Depreciation Schedules 2026: How Much Tax Can They Save?

The non-cash deduction most investors under-use, why new properties win, and how a quantity surveyor turns wear-and-tear into a tax saving

Overview

Of all the tax benefits available to Australian property investors, depreciation is the one most often left on the table, especially by overseas buyers who have never encountered it. It is a genuine, ATO-recognised deduction that reduces your taxable rental income, yet it requires no ongoing cash outlay at all. In effect, the tax system lets you claim the gradual wearing-out of a building and its fittings as an expense, even though you are not writing a cheque for it.

This guide explains what a depreciation schedule is, the two kinds of depreciation, why new properties enjoy a far bigger benefit after the 2017 rule changes, roughly how much it can save, who prepares the schedule and what it costs, and how it works for overseas and non-resident investors. The theme throughout: depreciation is free money you have already spent, and claiming it properly can be the difference between a negative and a neutral cash-flow property.

It is a technical area, so treat this as a plain-English map, and confirm the specifics with a quantity surveyor and your accountant for your property.

1. What a Depreciation Schedule Is

A depreciation schedule is a report, prepared by a specialist called a quantity surveyor, that lists all the depreciable items in your investment property and sets out how much you can claim as a tax deduction each year, often for up to 40 years. You give the schedule to your accountant, who uses it to claim the deductions in your annual tax return.

The key idea is that buildings and their fittings lose value over time through wear and age, and the tax system recognises that decline as a deductible expense for an income-producing property. Because the decline is not a cash payment, depreciation is a non-cash deduction: it lowers your taxable income without you spending anything in that year. That is what makes it so valuable, and so easy to overlook.

Part of why depreciation is overlooked is that it is invisible in day-to-day cash flow. You feel the mortgage interest leave your account, and you write cheques for rates and insurance, so you remember to claim them; but nothing leaves your account for depreciation, so it is easy to forget it is a deduction at all. That psychological quirk, real money feels claimable, paper decline does not, is precisely why so many investors, and especially first-time and overseas owners, simply never claim it, and quietly overpay tax for years.

2. The Two Types of Depreciation

A depreciation schedule covers two distinct categories, and the difference between them is central to everything else:

2.1 Capital works (Division 43): the building itself

Capital works depreciation covers the structural elements of the building, the bricks, concrete, walls, roof, and permanently fixed items. For eligible residential buildings (broadly, those constructed after September 1987), the construction cost is deductible at 2.5% per year over 40 years. This is usually the larger and steadier part of the claim, and it continues year after year regardless of who owns the property.

2.2 Plant and equipment (Division 40): the removable assets

Plant and equipment covers the removable or mechanical assets within the property, such as carpets, blinds, ovens, dishwashers, air-conditioning units, hot-water systems and light fittings. These are depreciated over each item effective life, which is shorter than the building, so the deductions are larger in the early years and taper off. This is the category most affected by the 2017 changes (Section 3).

To make plant and equipment tangible, common depreciable assets in a residential property include carpets and floating floors, blinds and curtains, air-conditioning units, ovens, cooktops and dishwashers, hot-water systems, light fittings, exhaust fans, and smoke alarms. Each has an effective life set by the ATO, ranging from a few years for soft furnishings to well over a decade for major appliances, which is why the plant-and-equipment deductions are front-loaded and taper as items age toward the end of their life.

In short: Division 43 is the building, Division 40 is the contents-that-are-fixed. A good schedule maximises both, but the rules on Division 40 now depend heavily on whether the property is new.

2.3 Two ways to calculate: diminishing value vs prime cost

For plant and equipment, your accountant can usually choose between two methods, and the choice affects the timing of the deductions:

• Diminishing value — larger deductions in the early years, tapering over time; suits investors who want the biggest benefit sooner.

• Prime cost (straight line) — even deductions spread across the asset life; suits those who prefer a steady, predictable claim.
  

Neither changes the total you can claim over the life of the asset, only how it is spread across the years. Most investors seeking near-term cash-flow relief lean toward diminishing value, but the right choice depends on your income and holding plans, which is a conversation for your accountant.

