What is tax depreciation?

What is Tax Depreciation?

Tax Depreciation is an accounting term that refers to the ageing and wearing out of an asset over time, and it is typically one of the largest tax deductions claimed by owners of income-producing property every year.

Even if an investment property appreciates (goes up in value), from an accounting perspective and in the view of the Australian Tax Office (ATO), the building, included fixtures and assets still wear out and diminish in value over time (they depreciate). This loss in value each year is claimable as a tax deduction.

Depreciation is claimable as a tax deduction on both residential and commercial investment properties. The deduction is applied against the property’s income in the same way that other property expenses are e.g. borrowing costs, property management fees, repairs and maintenance etc. Unlike those expenses, depreciation is a calculated (paper) deduction, meaning you don’t have to incur an expense that year in order to claim it, it is calculated for you by a quantity surveyor.

How to Use Tax Depreciation in a Tax Return

Tax Depreciation is a property expense and is claimable in the same way other property related expenses are, such as rates, interest, maintenance costs etc.

The amount you can claim for tax depreciation each year will be itemised in your Tax Depreciation Schedule. You will simply provide your Tax Depreciation Schedule to your accountant and they will apply the deductions as reported in the schedule by the Quantity Surveyor.

For investors who complete their own tax return, “Capital Allowance” refers to Division 43 deductions and “Plant and Equipment” relates to Division 40 deductions. These annual deductions will be itemised in your Tax Depreciation Schedule. Your schedule should detail the deductions claimable for each year. Each year you can only claim that years deductions.

You will need to select between using the Diminishing Value or Prime-Cost method. Once selected and applied in one year you must use the same method each year. For detailed information you should access the ATO website.

Where to Get a Tax Depreciation Schedule

You purchase your Tax Depreciation Schedule from a Quantity Surveyor. Quantity Surveyors are recognised by the ATO as qualified to estimate both construction costs and asset values. A Quantity Surveyor will research your property to establish a timeline and historical cost of works (where that information is not provided) and will calculate and report your annual deductions in a Tax Depreciation Schedule.

Once you select your Quantity Surveyor, a Tax Depreciation Schedule can usually be purchased quite simply over the phone or online. Good Quantity Surveyors like Capital Claims Tax Depreciation will assess your property online first to ensure value for you, undertake all the necessary property searches, arrange the inspection via your property manager and tenant and complete a physcial inspection where necessary. Inspections may not be necessary for brand new buildings where plans and inclusions are provided or where substantial information is available online and through paid industry databases.

How Much Does a Tax Depreciation Schedule Cost?

The cost of a Capital Claims Tax Depreciation Schedule for a standard residential property typically ranges from $440 to $715, depending on the scope of work required.

While some competitors may offer lower-priced reports, the difference in quality and outcomes can be significant. Fortunately, the price gap is minimal—especially when you consider that the full cost is 100% tax deductible.

Cheaper reports often come with hidden costs. You may be required to inspect the property yourself and supply extensive details—an inconvenient and potentially costly process. These reports frequently overlook key opportunities such as previous renovations, capital improvements, and low-cost or low-value pooling, which can dramatically enhance your claim.

Choosing a high-quality schedule ensures accuracy, compliance, and maximum deductions—without the hassle.

Market fees for depreciation schedules can range from a few hundred dollars to over $700.

Our fee will depend on the property – commercial or , and whether the property is brand new or established, and how much information is available.

Get a quote for a residential depreciation schedule here.

Commercial fees are quoted based on the building and scope of works.

Get a quote for a commercial depreciation schedule here.

How Is Tax Depreciation Calculated?

Depreciation is claimable on both the building (construction costs) of a property, and the assets installed within a property. These are also known as Division 43 and Division 40 deductions respectively.

Division 43 – Building / Construction/ Capital Works

Division 43 includes the built, constructed components of your property. Some examples include:

• Roof tiles /colourbond
• Bricks
• Framing
• Weatherboards
• Retaining walls
• Concrete structures

Depreciation on a building (Division 43) is calculated using the Prime Cost method of depreciation (see below).

Division 40 – Assets / Plant & Equipment

Assets, or plant and equipment, also known as Division 40 items are removable assets you install. Some examples include:

• Air conditioning
• Hot water system
• Cooktop
• Dishwasher
• Security system
• Carpet

Depreciation on assets (Division 40) can be calculated using the Prime Cost or Diminishing Value method of depreciation.

Prime Cost method and formula for depreciation

The Prime Cost method of depreciation values depreciation as a fixed amount for each year of the effective life of the asset.

For example, the prime cost depreciation rate for an asset expected to last 5 years is 20% of the original cost/value per year.

The formula for depreciation using the prime cost method is:

Asset’s cost X (days held/365) X (100%/asset’s effective life).

Note: “Days held” is the number of days you owned the asset in the income year in which you had it installed ready for use. Days held can be 366 for a leap year.

Diminishing Value method and formula for depreciation

The diminishing value method assumes an asset loses a higher proportion of it’s value in the earlier years and so allows for higher depreciation deductions earlier on, with annual deductions reducing over time.

The formula for depreciation using the diminishing value method is:

Base value X (days held/365) X (200%/asset’s effective life).

Days held can be 366 for a leap year.

