How do I get a tax depreciation schedule and why is it worth it?
A tax depreciation schedule lists the building and asset deductions you can claim on a rental property — what's in it, who's affected, and how to get one.
How do I get a tax depreciation schedule and why is it worth it?
A tax depreciation schedule turns two separate tax rules — one for the building’s structure, one for the fittings inside it — into dollar figures you can hand to whoever prepares your tax return. Here’s what one covers, why an established property often claims less than a new one, and the practical steps to get one done.
What is a tax depreciation schedule?
A tax depreciation schedule is a report that itemises the deductions available on a rental property for the decline in value of the building itself and of any eligible plant and equipment inside it. It sets out each item, its cost or value, and the deduction that applies each year, so the figures can be entered directly into a tax return instead of estimated on the fly.
Two separate parts of tax law sit behind the numbers in the report:
- Division 43 (capital works) — a deduction for the construction cost of the building or structure itself.
- Division 40 (plant and equipment) — a deduction for the decline in value of separately identifiable items with a limited effective life, such as blinds, carpets, ovens or hot water systems.
The two regimes are mutually exclusive for the same piece of expenditure — an item is claimed under one or the other, not both. A schedule brings both together in one document.
What can a schedule include: capital works vs plant and equipment
The rate and the rules differ sharply between the two, which is exactly why a professionally itemised schedule is more useful than a rough guess.
| Division 43 — capital works | Division 40 — plant and equipment | |
|---|---|---|
| What it covers | Construction cost of the building/structure | Separately identifiable items with a limited effective life |
| Standard residential rate | 2.5% per year over 40 years, for construction starting on or after 16 September 1987 | Written off over each asset’s own effective life, to the extent it’s used to produce income |
| Second-hand items in an established property | Not restricted — a buyer can still claim any remaining building deduction | Can be reduced to nil for an ordinary landlord (see below) |
The 2.5%-over-40-years capital works rate is set out in the Income Tax Assessment Act 1997 and confirmed on the ATO’s capital works deductions guide; a 4% rate over 25 years applies only to a narrower set of older, specific categories.
Why might an established property claim less than a new one?
This is the part that catches a lot of investors out. Since 1 January 2018, a further restriction (section 40-27 of the Income Tax Assessment Act 1997, inserted by the Treasury Laws Amendment (Housing Tax Integrity) Act 2017) has applied to Division 40 deductions on second-hand plant and equipment in residential rental property.
Broadly, it applies where you didn’t hold the asset when it was first used or installed by anyone (i.e., it’s second-hand to you), or the asset was previously used in someone’s own home. For contracts entered into on or after 7:30pm (AEST) on 9 May 2017, this typically reduces the deduction — in practice to nil for an ordinary passive landlord — on plant and equipment that came with an established property rather than being bought new by that owner.
The restriction doesn’t touch Division 43. If you buy an established property, you can generally still claim any remaining capital works deduction on the building itself; it’s the plant-and-equipment side that’s affected. The main exceptions to the second-hand restriction (read the full detail on the ITAA 1997 text) are:
- certain excluded entities (a company, a super fund that isn’t self-managed, a managed investment trust, or a public unit trust);
- assets supplied as part of a genuinely new residential premises, under conditions;
- assets you allocate to a low-value pool.
Worth flagging: an SMSF is not one of the excluded entities, so an SMSF-owned residential property is caught by the same second-hand restriction as an individual owner. Superannuation rules are complex and penalties for breaches are significant — seek advice from a licensed financial adviser before making SMSF decisions.
How do you actually get a schedule prepared?
In practice, getting a schedule means engaging someone to establish what the building cost to construct and what plant and equipment is on site, then applying the Division 43 and Division 40 rules to produce the itemised report. The ATO doesn’t require one specific job title for this. Taxation Ruling TR 97/25 says whoever estimates the construction cost needs relevant expertise in that type of construction — gained either through study or through hands-on experience — and lists a quantity surveyor, a clerk of works, a supervising architect, or a builder experienced in costing similar projects as people who’d typically have it. The same ruling notes that valuers, real estate agents, accountants and solicitors generally don’t have the right expertise for this specific task unless they’re otherwise qualified, which is a large part of why the job usually ends up with a quantity surveyor in practice.