3. Why New Properties Win: the 2017 Rule Change

This is the single most important point for choosing what to buy. In 2017 the government changed the rules on Division 40 plant and equipment for residential investment properties:

• For second-hand (previously lived-in) properties bought after 9 May 2017 — investors can no longer claim depreciation on the existing, previously-used plant and equipment (the carpets, appliances and so on that came with the property). You can still claim Division 43 capital works, and depreciate any new assets you install yourself.

• For brand-new properties — investors can claim the full Division 40 plant and equipment as well as Division 43, because the assets are new and have not been used by anyone else.
  

The effect is a clear tilt toward new dwellings: a new property delivers both the building (Division 43) and the full fittings (Division 40) as deductions, while a second-hand one delivers mainly the building. For an investor weighing new versus established stock, and especially for overseas buyers who can generally only buy new anyway, this is a substantial, ongoing tax advantage baked into new property.

One reassurance about the change: it did not touch Division 43 capital works. The building deduction, usually the larger and more durable part of the claim, remains available on eligible construction regardless of whether the property is new or second-hand. So even the 2017 rules did not remove depreciation from established properties entirely; they removed the second-hand fittings, while leaving the building deduction intact. The practical upshot is simply that new stock claims more, not that old stock claims nothing.

4. How Much Can It Really Save?

The honest answer is: it depends on the property, but for a new property it is often more than investors expect. Because the exact figure turns on construction cost, age, fittings and your tax rate, treat the following as illustrative rather than a promise:

• A new apartment or house can commonly generate five figures of depreciation deductions in the first full year, with strong deductions continuing for years, tapering as the plant and equipment ages.

• A second-hand property typically generates less, since the Division 40 fittings are no longer claimable, leaving mainly the Division 43 building deduction.

• The tax saving is the deduction multiplied by your marginal tax rate: a A$12,000 deduction at a 37% marginal rate saves roughly A$4,440 in tax that year, all without spending a cent.
  

For a negatively geared property, depreciation can be the deduction that tips it from a painful cash drain toward neutral or positive after-tax cash flow. That is why serious investors treat the depreciation schedule not as an optional extra, but as a standard part of setting up an investment property.

It also helps to picture how the claim behaves over a long hold. The Division 43 building deduction is steady, the same amount each year for decades, so it is a reliable, long-term reducer of taxable income. The Division 40 fittings deduction is front-loaded, largest in the first few years and shrinking as assets reach the end of their effective life. So a new property gives you a strong combined deduction early, easing cash flow in the years when a fresh mortgage is heaviest, then settles into a steadier building-only claim later. Understanding that shape helps you plan the after-tax cash flow across your holding period, not just year one.

It is worth seeing how depreciation and negative gearing work together, because that combination is where the real cash-flow effect shows up. Negative gearing lets a rental loss offset your other income; depreciation is one of the deductions that creates or enlarges that loss, without costing you cash. So a property might be only mildly negative on actual cash items (interest minus rent minus real expenses), but after adding the non-cash depreciation deduction, it shows a larger loss on paper, generating a bigger tax refund. The result can be a property that costs you money in cash terms yet is close to neutral after tax, precisely because depreciation did the heavy lifting.

5. Who Prepares It, and What It Costs

A depreciation schedule must be prepared by a quantity surveyor, a professional the ATO recognises as qualified to estimate construction costs and asset values. Your accountant does not prepare it; they use it. A few practical points:

• Cost — typically a few hundred to around A$800 for a residential schedule, as a one-off.

• It is itself tax-deductible — the fee for the schedule is a deductible expense.

• It is a one-off that lasts for years — a single schedule can set out your deductions for up to 40 years, so you pay once and claim annually.

• It usually pays for itself immediately — for most new properties, the first year deduction dwarfs the cost of the schedule, so not getting one is usually a false economy.
  

5.1 A worked first-year example

To make it concrete, take a new A$650,000 apartment (figures illustrative, not a quote). A quantity surveyor might identify, say, A$8,000 of Division 43 capital works for the first year plus A$6,000 of Division 40 plant and equipment in year one under the diminishing-value method, a combined first-year deduction of around A$14,000. For an investor on a 37% marginal rate, that is roughly A$5,180 less tax in year one, against a schedule that cost a few hundred dollars. The capital-works portion then continues steadily for decades, while the plant-and-equipment portion tapers. On a second-hand equivalent bought after 2017, the plant-and-equipment slice would largely disappear, leaving mainly the capital-works claim, which is why the new-versus-established gap is so wide.

