What is a depreciation schedule for investment property?
A depreciation schedule is a report prepared by a qualified quantity surveyor that lists all the tax-deductible depreciation available on an investment property. It covers two types of deductions: capital works deductions (Division 43 of the Income Tax Assessment Act 1997) for the building structure, and plant and equipment depreciation (Division 40) for removable assets like carpet, blinds, and appliances. A good depreciation schedule typically identifies $5,000–$15,000+ in annual deductions for a relatively new property.
Division 43 — capital works
Division 43 allows deductions for the construction cost of the building itself, at 2.5% per year for buildings constructed after 15 September 1987. For a building constructed at a cost of $300,000, that is $7,500 per year for 40 years. The original construction cost, not the purchase price, is the relevant figure — a quantity surveyor estimates this if the original cost is unknown.
Division 40 — plant and equipment
Division 40 covers depreciable assets within the property: carpet, curtains, hot water systems, air conditioning, dishwashers, ovens. Each asset has an effective life determined by the ATO. Since the 2017 Budget changes, second-hand plant and equipment depreciation is no longer available for residential investment properties purchased after 9 May 2017 — only the original owner can claim it.
Why lawyers and conveyancers should know this
Property lawyers and conveyancers are often the first professional the investor speaks to after purchase. Recommending a depreciation schedule at settlement adds value to your service. I can flag investment property transactions in your matter pipeline and remind you to suggest a depreciation schedule to the client as part of the settlement process.
Common issues
- Second-hand plant and equipment depreciation is restricted for properties acquired after 9 May 2017
- Only a qualified quantity surveyor can prepare a tax-compliant depreciation schedule — not an accountant or real estate agent
- The schedule should be ordered before the first tax return after settlement to capture all available deductions
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