Optimise Your Tax Deduction with a Property Depreciation Schedule

Many of the Sunshine Coast business owners we work with are surprised to learn just how much they can claim back through depreciation on their residential or commercial investment properties. Especially when they’ve renovated or purchased newer builds. But to tap into these benefits you need to have a professional prepare a property depreciation schedule. 

So, let’s break it down. How it works, what’s involved, and why it’s a savvy move for any property investor. 

What is a Property Depreciation Schedule? 

A property depreciation schedule is a detailed report that lists the tax deductions you're entitled to claim each year for the wear and tear on your property and its assets (fixtures). 

The two main types of depreciation you can claim are: 

• Division 40 (Plant and Equipment): Items like air conditioners, carpets, blinds, ovens, hot water systems. 

• Division 43 (Capital Works): Structural elements like walls, roofs, doors, windows, and built-in cabinetry. 

Who Needs a Tax Depreciation Schedule? 

Anyone who owns an investment property, whether it's commercial or residential, should consider having a tax depreciation schedule prepared. Apart from maximising your tax deductions, depreciation helps business owners improve cash flow, offset rental income and justifies your deductions with ATO-compliant documentation. 

For most of our clients, the depreciation claimed in the first year alone more than covers the cost of getting the report done, not to mention the benefits in the years to come. And yes, the cost of the depreciation schedule is also tax deductible! 

Who Prepares the Depreciation Schedule? 

To stay on the right side of the ATO (and get the most bang for your buck), you’ll need to use a qualified Quantity Surveyor who specialises in tax depreciation to prepare the schedule. They will accurately identify all the eligible deductions that comply with ATO regulations. Remember to organise your depreciation schedule before the end of the financial year to be able to make a claim. 

What can be claimed as a tax deduction with a property depreciation schedule? 

You can claim items like: 

• Fixtures and fittings (if they haven’t been claimed previously) 

• Structural improvements (like renovations and extensions) 

• Plant and equipment in income-producing properties (like appliances, carpets and blinds) 

 

The following cannot be claimed:  

• The value of the land 

• Owner-occupied portions of the property (if mixed use) 

• Items in properties that were purchased second-hand (note that plant and equipment rules vary based on purchase date and property use) 

Take into consideration that if you are a residential investor and bought second-hand properties after 9 May 2017, you cannot claim depreciation on previously used plant and equipment. However, you can still claim capital works. 

Depreciation methods 

The two main methods used to calculate depreciation are: 

• Prime Cost (also called Straight Line): This method spreads the depreciation of the asset evenly over its useful life. 

• Diminishing Value: This method allows for higher deductions in the earlier years of the asset's life. 

You can also claim a partial-year deduction if you purchased or made property improvements partway through the financial year. And if the asset is under the instant asset write-off threshold and eligible, you may be able to claim an immediate deduction. 

Your accountant can help you understand the tax implications of each method so that you can choose the method that best suits your circumstances. 

What about renovations? 

You may be able to claim significant reductions for a renovation. It’s critical to have a Quantity Surveyor do a pre-renovation inspection. This will allow you to claim any remaining depreciation on assets that you are removing from the property (this is known as a scrapping schedule). Then make sure you update your depreciation schedule once the renovation work is completed! 

 

How often should you update your depreciation schedule? 

Essentially, a depreciation schedule only needs to be prepared once and remains valid for up to 40 years. However, if you renovate, add new assets or make significant changes, we highly recommend you update the schedule so that it remains accurate, and you don’t miss out on any cash flow benefits! 

Case Study: Tax deduction with property depreciation 

Case Study 1

Recently, we had a client who obtained a depreciation report for a commercial property in 2024, as part of our tax planning advice. The client originally purchased the property in 2020. The Depreciation Report provided covered the years from 2020 onwards. We were able to amend the clients previous tax returns and get them depreciation-related tax refund of $38,000 for FY24.

Case Study 2

Another client purchased newly constructed industrial unit for $1.2Mil. They commissioned a Quantity Surveyor who assessed their Total Depreciable Expenditure as $970K after excluding land and other non-qualifying costs. Their tax deduction for this property’s depreciation was just shy of $10K in the first year. With tax deductions for this property in the subsequent years estimated at just over $7Kper annum, bar the final 3 years.

These savings delivered improved cash flow for the business which was used to invest in more equipment that improved business efficiency, reduced labour costs and increased turnover by 5.6%.

How can ABA Advice Beyond Accounting help me claim property depreciation?

Our expert accountants in Birtinya specialise in helping business owners optimise their total tax deductions, going well beyond simply getting a tax deductions with property depreciation schedule. If you don’t already have a suitable Quantity Surveyor, we can refer you to depreciation schedule experts. Then customise an effective tax strategy for your entire business operation to support growth and profitability. If you’re looking to take your business up a level and your tax down a notch, book a free discovery meeting with us today and see how much further we can go together!