A good quantity surveyor will also inspect or assess the property to capture every claimable item, and will only recommend a schedule if the likely deductions justify the fee, so it is worth asking for an estimate of the expected deductions before committing.

For off-the-plan buyers, one timing point matters: depreciation can only be claimed once the property is completed, settled and available to produce income (that is, rented or genuinely available to rent). You cannot claim during the construction period. So arrange the quantity surveyor schedule around settlement, once the property exists and is tenanted or listed, not while it is still being built.

A thorough quantity surveyor will typically inspect the property (or use detailed evidence and photos where a site visit is impractical, useful for overseas owners) to identify and measure every claimable item, from the obvious appliances down to the small fittings that owners routinely miss. This completeness is exactly where the value lies: an owner guessing at depreciation will under-claim, while a professional captures items and construction costs that are easy to overlook, which is why the ATO expects estimates of construction cost to come from a qualified quantity surveyor rather than the owner.

6. How It Works With Your Tax Return

Depreciation flows into your tax return like any other rental deduction. Each year, your accountant takes the figures from the schedule and includes them among your property deductions, alongside interest, rates, insurance and management fees. The depreciation reduces your taxable rental income (or increases your rental loss), which in turn reduces the tax you pay, or increases your refund.

Two nuances are worth knowing. First, depreciation reduces the property cost base for capital gains tax purposes, so claiming it now can mean a slightly larger capital gain when you sell, a timing benefit rather than a pure saving, though generally still worthwhile. Second, if you forgot to claim depreciation in past years, your accountant may be able to amend prior returns (usually up to two years back) to recover missed deductions, so it is worth reviewing if you have never claimed.

On the capital-gains interaction, it is worth being precise so you are not caught out at sale. The capital-works (Division 43) deductions you claim reduce the property cost base, which increases the taxable capital gain when you sell. But for a resident holding more than a year the 50% CGT discount still applies to that gain, so in most cases claiming depreciation now and paying a little more CGT later is still a net win, because a dollar of deduction today is worth more than a dollar of gain taxed (and discounted) years away. The point is not to avoid claiming, but to know the trade-off exists and factor it into your sale planning with your accountant, especially non-residents who do not get the 50% discount.

A couple of finer mechanics can add to the claim. Low-cost assets (below a small threshold) can often be written off immediately or grouped into a low-value pool for faster deductions, and assets that are scrapped or replaced can sometimes yield a balancing deduction. These are details your quantity surveyor and accountant handle, but they are worth knowing exist, because they are exactly the kind of value a professional schedule captures and a do-it-yourself estimate misses.

7. Depreciation for Overseas and Non-Resident Investors

Overseas and non-resident investors can claim depreciation against their Australian rental income in the same way as residents, so it is just as valuable for reducing Australian taxable income on the property. For a non-resident, whose other deductions and concessions are limited, a strong depreciation claim on a new property is one of the more powerful levers available.

It fits neatly with the reality that overseas buyers can generally only buy new dwellings, which is exactly the stock that carries the full depreciation benefit. So while the foreign surcharge and financing constraints work against overseas investors, depreciation is one area where the rules, and the new-only restriction, actually work in their favour. As always, a non-resident should confirm the interaction with their overall Australian tax position with an accountant familiar with non-resident investors.

There is a subtle reason depreciation matters even more to non-residents. Because a non-resident is taxed on Australian-sourced income and has fewer offsets available, every legitimate deduction against Australian rental income is valuable, and depreciation is a large, non-cash one that requires no extra spending. Combined with the fact that overseas buyers are steered toward new stock, which carries the full benefit, depreciation is one of the few parts of the Australian system that quietly favours the non-resident investor rather than penalising them.

8. New, Renovated, or Old: What You Can Claim

It helps to see how the three cases differ:

• Brand-new property — the strongest position; full Division 40 plant and equipment plus Division 43 capital works.