A few practical points do come straight from the mechanics above, regardless of who prepares it:
- Keep your purchase and settlement paperwork. If you know the actual construction cost (a recent build) or have supporting records, that can make the report more straightforward than an older property where costs have to be estimated.
- Note when the property was built. Division 43 only applies to construction from 16 September 1987 onwards; a schedule for an older building may have little or no capital works component left to claim.
- Note when you signed the contract. The second-hand plant and equipment restriction turns on the 9 May 2017 date above, not on when you happen to prepare the schedule.
- Renovations get their own entry. A capital improvement after you acquire the property is assessed on its own start date and cost, separate from the original building.
Fees for preparing a schedule are commercially set and vary by provider and property — no government or ATO figure for a typical cost range is published. Get quotes from quantity surveyors or depreciation schedule providers directly, and check whether each quote includes a physical site inspection or only a desktop assessment, as a reasonable way to compare providers.
Why is claiming depreciation worth doing?
Set against the factors above, depreciation has one feature that separates it from most other property expenses: once the schedule exists, claiming the deduction doesn’t require you to spend any further cash each year. Rates, insurance and loan interest are cash costs; a capital works or plant and equipment deduction is a non-cash reduction to your taxable rental result, worked out from a report you’ve already paid for once.
That matters for how the property’s overall tax position adds up. Under current law (as at July 2026), where a rental property’s deductible expenses — including depreciation — exceed its rental income, the resulting net rental loss can generally be offset against other income, such as salary or wages, or carried forward if there isn’t enough other income to absorb it. This is what “negative gearing” means: the property runs at a loss for tax purposes, and that loss reduces taxable income elsewhere. Our guide to cash flow positive versus negatively geared property looks at how non-cash deductions like depreciation interact with actual cash flow.
Whether claiming a schedule is worthwhile for any given property depends on things like the building’s age, whether the plant and equipment restriction applies, and your own tax position — a registered tax agent can work through the specifics with you. Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.
Does the 2027-28 negative gearing change affect the value of claiming it?
As at July 2026, the current-law treatment above still applies: a net residential rental loss, including the depreciation component, can offset other income. That’s changing.
Legislation given royal assent on 26 June 2026 (Act No. 49 of 2026) inserts a new rule from the 2027-28 income year: residential rental deductions that exceed residential rental income will generally no longer be deductible against other income. Instead, the excess can only be used against residential rental income or residential capital gains, or carried forward against future residential rental income.
There’s a grandfathering carve-out: interests acquired before 7:30pm (AEST) on 12 May 2026 keep the current treatment. Widely held unit trusts and complying super funds are also excluded from the new quarantine. What counts as a “new residential dwelling” for a separate exemption in the same reform hasn’t yet been defined in a registered legislative instrument as at this update, so that boundary isn’t stated here.
In practical terms: a depreciation deduction still reduces your taxable rental result either way. What changes from 1 July 2027, for a non-grandfathered interest, is where any resulting loss can be used — against your wider income under current law, versus only against residential rental income or gains under the new rule. This is general information, not a forecast of what will suit your situation — a registered tax agent can walk through how the transition applies to a specific property.
Does the ownership structure change any of this?
The building and plant-and-equipment mechanics above apply broadly across the common ways of holding a residential investment property — individually, through a company, through a discretionary/family trust, or through an SMSF — but the surrounding tax treatment differs by structure. An individual is assessed under their own marginal rates and can access the 50% CGT discount on eligible assets; a company is taxed at the company level and doesn’t get that discount; a trust generally passes net income through to beneficiaries in proportion to their entitlement; an SMSF is taxed concessionally but sits inside a separate set of superannuation rules (and, as noted above, isn’t excepted from the second-hand plant and equipment restriction).
No single ATO or Moneysmart page ranks these structures against each other, and this article doesn’t either — which structure suits a given investor depends on their broader circumstances. A registered tax agent or licensed financial adviser can talk through how a depreciation claim sits inside your particular structure.
Where this general information stops
This article explains how the building and plant-and-equipment deduction rules generally work and what to check before engaging someone to produce a schedule. It doesn’t tell you whether claiming one, or which preparer to use, is right for your situation — that depends on the specific property, when it was built and acquired, and your own tax position. Speak with a registered tax agent before acting, and see our guide to property investment in Australia for how depreciation fits into the wider costs and mechanics of holding an investment property.
