Understanding tax depreciation rules in Australia can help property investors identify eligible deductions before lodging their tax returns. Depreciation allows eligible owners to claim the decline in value of certain assets and qualifying building construction costs associated with an income-producing property. These deductions can reduce taxable rental income, subject to Australian Taxation Office (ATO) requirements.
For the 2026 tax year, investors should understand the difference between plant and equipment and capital works, the restrictions affecting established residential properties, and the tax reforms scheduled for 2027. A professionally prepared depreciation schedule can help document eligible claims and support accurate tax reporting.
Property depreciation recognises the decline in value of eligible assets and qualifying construction expenditure over time. For eligible residential investments and commercial assets, these deductions may reduce the taxable income generated by a rental property.
The amount you can claim depends on the property's age, construction history, assets, ownership circumstances and applicable tax rules. Depreciation is not a deduction for every item within a property, so understanding which costs qualify is essential.
Division 40 covers eligible depreciating assets, including certain carpets, blinds, air conditioners and hot water systems. Deductions depend on the asset's effective life, use and applicable tax rules.
Investors purchasing established residential properties generally cannot claim depreciation on second-hand plant and equipment acquired with the property. However, eligible new assets purchased and installed by the investor may qualify.
Division 43 covers eligible construction expenditure associated with a building's structure and permanent features, including walls, roofs and floors.
Qualifying residential buildings constructed after 18 July 1985 may generally be eligible for a 2.5% annual capital works deduction over 40 years, subject to the relevant conditions. Unlike the restrictions on second-hand plant and equipment, eligible capital works deductions may remain available for established properties.
A tax depreciation schedule identifies eligible depreciating assets and construction expenditure, outlines applicable deduction rates and records the deductions available over time.
A Quantity Surveyor can assess the property's construction details, inspect eligible assets where appropriate, and review supporting records to prepare the schedule.
Assets costing $300 or less may qualify for an immediate deduction in certain circumstances, but the ATO's eligibility conditions must be satisfied.
The 2026 Federal Budget introduced tax reforms that will change how certain residential property investments are treated from 1 July 2027. These changes affect negative gearing and capital gains tax, rather than abolishing property depreciation itself.
From 1 July 2027, negative gearing restrictions will generally apply to established residential properties acquired after 7:30 pm AEST on 12 May 2026. Eligible losses from these properties will generally be restricted to residential property income, including relevant capital gains, with excess losses carried forward under the applicable rules.
Properties held before the announcement cutoff are generally grandfathered, subject to the legislation's conditions and exceptions. Eligible new builds retain access to negative gearing arrangements.
From 1 July 2027, the existing 50% CGT discount will generally be replaced by cost-base indexation for relevant assets held by individuals, trusts and partnerships, alongside a minimum 30% tax rate on applicable capital gains. Eligible new builds may have a choice between the existing discount and the new arrangements. Transitional rules determine how gains are treated.
Depreciation remains relevant to rental property reporting, but investors should ask their accountant how deductions, cost-base adjustments and the new rules interact with their individual circumstances.
Some investment properties may not qualify for certain tax depreciation deductions, depending on their age, construction history and applicable ATO rules. However, this does not necessarily mean that all construction-related costs are irrelevant for tax purposes.
A capital works cost estimate can help establish the eligible historical construction expenditure associated with a property. This information may be useful when assessing capital works deductions or determining relevant cost-base information when the property is sold. The appropriate treatment depends on the property's circumstances and current tax rules, so investors should confirm their eligibility with their accountant or tax adviser.
Accurate property cost records help investors support eligible deductions, maintain tax documentation and provide relevant information for future property transactions. Where a standard depreciation schedule is not suitable, a capital works cost estimate may help establish relevant construction costs for assessment by a tax professional.
Quantum QS provides tax depreciation schedules, capital works cost estimates and Capital Gains Tax (CGT) estimate reports to help property investors establish relevant property costs and maintain supporting documentation. Our Quantity Surveyors assess construction information and applicable costs to prepare reports suited to each property's requirements.
Whether you need a depreciation schedule for an eligible investment property, a capital works cost estimate or a CGT estimate report, Quantum QS can help you establish the property cost information relevant to your circumstances.
Speak with Quantum QS to discuss your property and identify the appropriate reporting service for your needs.
Can I Claim Depreciation On An Established Investment Property?
Yes. Eligible Division 43 capital works may qualify, but second-hand plant and equipment in established residential properties is generally excluded.
What Is The Difference Between Division 40 And Division 43?
Division 40 covers eligible depreciating assets, while Division 43 covers qualifying building construction expenditure.
Do The 2027 Tax Changes Remove Depreciation Deductions?
No. The announced reforms change negative gearing and CGT arrangements. Eligible depreciation deductions remain subject to the applicable rules.
Should I Get A Quantity Surveyor Depreciation Schedule?
A schedule can help identify eligible deductions, document construction costs and provide supporting information for your accountant and tax return.
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