• Substantially renovated or newly built by the seller — can also carry strong claims, since the works and fittings are new; a quantity surveyor can assess whether it qualifies.

• Established property (bought after May 2017) — mainly Division 43 capital works on the eligible building; no depreciation on the existing second-hand fittings, though any new assets you install are claimable.
  

There is also a route for older properties: if you renovate an established property, the new works and new assets you add become depreciable, so a schedule after a renovation can still be worthwhile even on an older building.

It is also fair to note when a schedule may not be worth it. For a very old property with no eligible construction date, no renovations and few claimable assets, the deductions may be too small to justify the fee, which is exactly why a good quantity surveyor estimates the likely deductions first and will tell you honestly if a schedule does not stack up. For the great majority of newer properties, though, the maths is firmly in favour of getting one.

The renovation point is worth dwelling on for owners of older properties who assume they have nothing to claim. If a previous owner (or you) substantially renovated after the relevant dates, or if you add a new kitchen, bathroom, flooring or appliances, those works and assets are new for depreciation purposes and become claimable even though the original dwelling is old. A quantity surveyor can also estimate the cost of earlier structural works you did not carry out yourself, so an older property with a renovation history can still yield a meaningful Division 43 claim that many owners never realise is available.

9. Common Misconceptions

• Only new properties can claim anything — not quite; established properties can still claim Division 43 capital works, just not the second-hand fittings.

• Depreciation is a cash cost — it is a non-cash deduction; you claim the decline in value without spending money that year.

• My accountant prepares the schedule — no; a quantity surveyor prepares it, your accountant applies it.

• It is not worth the fee — for most new properties the first-year deduction far exceeds the one-off, tax-deductible fee.

• Depreciation is free money with no catch — it does reduce your CGT cost base, so part of the benefit is timing, though usually still worthwhile.
  

10. Common Mistakes to Avoid

• Never getting a schedule — the most common and costly mistake; investors simply leave thousands in deductions unclaimed.

• Assuming an old property has nothing to claim — the building (Division 43) and any renovations can still be claimable.

• Not claiming after a renovation — new works and assets you add are depreciable, so update the schedule.

• Forgetting past years — missed depreciation can sometimes be recovered by amending prior returns.

• Ignoring the CGT interaction — factor the cost-base reduction into your sell-side planning with your accountant.
  

11. Three Scenarios

11.1 The overseas buyer of a new apartment

Buying new (as overseas buyers generally must), you get the full depreciation benefit, both the building and the fittings, against your Australian rental income. A schedule from a quantity surveyor at settlement typically pays for itself in the first year and improves your after-tax cash flow for years, making it an easy, standard step.

11.2 The investor who bought established and never claimed

If you bought an established property after 2017 and never got a schedule, you can still claim Division 43 capital works on the eligible building, which is often overlooked. A quantity surveyor can assess it, and your accountant may amend recent returns to recover missed deductions, so it is worth checking even years in.

11.3 The renovator

If you renovate an older investment property, the new works and new assets become depreciable even though the original building is old. Getting a fresh schedule after the renovation captures those deductions, turning renovation spending into an ongoing tax benefit.

11.4 The buyer choosing between new and established

An investor comparing a new apartment with a similar established one should put depreciation in the maths, not just price and yield. The new one may cost a little more, but it delivers both the building and the fittings as deductions, while the established one delivers mainly the building. Over a multi-year hold, that difference in after-tax cash flow can offset much of the price gap, which is exactly why depreciation belongs in the buy decision, not just the tax return.

The practical way to run that comparison is to ask a quantity surveyor for an estimate of the likely deductions on each property before you buy, then have your accountant translate those into after-tax cash flow at your marginal rate. Suddenly the two properties are being compared on what you actually keep, not on the sticker yield, and the new one advantage often looks larger than the price gap suggested.

12. FAQ

Q1. What is a depreciation schedule?

It is a quantity surveyor report listing the depreciable items in your investment property and the deduction you can claim each year, often for up to 40 years, which your accountant uses in your tax return.

Q2. How much tax can depreciation save?