If you started to hold the asset before 10 May 2006, the formula for diminishing value method is: Base value X (days held/365) X (200%/asset’s effective life).

Can I Do My Own Tax Depreciation Schedule?

Individuals can create their own depreciation schedules using known costs and ATO prescribed effective lives for depreciation rates, and by selecting the diminishing value or prime-cost method of depreciation.

Only Quantity Surveyors are qualified to professionally estimate both construction costs and asset values for the purpose of depreciation.

To ensure all construction costs (including renovations and extensions, even by previous owners) and all assets are depreciated accurately, and to maximum effect using additional methods like low-value pooling, we recommend engaging the services of a Quantity Surveyor.

How Long Does a Tax Depreciation Schedule Last?

A quality Tax Depreciation Schedule from a reputable Quantity Surveyor should report deductions for up to 40 years. Cheaper depreciation schedules may only last 5, 10 or 20 years and will not be as comprehensive as a quality schedule.

If substantial works are done to a property a new Tax Depreciation Schedule should be obtained to allow for accurate reporting of depreciation for the new works.

Is a Tax Depreciation Schedule Tax Deductible?

Yes, a Tax Depreciation Schedule is a 100% tax deductible expense for the owner of the income-producing property in the year it is purchased.

Do I Need to Use a Tax Depreciation Schedule?

A Tax Depreciation Schedule assists investors to accurately claim the tax deductions available for the annual depreciation of their investment property (referred to as capital allowance and depreciation by the ATO). Annual deductions are typically in the thousands of dollars every year, for up to 40 years.

Specifically, a Tax Depreciation Schedule will:

• ensure that your deductions are maximised to create the greatest cash flow result for your investment;
• ensure that your claims for capital allowance (Division 43) and plant and equipment assets (Division 40) are claimed in accordance with ATO legislation;
• save you time and effort in trying to calculate these deductions for yourself;
• save you money with your accountant, as they simply apply the results from the schedule.

Investors are not required to claim all of the deductions associated with owning their investment property.

Is a Tax Depreciation Schedule Worth It?

At Capital Claims Tax Depreciation we will only charge for Tax Depreciation Schedules where value is certain for the investor. Almost all of our Tax Depreciation Schedules report thousands of dollars of deductions for our clients in just the first year, and tens or hundreds of thousands of dollars of deductions over the life of the report.

Those deductions, when applied against your taxable income can help substantially to reduce tax payable or to increase a tax return.

How To Ensure Your Tax Depreciation Schedule is ATO Compliant

When paying hundreds of dollars for a professional service you will want to ensure that your Tax Depreciation Schedule is:

• ATO Compliant;
• Reports the maximum deductions available to you by considering all works, and applying the most effective methodologies.

To ensure compliance, accuracy and long-term service (in case of an audit):

• Ensure your Quantity Surveyor is a Registered Tax Agent – registered with the Tax Practitioners Board of Australia;
• Is a Certified Quantity Surveyor (CQS) and Member of the Australian Institute of Quantity Surveyors (MAIQS);
• Use a specialist provider – not all quantity surveyors are also tax depreciation specialists. A specialist knows not only construction costing but tax legislation as well;
• Check out your provider so you can feel more confident they will still be around in a few years in the case of an audit or lost schedule
• Request a sample report and ensure your report is easy to read and understand – or your accountant may have to re-work the results at your cost!

A Capital Claims Tax Depreciation Schedule meets all of the above and more! We also offer:

• a free desk-top feasibility assessment of your property first;
• free updates for installation of new assets;
• .csv files when requested for no extra charge;
• split reports for multiple owners;
• printed copies when requested for no extra charge.

We believe we represent the best quality and best value rental depreciation reports in the industry across Australia.

Can My Accountant Do My Tax Depreciation Schedule?

Reporting of accurate and maximum tax deductions typically requires estimation of historical construction costs (including historical renovation works performed over time), as well as attributing a current value and effective life to many assets (or plant and equipment items). An accountant is not recognised by the ATO to estimate these costs and values and so will not be able to include these deductions in a depreciation schedule that they prepare. In order to report accurate results, this must be done by a quantity surveyor.

For a general estimate of the deductions you could be claiming check out our property depreciation calculator here. Or for a free, personalised estimate for your property specifically enter your details here or contact us on 1300 922 220 today. With offices across Australia from Newcastle to Perth, it’s easy to find the local help you need for your property depreciation requirements.

Accountants Love our Tax Depreciation Schedules

Capital Claims’ knowledge and applied experience has assisted many of our clients improve their after tax position. Whilst we have found the Capital Claims team to have a detailed approach to preparing depreciation reports; we have also found their ability to look at the whole picture allows us to assist our clients with their property portfolios and wealth creation. – Paul Siderovski, SiDCOR

As an Accountant I found Capital Claims professional, priced well and very efficient. Their depreciation reports are first class. My clients are also happy with the service and reports. – Michael O’Hehir RSM Bird Cameron

Mark and the team have outstanding customer service standards and are very responsive on all matters. Importantly, the Capital Claims team have been able to deliver great results for our clients, which makes us look good. We have had numerous occasions where the expertise from Mark and the team has delivered thousands of dollars worth of tax refunds on properties for clients whom had previously been advised there was no point in having a depreciation schedule prepared. – Warwick Jackson, Fox Group Chartered Accountants