Depreciation Schedules: Why New and Renovated Properties Benefit Most

Depreciation is one of the more overlooked deductions in property investing, mostly because unlike loan interest or council rates, you never actually pay it out of pocket. It’s a paper deduction for the declining value of the building and its fixtures, and for the right property, it can be worth thousands of dollars a year.

The Two Types of Depreciation

Capital works (the building itself). This covers the structural cost of construction, brick work, concrete, roofing and so on. If the property was built after 15 September 1987, you can generally claim this at 2.5% of the original construction cost each year, for up to 40 years.

Plant and equipment (fixtures and fittings). This covers items within the property that wear out faster than the building itself, carpets, blinds, hot water systems, air conditioning units, ovens and the like.

Why New and Renovated Properties Come Out Ahead

Here’s the part that catches a lot of investors out. Since 2017, the ATO has restricted plant and equipment depreciation on second hand residential property. If you buy an established home, you generally can’t claim depreciation on the existing carpets, blinds or appliances that were already there when you bought it, only on items you personally install afterward.
New properties don’t have this problem. Because everything is brand new when you buy it, you can claim the full plant and equipment depreciation on all the fixtures, on top of the capital works deduction on the building itself.
A substantially renovated property can also benefit significantly, since a genuine renovation effectively resets a lot of the capital works clock and gives you fresh, depreciable plant and equipment for the new work, even if the original structure is older.
An older, untouched established home, particularly one built before September 1987, can end up with very little depreciation available at all, sometimes barely enough to justify getting a schedule prepared.

What is a Depreciation Schedule?

A depreciation schedule (also called a tax depreciation report) is a document prepared by a quantity surveyor, a professional specifically recognised by the ATO as qualified to estimate construction costs for this purpose. It itemises every depreciable element of your property and lays out exactly how much you can claim each year, for the life of the asset. You hand this to your accountant, and they use it to prepare your tax return each year without needing to re-estimate anything themselves.

Pros of Getting One

  • It often pays for itself many times over. A schedule typically costs a few hundred dollars, and for a new or near new property, the first year’s deductions alone can easily exceed that.
  • It’s itself tax deductible. The cost of preparing the schedule is a claimable expense in the year you pay for it.
  • It’s a one off cost with a multi year payoff. Once it’s done, you (and your accountant) have a clear year by year deduction schedule for the life of the property, no need to redo it annually.
  • Accountants generally can’t do this themselves. Estimating historical construction costs is a specific skill set quantity surveyors are trained and recognised for, it’s not something most accountants are equipped or licensed to estimate.

Cons and When It Might Not Be Worth It

  • Upfront cost. You’re paying a few hundred dollars before you’ve claimed anything back.
  • Limited value on older, untouched established homes. If the property was built well before 1987 and has never been renovated, there may be very little left to claim, and the schedule might not be worth the cost.
  • Only helps if you have income to offset. Depreciation reduces your taxable income, so it’s most valuable if you’re already paying tax and the property is genuinely income producing.

Many quantity surveying firms will do a free, no obligation estimate of what’s likely claimable before you commit to paying for a full schedule, which is a sensible way to check it’s worth it for an older established property before you spend the money.

The Bottom Line

If you’ve bought a new or substantially renovated investment property, getting a depreciation schedule prepared is close to a no brainer, the upfront cost is small and the ongoing benefit can be significant. If you’ve bought an older, untouched established home, it’s still worth checking with a quantity surveyor, but go in with realistic expectations about how much (if anything) there might be left to claim.