It varies, but a new property can generate five figures of deductions in the first year, and the tax saving is that deduction times your marginal rate, all with no cash outlay.

Q3. Why do new properties get a bigger benefit?

Because since the 2017 changes, second-hand properties can no longer claim depreciation on previously-used fittings, while new properties can claim both the building and the full fittings.

Q4. Who prepares a depreciation schedule?

A quantity surveyor, not your accountant, and the one-off fee (a few hundred dollars up to around A$800) is itself tax-deductible.

Q5. Can an old or established property claim anything?

Yes, it can still claim Division 43 capital works on the eligible building, and any new assets or renovations you add, just not the existing second-hand fittings.

Q6. Can overseas investors claim depreciation?

Yes, non-residents can claim it against their Australian rental income on the same rules, and it fits well since overseas buyers generally buy new stock, which carries the full benefit.

Q7. Does depreciation affect capital gains tax?

Yes, claiming it reduces your cost base, which can slightly increase the capital gain on sale, so part of the benefit is timing, though usually still worthwhile.

Q8. Is it worth the cost of the schedule?

For most new properties yes, since the first-year deduction typically far exceeds the one-off, tax-deductible fee, and one schedule lasts for years.

Q9. When can I start claiming depreciation on an off-the-plan property?

Only once it is completed, settled and available to produce income (rented or genuinely available to rent); you cannot claim during construction.

Q10. Diminishing value or prime cost, which method should I use?

Diminishing value gives larger deductions sooner and prime cost spreads them evenly; the total is the same, so the choice depends on your income and plans, guided by your accountant.

13. Depreciation Checklist

To make sure you capture the deduction:

• Get a schedule from a quantity surveyor — for any income-producing property, especially a new one.

• Ask for an estimate first — a good surveyor confirms the likely deductions justify the fee.

• Give the schedule to your accountant — so it is claimed every year in your return.

• Claim both categories — Division 43 capital works and, for new stock, Division 40 fittings.

• Update after renovations — new works and assets are depreciable.

• Review past years — recover missed depreciation by amending returns where possible.

• Plan for the CGT interaction — factor the cost-base reduction into your sell-side strategy.

• Overseas investors — confirm the fit with your Australian tax position with a specialist accountant.
  

Conclusion: The deduction you already paid for

Depreciation is the rare tax benefit that costs you nothing extra to claim, because you have already paid for the building and its fittings when you bought the property. A quantity surveyor schedule simply turns that spending into a stream of deductions that can run for decades, quietly improving your after-tax return year after year.

Get a schedule, especially on a new property, give it to your accountant, keep it updated, and do not leave the deduction unclaimed. For overseas investors buying new stock, it is one of the few rules that genuinely works in your favour, and for any investor it can be the difference between a property that drains cash and one that pays its way. The mistake is not claiming too much depreciation; it is claiming none at all.

Seen clearly, a depreciation schedule is one of the highest-return administrative steps an investor can take: a few hundred dollars, once, in exchange for deductions that can run for decades. For overseas investors buying new stock in particular, it converts the new-only restriction into a genuine tax advantage. The investors who do best are rarely the ones chasing the most exotic strategy; they are the ones who quietly claim every legitimate deduction, and depreciation is the biggest one most people miss.

If you are getting started, the sequence is simple: once your investment property is settled and available to rent, engage a qualified quantity surveyor to prepare a schedule, hand it to your accountant, and make sure the deductions are claimed every year thereafter. Update it after any renovation, and keep it with your records for the life of the property. That one small administrative habit, set up once, quietly improves your return for as long as you own the asset, which is about as close to free money as property investing offers.

A last word on records: keep the depreciation schedule, the quantity surveyor invoice, and receipts for any assets you later add, all together with your property file. If you sell, your accountant will need the depreciation history to calculate the capital gain correctly, and if the ATO ever reviews your claims, the professional schedule is your evidence. Good records turn a strong deduction into a defensible one, and cost you nothing but a little organisation.

A final note: depreciation rules, rates and eligibility are technical and change over time; this is general information only, not personal tax advice. Engage a qualified quantity surveyor for a schedule and a registered accountant to apply it to your circumstances.