Who benefits most. New builds and recently renovated properties generate the highest depreciation schedules. Older properties may have limited remaining Division 43 claims but can still generate meaningful Division 40 deductions.
Cost of a tax depreciation schedule. Typically $400–$800. The schedule is fully tax-deductible and pays for itself within the first year of ownership in most cases.
