Depreciation schedules: when they’re worth it and when they’re not

A tax depreciation schedule is a report prepared by a qualified quantity surveyor setting out the deductions you can claim for the decline in value of your investment property — the building itself and the assets inside it — over a 40-year period.

It is one of the few genuinely underclaimed deductions in property investing. It requires no cash outlay each year, it does not depend on how the property performs, and a great many investors either do not have one or got one years ago and never updated it.

The two kinds of depreciation

Division 43 — capital works

This is the building structure: walls, roof, floors, doors, windows, driveways, retaining walls, fencing, and the fixed items that form part of the building.

For eligible residential properties, capital works are generally claimed at 2.5% a year over 40 years. Residential properties where construction began after 15 September 1987 generally qualify. Structural improvements and renovations completed after that date also qualify — including work done by a previous owner, whether or not you know what it cost. A quantity surveyor can estimate it.

Division 40 — plant and equipment

This is the removable and mechanical items: ovens, cooktops, dishwashers, air conditioners, hot water systems, carpet, blinds, light fittings, smoke alarms. Each has its own effective life and depreciates faster than the building.

The 2017 rule that changed everything

This is the point that determines whether a schedule is worth ordering.

If you acquired, or contracted to acquire, a residential rental property at or after 7:30pm AEST on 9 May 2017, you generally cannot claim the decline in value of second-hand (previously used) plant and equipment in it. You can still claim:

Division 43 capital works in full — this restriction does not touch it
New plant and equipment that you buy and install yourself
Everything, if you are carrying on a business of letting rental properties
Everything, for commercial property — the restriction applies to residential

If you bought before that date and installed the assets before 1 July 2017, the old rules still apply to you for the remaining effective life of those assets.

When a schedule is clearly worth it

Newly built or off-the-plan property — everything is new, so both Division 40 and Division 43 are fully available
Property built after 15 September 1987 — capital works alone are usually substantial
Recently renovated property, including renovations done by a previous owner
You have renovated or replaced appliances yourself since buying
Commercial property — the second-hand restriction does not apply
You have owned the property for years and never had a schedule

When it is probably not worth it

An older house built before September 1987 with no substantial renovations, bought after May 2017, may have very little to claim — no capital works entitlement and no second-hand plant deductions. A good quantity surveyor will tell you this before taking your money. Duo Tax offer a free estimate for exactly this reason, and if the numbers do not stack up they will say so.

Two things people do not realise

The report fee is itself tax deductible. It is a cost of managing your tax affairs.
You may be able to amend prior returns. If you have owned the property for a few years without a schedule, deductions may be recoverable for earlier years. The standard amendment period is two years from your notice of assessment for most individuals, and four years in some circumstances — worth checking rather than assuming it is too late.

Getting one done

We refer clients to Duo Tax, a national firm of quantity surveyors. Through our referral link, a depreciation schedule is available to our clients for $400.

Order a depreciation schedule with Duo Tax

Referral disclosure: We have a referral arrangement with Duo Tax and the link on this page carries our referral identifier. We receive no commission and no financial benefit from this arrangement. The only thing it produces is a lower agreed rate for our clients — which is why the $400 price is available through the link above rather than Duo Tax’s standard fee. We recommend them because we have found their reports reliable and their turnaround good, but you are under no obligation to use them and you are free to engage any qualified quantity surveyor. Pricing is set by Duo Tax, not by us, and is current at the date of publication — please confirm the fee directly with them before ordering.

Once you have the schedule, send it to us and we will apply it to your return — and check whether prior years are worth amending.

Need a hand with this?

Not sure whether your property has anything worth depreciating? Tell us the build year, when you bought it and what has been renovated, and we will give you a straight answer before you spend anything.

Book a consultation

Call 0410 250 400

Sources

This article is general information only and does not take your personal circumstances into account. Rates and thresholds are current at the date of publication. Speak to us before acting on anything you read here.